Changsha Dialine New Material Sci.&Tech.Co.Ltd(300700) : self evaluation report on internal control in 2021

Changsha Dialine New Material Sci.&Tech.Co.Ltd(300700)

Self evaluation report on internal control in 2021

Changsha Dialine New Material Sci.&Tech.Co.Ltd(300700) all shareholders:

In accordance with the provisions of the basic norms of enterprise internal control and its supporting guidelines and other internal control regulatory requirements (hereinafter referred to as the "enterprise internal control normative system"), combined with the operation and management of Changsha Dialine New Material Sci.&Tech.Co.Ltd(300700) (hereinafter referred to as "the company" or "the company"), the internal control system and evaluation methods, on the basis of daily and special supervision of internal control, We evaluated the effectiveness of the company's internal control as of December 31, 2021 (benchmark date of internal control evaluation report).

1、 Important statement

It is the responsibility of the board of directors and the management of the company to establish, improve and effectively implement internal control, evaluate the effectiveness of internal control and truthfully disclose the internal control evaluation report. The board of supervisors supervises the establishment and implementation of internal control by the board of directors, and the management is responsible for organizing and leading the daily operation of the company's internal control. The board of directors, the board of supervisors and the directors, supervisors and senior managers of the company guarantee that there are no false records, misleading statements or major omissions in the contents of this report, and bear individual and joint legal liabilities for the authenticity, accuracy and completeness of the contents of the report.

The objective of the company's internal control is to reasonably ensure the legal compliance of enterprise operation and management, asset safety, authenticity and integrity of financial reports and relevant information, improve the efficiency and effect of operation, and promote the realization of development strategy. Internal control has inherent limitations, so it can only provide reasonable assurance to achieve the above objectives; Moreover, the effectiveness of internal control may also change with the changes of the company's internal and external environment and business conditions, which may lead to inappropriate internal control or reduced compliance with control policies and procedures. According to the internal control evaluation results, it is speculated that the effectiveness of internal control in the future has a certain risk.

2、 Objectives and principles for the company to establish internal control system

(I) objective of the company to establish internal control system

1. Establish and improve the internal organizational structure that meets the requirements of modern enterprise management, and form a scientific decision-making mechanism, execution mechanism and supervision mechanism to ensure the realization of the company's operation and management objectives;

2. Establish an effective risk control system, strengthen risk management and ensure the normal and orderly operation of the company's business activities;

3. Establish a good internal control environment of the company, plug loopholes and eliminate hidden dangers, prevent and timely detect and correct errors and fraud, and protect the safety and integrity of the company's assets;

4. Standardize the accounting behavior of the company, ensure the authenticity, legality and integrity of accounting materials, and improve the quality of accounting information;

5. Ensure the implementation of relevant national laws, regulations, rules and regulations and the company's internal norms and systems.

(II) basic principles for the establishment of the company's internal control

1. Principle of legality: internal control shall comply with the provisions of laws and administrative regulations and the regulatory requirements of government regulatory departments; 2. Principle of comprehensiveness: internal control should run through the whole process of decision-making, implementation and supervision, covering various businesses and matters of the company and its subsidiaries;

3. Principle of importance: internal control should pay attention to important business matters and high-risk areas on the basis of comprehensive control; 4. Principle of checks and balances: internal control should form mutual restriction and supervision in terms of governance structure, institutional setting, distribution of rights and responsibilities and business process, and give consideration to operation efficiency at the same time;

5. Principle of adaptability: the internal control shall adapt to the company's business scale, business scope, competition status and risk level, and shall be adjusted and improved in time with the changes of the situation;

6. Cost benefit principle: internal control should weigh the implementation cost and expected benefits to achieve effective control at an appropriate cost.

3、 Internal control evaluation

The board of directors of the company authorizes the internal audit institution to be responsible for the specific organization and implementation of internal control evaluation, and evaluate the high-risk fields and units included in the evaluation scope. During the evaluation process, appropriate methods such as individual interview, walk through test and sampling were adopted to widely collect evidence of the effectiveness of the company's internal control design and operation, truthfully fill in the evaluation working paper, analyze and identify internal control defects, find deficiencies and implement rectification. The company regularly combs and improves the company's internal control system according to the audit results, the basic norms of enterprise internal control and the requirements of relevant laws and regulations, and maintains the effectiveness of the internal control system.

With the joint efforts of the board of directors, the management and all employees, the company has established a relatively complete and effective internal control system with reference to the basic norms of enterprise internal control and other relevant provisions jointly issued by the Ministry of Finance and other five ministries and commissions. It has established a systematic internal control system and necessary internal supervision mechanism from the corporate governance level to all business process levels, so as to provide legal and regulatory support for the operation and management of the company The safety of assets, the authenticity and integrity of financial reports and relevant information, the improvement of operation efficiency and effect, and the promotion of the realization of the development strategy of the enterprise provide a reasonable guarantee.

(I) evaluation scope of internal control

The company determines the main units, businesses and matters included in the evaluation scope and high-risk areas in accordance with the risk-oriented principle. The main units included in the evaluation scope include the company and its wholly-owned subsidiaries and holding subsidiaries, specifically: Changsha Dialine New Material Sci.&Tech.Co.Ltd(300700) , wholly-owned subsidiary Changsha Dite Superhard Materials Co., Ltd., wholly-owned subsidiary Zhuzhou Changsha Dialine New Material Sci.&Tech.Co.Ltd(300700) Materials Co., Ltd. and holding subsidiary Changsha Daihua science and Technology Co., Ltd. The total assets of the units included in the evaluation scope account for 100% of the total assets in the company's consolidated financial statements, and the total operating revenue accounts for 100% of the total operating revenue in the company's consolidated financial statements.

When determining the scope of internal control evaluation, the company comprehensively considered all businesses and matters of the company and all departments and subordinate units. The main businesses and matters included in the scope of evaluation include: governance structure, organization, internal audit, human resources, corporate culture, capital activities, procurement business, sales business, fund-raising, asset management, financial report, fund-raising management, foreign investment guarantee, related party transactions Information disclosure, information system, R & D and other management control. On this basis, it is determined that the high-risk areas to focus on mainly include capital activities, sales business, procurement business, financial reporting, etc.

The above units, businesses and matters included in the evaluation scope and high-risk areas cover the main aspects of the company's operation and management, and there are no major omissions.

(II) basis of internal control evaluation and identification standard of internal control defects

The company organizes and carries out internal control evaluation in accordance with the relevant requirements of the enterprise's internal control standard system and its supporting guidelines, and in combination with the company's internal control related systems, processes and evaluation methods. The board of directors of the company, in accordance with the identification requirements for major defects, important defects and general defects in the basic norms of enterprise internal control and relevant supporting guidelines, and in combination with factors such as the company's size, industry characteristics, risk preference and risk tolerance, distinguished internal control over financial reports from internal control over non-financial reports, studied and determined specific identification standards for internal control defects applicable to the company, which were consistent with those in previous years. The identification standards of internal control defects determined by the company are as follows:

1. Identification standard of internal control defects in financial reporting

The identification standard of internal control defects in financial reports directly depends on the importance of financial report misstatement that may be caused by the existence of internal control defects, which can be divided into three types: major defects, important defects and general defects.

The identification of quantitative and qualitative standards for internal control defects in financial reporting determined by the company is as follows:

(1) Quantitative standard:

When implementing the quantitative evaluation of internal control defects, it is necessary to quantitatively evaluate the defects found in combination with the overall importance level and tolerable error of the company's annual consolidated financial statements.

Category major defect standard important defect standard general defect standard

Total profit potential misstatement = 5% of total profit 1% = misstatement 5% of total profit misstatement 1% of total profit

Potential misstatement of total assets = 1% of total assets, 0.5% of total assets = misstatement 1% of total assets, misstatement 0.5% of total assets

Potential misstatement of operating revenue = 3% of operating revenue, 1% of operating revenue = misstatement 3% of operating revenue, misstatement 1% of operating revenue

(2) Qualitative criteria:

The qualitative criteria for the evaluation of internal control defects in financial reporting determined by the company are as follows:

Qualitative standard of defect nature

A. Fraud of directors, supervisors and senior managers of the company; B. The company corrects the issued financial report; C. Material misstatement in the current financial report found by the certified public accountant but not identified by the company's internal control; D. The supervision of the audit committee and the audit department on internal control is invalid.

Significant deficiencies A. failure to select and apply accounting policies in accordance with GAAP; B. Failure to establish anti fraud procedures and control measures; C. No corresponding control mechanism has been established or implemented for the accounting treatment of unconventional or special business, and there is no corresponding compensatory control; D. For

Qualitative standard of defect nature

There are one or more defects in the control of the financial reporting process at the end of the period, and it can not reasonably ensure that the prepared financial statements achieve the true and complete goal.

General defects are other control defects other than the above major defects and important defects.

2. Identification standard of internal control defects in non-financial reporting

The identification of non-financial report defects of the company is mainly based on the severity of the business nature involved, the nature of direct or potential negative impact, the scope of impact and other factors. Whether it leads to the quantitative index of the amount of direct asset loss is also divided into three types: major defects, important defects and general defects. The identification of quantitative and qualitative standards for internal control defects in non-financial reporting determined by the company is as follows:

(1) Quantitative standard:

The quantitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:

Category major defect standard important defect standard general defect standard

Direct loss amount loss amount ≥ 1% of total assets 0.5% of total assets ≤ loss amount loss amount 1% of total assets 0.5%

(2) Qualitative criteria:

The qualitative criteria for the evaluation of internal control defects in non-financial reporting determined by the company are as follows:

Qualitative standard of defect nature

A. The company's business activities violate national laws and regulations; B. Serious loss of senior managers and senior technicians of the company; C. The major defects of the media are negative news, involving a wide range and the negative impact has not been eliminated; D. The company's important business lacks institutional control or the control system fails; E. Major or important defects in the company's internal control have not been rectified; F. The company is punished by the CSRC or warned by the stock exchange.

A. The company's decision-making process leads to consistent errors; B. The company violates the internal rules and regulations of the enterprise, resulting in losses; C. The company's key posts and major defects in the industry have caused serious loss of personnel; D. Negative news in the media, involving local areas; E. There are defects in the company's important business system or system; F. Important defects in the company's internal control have not been rectified.

General defects are other control defects other than the above major defects and important defects

(III) contents of internal control evaluation

Through years of practice and continuous improvement, the company has established a set of effective management and risk prevention system, held regular or irregular production and operation working meetings such as general manager office meeting and operation analysis meeting, timely handled the new problems of the company, analyzed the new dynamics of the market, sought the best solution, ensured the normal, orderly and stable operation of the company's production and operation, and timely prevented all kinds of risks. The company makes an independent evaluation on the overall situation of the design and operation of the company's internal control from five aspects: control environment, risk assessment, control activities, information and communication and internal supervision. The specific evaluation contents are described as follows:

1. Control environment

The company has established the general meeting of shareholders, the board of directors and the board of supervisors in accordance with the provisions of the company law, the securities law and the articles of association. The general meeting of shareholders is the highest authority of the company, which is composed of all shareholders. The structure of the board of directors is reasonable, the selection and appointment procedures of directors are standardized and transparent, and the selection and appointment process of directors is open, fair, impartial and independent. The board of directors has four special committees, including strategy committee, audit committee, remuneration and assessment committee and Nomination Committee. All members of the board of supervisors have relevant professional knowledge and work experience; The company has formulated various rules of procedure to clarify the responsibilities and authorities in decision-making, implementation and supervision. All institutions are independent, check and balance each other, and their rights and responsibilities are clear. The three committees and professional committees of the company perform their respective duties and operate in a standardized manner.

1.2 organizational structure and power distribution

The company shall set up corresponding functional departments and formulate corresponding post responsibilities according to the needs of operation and management. In accordance with the principle of independent operation and mutual checks and balances, each department has clear functions, clear rights and responsibilities and can effectively implement various decisions of the company's management through corresponding post responsibilities.

1.3 internal audit

The company establishes an audit committee under the board of directors, which is responsible for reviewing the company's internal control, supervising the effective implementation of internal control and self-evaluation of internal control, coordinating internal control audit and other related matters. The company has set up an audit department, which is responsible to the board of directors and the audit committee and independently exercises audit functions and powers without interference from other departments and individuals. According to the requirements of internal audit management system, be responsible for the company's internal audit and supervision, including supervising and inspecting the implementation of the company's internal control system, evaluating the scientificity and effectiveness of internal control, and putting forward suggestions for improving internal control; Regularly and irregularly conduct audit and routine inspection on the finance, internal control, major projects and other businesses of functional departments and subsidiaries to control and prevent risks. During supervision and inspection