Zhejiang Reclaim Construction Group Co.Ltd(002586) special explanation of the board of supervisors on the matters involved in the audit report issued by the accounting firm that cannot express opinions
In November 2021, Ningbo regulatory bureau of China Securities Regulatory Commission issued the decision on Issuing warning letter to Asia Pacific (Group) accounting firm (special general partnership) (hereinafter referred to as “Asia Pacific Institute”) and Accountants (decision on administrative regulatory measures) (hereinafter referred to as “2021”) on Issuing warning letter to Asia Pacific (Group) accounting firm (special general partnership) and certified public accountants Li Xiaonian and Meng Hong No. 26), the decision pointed out that “the risk of material misstatement was not properly identified and assessed” and “the audit opinion on the 2020 financial statements was inappropriate” in the annual report audit of the practicing companies of the Asia Pacific Institute, 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 board of supervisors of the company explained the matters involved in the audit opinion as follows:
Matters involved in the issuance of audit reports that cannot 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 proposal on the rectification report of Ningbo Securities Regulatory Bureau on the administrative supervision measures taken by the company was considered and adopted at the 44th meeting of the sixth board of directors and the 20th meeting of the sixth board of supervisors on January 12, 2022, and the actual time point when the Millennium design was out of control was 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.
The board of supervisors of the company will strictly abide by the provisions of the securities law, the listing rules and other relevant laws, regulations and departmental rules, instruct the management to continue to pay attention to the follow-up progress and handling of the above matters, seek the opinions of a third-party professional institution when necessary, perform the obligation of information disclosure accordingly, and actively safeguard the interests of the company and minority shareholders.
It is hereby explained.
Zhejiang Reclaim Construction Group Co.Ltd(002586)
Board of supervisors
April 15, 2002
