Zhejiang Reclaim Construction Group Co.Ltd(002586) board of directors
Matters involved in the audit report issued by the accounting firm that cannot express opinions
Special description of
In November 2021, Ningbo regulatory bureau of China Securities Regulatory Commission issued the decision on Issuing warning letters to Asia Pacific (Group) accounting firm (special general partnership) (hereinafter referred to as “Asia Pacific Institute”) and Accountants of Zhejiang Reclaim Construction Group Co.Ltd(002586) (hereinafter referred to as “the company”) in 2020（ The decision on administrative supervision measures ([2021] No. 26) pointed out that the annual report audit of the companies practised by the Asia Pacific Institute “failed to properly identify and assess the risk of material misstatement” and “the audit opinion on the 2020 financial statements is inappropriate”, and required the Asia Pacific Institute to complete the rectification of relevant matters. Now the Asia Pacific Institute has completed the rectification and issued the audit report of Zhejiang Reclaim Construction Group Co.Ltd(002586) 2020 annual report (Yahui zhuanshen Zi (2022) No. 01110068) with no opinion on the 2020 annual report. The matters that cannot be expressed in the audit report issued by the Asia Pacific exchange on the company’s 2020 financial report are described as follows:
1、 Matters involved in which opinions cannot be expressed and opinions of Accountants
Matters that make it impossible to express opinions:
(I) important subsidiaries out of control
1. Judgment of out of control time point
As stated in note XIII (Ⅱ) 1 of the financial statements, Waihai Co., Ltd. was unable to perform its duties because the new directors and supervisors could not enter its holding subsidiary Shanghai Millennium Urban Planning Engineering Design Co., Ltd. (hereinafter referred to as “Millennium design”), and Millennium design refused to provide financial data, resulting in the company’s inability to know the financial status and operating results of Millennium design, Moreover, the current director, supervisor and senior manager of the company continued to take measures to achieve fruitless control. Waihai Co., Ltd. announced on August 21, 2020 that it lost control of the Millennium design, was not included in the scope of consolidated statements in 2020, and was not managed as a holding subsidiary of the company in the future.
On December 2, 2021, we issued the management communication letter to Waihai Co., Ltd., requiring Waihai Co., Ltd. to “clarify the time point and judgment basis process of losing control of Millennium design, and provide written exchange of opinions”. According to the public information, the company deliberated and adopted the measures on administrative supervision of the company by Ningbo securities regulatory bureau at the 44th meeting of the sixth board of directors and the 20th meeting of the sixth board of supervisors on January 12, 2022
According to the proposal of the rectification report, the actual out of control time point of the Millennium design is confirmed as May 15, 2020. (one independent director abstained from voting)
On January 13, 2022, some directors, supervisors and senior staff at that time sent a joint signed letter (then chairman, then deputy chairman of the board of directors, then some directors, then supervisors, then Secretary of the board of directors, then chief financial officer, then chairman assistant and then deputy general manager), which did not recognize the judgment made by the current management that the Millennium design was out of control on May 15, 2020. On January 14, 2022, any independent director sent a letter, believing that some contents and rectification measures in the rectification report of Waihai company were inconsistent with the facts, and requested the board of directors and management of the company to carefully confirm the time point when the Millennium design was out of control. On April 13, 2022, we received the reply and relevant materials from Weihai Co., Ltd., but we were unable to verify the authenticity, accuracy and relevance of the materials.
Based on the above, we are unable to obtain sufficient and appropriate audit evidence on the out of control time point of the Millennium design, and we are unable to judge the out of control time point of the Millennium design.
2. Beginning balance of goodwill impairment
As stated in note V (XX) of the financial statements, Waihai Co., Ltd. made a full provision for impairment in 2019 for the goodwill of RMB 700805 million formed by its acquisition of 8945975% equity of Millennium design in 2017. As the Millennium design was out of control during the reporting period, we were unable to obtain sufficient and appropriate audit evidence on the rationality of the opening amount of the above goodwill impairment provision.
3. Other non current assets
As stated in note V (XXIII) other non current assets, Millennium design was out of control during the reporting period. According to the evaluation of the management, the equity of Millennium design held by the company and its corresponding impairment provision are still valuable and managed as a long-term asset of the company. During the reporting period, the company transferred it and its corresponding impairment provision to the follow-up accounting of “other non current assets”, including the original value of 16953619 million yuan and the impairment of 700805 million yuan, The net value is 994556900 yuan. We are unable to obtain sufficient and appropriate audit evidence on the accounting treatment of the above individual assets and the accuracy of book value.
4. Profit compensation agreement
As stated in note XIII (Ⅱ) 3 of the financial statements and the profit compensation agreement, Waihai signed profit compensation agreements with some of its shareholders during the Millennium design of major asset restructuring. According to the relevant provisions of the profit compensation agreement, the company needs to hire an audit institution with securities and futures business qualification to issue special audit opinions on the profitability of the target company in 2017, 2018 and 2019 based on the annual report. XIII. (II) 1. As the important subsidiaries are out of control, the Millennium design is out of control during the reporting period, the relevant special audit cannot be carried out, and the relevant results of the implementation of the compensation agreement in 2019 have not yet reached a final conclusion.
(II) the occupation of funds has not been returned and the illegal guarantee has not been lifted
As stated in note III (XXXI) 1 and (3) correction of important accounting errors in the early stage, during the reporting period, the occupation of related parties’ funds caused by the inter-bank lending of controlling shareholders’ funds in previous years has not been returned. For example, “note Xi, (II) contingencies 3 Changan bank’s illegal guarantee case, 4 Gu Wenju’s illegal guarantee case”, “note XIII, (II) other important matters that have an impact on investors’ decision-making 6 major settlement litigation (1) Wang Chongliang’s illegal guarantee case, and (2) Shao Zhiyun’s illegal guarantee case”. During the reporting period, Weihai shares had not been relieved due to the illegal guarantee of the controlling shareholder in the previous year. We cannot judge the recoverability of the above amount.
2、 Opinions of the board of directors and independent directors of the company
(I) opinions of the board of directors
The board of directors of the company believes that the Asia Pacific Institute is unable to express an opinion on the issuance of the company’s 2020 audit report, which is in line with the provisions of relevant laws and regulations such as the auditing standards for Chinese certified public accountants No. 1502 – issuing unqualified opinions in audit reports, and objectively reflects the actual situation of the company. We understand this. The board of directors of the company will take effective measures to eliminate the impact of the above uncertain factors on the company.
(II) opinions of independent directors
1. The Asia Pacific Institute issued a qualified audit report (yksz (2021) No. 011110101) for the company in March 2021.
The company, the Asia Pacific Institute and the annual audit accountant received the decision on administrative regulatory measures (No. [2021] 25 and No. 26) issued by Ningbo regulatory bureau of China Securities Regulatory Commission in November 2021 and considered that the audit opinion issued by the Asia Pacific Institute on the company’s 2020 financial statements was inappropriate. This time, the Asia Pacific exchange reissued the company’s 2020 annual audit report (yksz (2022) No. 01110511), and the type of audit opinion is “unable to express an opinion”.
We respect the opinions of the Asia Pacific Institute and adjust the type of audit opinions of the Asia Pacific Institute on the company’s 2020 annual report to “unable to express opinions”.
2. The board of directors and management of the company have made arduous efforts and done a lot of work to eliminate and solve the matters leading to non-standard audit opinions such as “out of control of important subsidiaries”, “capital occupation has not been returned and illegal guarantee has not been lifted” as soon as possible, and phased results have been achieved. We will continue to pay attention to and supervise the board of directors and management of the company to take corresponding measures until the matters leading to non-standard audit opinions are completely eliminated, the adverse impact of relevant matters on the company is completely solved, and the interests of the company and all shareholders, especially minority shareholders, are effectively safeguarded.
3、 Measures to eliminate related matters and their impact
(I) important subsidiaries of the company are out of control
1. On December 29, 2021, the company reached an agreement with Shanghai Millennium Engineering Investment Management Co., Ltd., Zhong Chengrong, Tang Lei, Wang Yongchun and Luo Xiang on the restoration of Shanghai Millennium control, based on the principle of equality and voluntariness, and signed the agreement on restoration of control. The company held the 42nd meeting of the sixth board of directors and the 19th meeting of the sixth board of supervisors on December 30, 2021, The proposal on signing relevant agreements and related party transactions was deliberated and adopted.
On December 30, 2021, the company and the takeover working group authorized by the board of directors of Shanghai Millennium settled in the company’s subsidiary Shanghai Millennium Urban Planning Engineering Design Co., Ltd. (hereinafter referred to as “Shanghai Millennium”) to transfer the relevant functions, data, personnel rights, financial data and qualification management of its management organization; The takeover working group took over all kinds of seals of Shanghai Millennium (including but not limited to: official seal, special seal for finance, seal of the board of directors, seal of supervisor, seal of legal representative, etc.), and the above handover process was witnessed by lawyers of Shanghai jintiancheng (Hangzhou) law firm. All the above handover procedures were completed in the evening of December 30, 2021. The company, Millennium Investment, Zhong Chengrong, Wang Yongchun, Tang Lei and Luo Xiang recognized that the handover of Shanghai Millennium control was completed on December 30, 2021. The company received the witness opinion of the law firm on the evening of December 30.
2. Strengthen the internal management of subsidiaries, urge subsidiaries to establish and improve the internal control system, improve the company’s foreign investment management system and ensure its effective implementation. The general manager of each subsidiary is the first person in charge of the establishment and implementation of the internal control system, clarify the selection methods, responsibilities and authorities of appointed directors, supervisors and senior personnel, and establish the business plan, risk management procedures and performance appraisal system of subsidiaries, Establish efficient communication mechanisms and channels, urge subsidiaries to optimize internal management, timely feed back business conditions, timely submit important documents such as resolutions of the board of directors, resolutions of the general meeting of shareholders and financial statements, and timely understand and know the major events of subsidiaries, so as to prevent the subsidiaries from losing control and causing major risks.
3. Further strengthen the strength of the company’s internal audit department and improve the company’s internal control system through professionals; Strengthen the regular inspection and audit of subsidiaries at all levels and investment projects.
(II) fund occupation and illegal guarantee
1. The directors, supervisors and senior executives of the company will strengthen the study of securities laws and regulations, further optimize the corporate governance structure and standardize the operation of the three committees in accordance with the requirements of the CSRC and Shenzhen Stock Exchange on the standardized operation of listed companies, and fully protect the right of directors, supervisors and senior executives, especially independent directors, to know the major information of the company; Give full play to the functions of independent directors and the supervisory role of the board of supervisors and the Audit Committee; Strengthen the supervision and audit function of the internal audit department on the key links of the company’s operation and internal control in advance, during and after the event; Restrict the non-standard decision-making and business behavior of the controlling shareholders and actual controllers, and prevent the recurrence of similar events;
2. Strengthen the construction of internal control system, refine and improve the internal compliance approval system and process, focus on strengthening seal management, and improve organizational efficiency and management level through information tools; Strengthen control over related party transactions, external guarantees, use of raised funds, major investments, information disclosure and other activities; Strengthen the supervision role of the audit committee and the internal audit department, and strengthen compliance review with the help of external institutions; Continuously improve information disclosure and investor relations management, and comprehensively improve the standardized governance level of listed companies.
3. Improve the project advance appropriation and project loan system, strictly review the approval and use of the funds of the project department, and the financial department checks during the implementation, and increase the irregular tracking and inspection of current accounts to prevent the recurrence of relevant problems;
4. Strengthen the internal audit work, strengthen the construction of the internal audit department, improve the real-time internal supervision process and prevent the implementation risk of internal control. The internal audit department of the company shall not only inspect the implementation of major matters such as related party transactions, external guarantees, securities investment, venture capital, external financial assistance, purchase or sale of assets and external investment, the company’s large amount of capital transactions and the capital transactions of related parties at least once a quarter, but also issue a supervision and inspection report on the implementation of internal control and submit it to the board of directors. Once any abnormality is found, Timely request the board of directors of the company to take corresponding measures. At the same time, in order to prevent the reoccupation of funds by controlling shareholders and their related parties, the audit department and financial department of the company will pay real-time attention to and track the capital transactions of related parties of the company, regularly check the details of capital transactions between the company and related parties, and dynamically track and analyze the use of large amounts of funds by relevant business departments.
Zhejiang Reclaim Construction Group Co.Ltd(002586)
Board of directors
April 15, 2002
