Hangzhou Chang Chuan Technology Co.Ltd(300604)
Self evaluation report on internal control in 2021
The company belongs to the special equipment manufacturing industry. It is mainly engaged in the R & D, production and sales of special equipment for integrated circuits. Its main products include integrated circuit testing machines, sorting machines and automatic production lines.
1、 Objectives of the company’s internal control system
1. Standardize the accounting behavior of the company and ensure the authenticity and integrity of accounting materials.
2. Plug loopholes, eliminate hidden dangers, prevent and timely detect and correct errors and fraud, and protect the safety and integrity of the company’s assets.
3. Ensure the implementation of relevant national laws and regulations and the company’s internal rules and regulations.
2、 Basic principles for the establishment of the company’s internal control system
1. The internal control complies with the requirements of relevant national laws and regulations, the guidelines for the standardized operation of GEM listed companies and other relevant provisions of Shenzhen Stock Exchange, and the actual situation of the company.
2. Internal control restricts all personnel involved in accounting work within the company, and no individual shall have the power to go beyond the internal control of financial reporting.
3. Internal control covers all economic businesses and relevant posts related to accounting work within the company, and implements the key control points in the process of business processing to decision-making, implementation, supervision, feedback and other links. 4. Internal control ensures the reasonable setting of institutions and posts involved in accounting work and the reasonable division of responsibilities and authorities within the company, adheres to the separation of incompatible posts, and ensures that different institutions and posts have clear rights and responsibilities, restrict and supervise each other.
5. Internal control follows the principle of cost-benefit and achieves the best control effect with reasonable cost control. 6. Internal control is constantly revised and improved with the change of external environment, the adjustment of business functions and the improvement of management requirements.
3、 Relevant information about the company’s internal control system over financial reporting
The setting and implementation of the company’s internal control system on December 31, 2021 are as follows:
（1） Internal control elements of the company
1. Control environment
(1) Communication and implementation of integrity and moral values
Integrity and moral values are an important part of the control environment and affect the design and operation of important business processes of the company. The company has always attached importance to the creation and maintenance of this atmosphere, established a series of internal norms such as the code of daily conduct of employees and the regulations on civilized Office of the company, and implemented these internal norms in multiple channels and all directions through strict punishment system and the practice of senior managers.
(2) Emphasis on Competence
The management of the company attaches great importance to the setting of the use ability level required for specific jobs, as well as the requirements for the knowledge and ability necessary to achieve this level. According to the needs of actual work, the company carries out various forms of post training and education for different posts, so that employees can be competent for their current jobs.
(3) Participation procedures of governance
The responsibilities of the management have been clearly stipulated in the articles of association and policies of the company. Through its own activities and with the support of the audit committee, the governance layer supervises the company’s accounting policies and internal and external audit work and results. The responsibilities of the governance layer also include supervising whether the policies and procedures designed to review the effectiveness of internal control are reasonable and effective.
(4) Management philosophy and business style
The management of the company is responsible for the operation of the enterprise and the formulation, implementation and supervision of business strategies and procedures. The board of directors, audit committee or similar institutions shall effectively supervise them. The management attached great importance to internal control, including information technology control, information management personnel and accounting personnel, and timely and properly handled the reports on internal control weaknesses and violations received. Adhering to the business theory of “integrity, pragmatism, innovation and efficiency”, the company operates honestly and legally.
(5) Organizational structure
In order to effectively plan, coordinate and control business activities, the company has reasonably determined the form and nature of organizational units, implemented the principle of separation of incompatible positions, scientifically divided the responsibilities and authorities within each organizational unit, and formed a mutual check and balance mechanism. At the same time, we will earnestly achieve “five independence” from the controlling shareholder of the company. The company has designated special personnel to be specifically responsible for internal audit and ensure the implementation of relevant accounting control systems. (6) Distribution of authority and responsibility
The company adopts the method of assigning control responsibilities to individuals, establishes a set of authorization mechanism for performing specific functions (including transaction authorization), and ensures that everyone clearly understands the reporting relationship and responsibilities. In order to effectively control the authorized use and supervise the company’s activities, the company has gradually established a budget control system, which can modify the control policies of the accounting system in a timely manner according to the changes of the situation. The financial department reasonably ensures that business activities are carried out in accordance with appropriate authorization through various measures; The preparation of financial statements can ensure that the amount of transactions can be properly recorded in a timely manner in accordance with the accounting standards, so as to ensure that the relevant transactions can be properly recorded in the accounting period.
(7) Human resources policy and Practice
The company has established and implemented more scientific personnel management systems such as employment, training, job rotation, assessment, reward and punishment, promotion and elimination, and hired enough personnel to complete the assigned tasks.
2. Risk assessment process
The company has formulated the long-term overall goal of “building Hangzhou Chang Chuan Technology Co.Ltd(300604) into a famous brand of international integrated circuit equipment”, supplemented by specific strategies and business process plans to clearly convey the business objectives of the enterprise to every employee. The company has established an effective risk assessment process to identify and respond to major and generally influential changes that the company may encounter, including business risks, environmental risks, financial risks and so on.
3. Information system and communication
The company has established a powerful information system to provide timely and effective performance reports to the management. The information system personnel (including financial personnel) are scrupulous and diligent, and can effectively perform their assigned responsibilities. The normal operation of the whole company’s management system is also provided with appropriate human and financial resources.
The company has established effective communication channels and mechanisms for suspicious inappropriate matters and behaviors, so that the management can effectively communicate with employees’ responsibilities and control responsibilities. The adequacy of internal communication enables employees to effectively perform their duties, communicate effectively with customers, suppliers, regulators and other outsiders, and enable the management to take timely and appropriate further actions in the face of various changes.
4. Control activities
The company has necessary control policies and procedures for its main business activities. The management has clear objectives for budget, profit, other financial and operating performance. The company has clear records and communication on these objectives, and actively monitors them. The financial department has established appropriate protection measures to reasonably ensure that the contact and handling of assets and records are properly authorized; Reasonably ensure that the book assets are consistent with the actual assets on a regular basis.
In order to reasonably ensure the realization of various objectives, the company has established relevant control procedures, mainly including transaction authorization control, responsibility division control, voucher and record control, asset contact and record use control, independent inspection control, electronic information system control, etc.
(1) Transaction authorization control: it defines the scope, authority, procedures, responsibilities and other relevant contents of authorization and approval. The management at all levels within the unit must exercise the corresponding authority within the scope of authorization, and the handling personnel must also handle economic business within the scope of authorization.
(2) Control of responsibility division: reasonably set the division of labor, scientifically divide the responsibilities and authorities, implement the principle of separation of incompatible positions and each person’s work can automatically check the work of another person or more people, and form a mutual check and balance mechanism. Incompatible positions mainly include: authorization approval and business handling, business handling and accounting records, accounting records and property custody, business handling and business audit, authorization approval and supervision and inspection, etc.
(3) Voucher and record control: the voucher circulation procedure has been reasonably formulated, so that the operators can prepare relevant vouchers in time when executing transactions, and the prepared vouchers shall be sent to the accounting department as soon as possible for recording, and the registered vouchers shall be filed in order. Relevant records must be made for various transactions (such as employee salary records, perpetual inventory records, sales invoices, etc.), and the records must be independently compared with the corresponding entries.
(4) Control of asset contact and use of records: strictly restrict the direct contact of unauthorized personnel with property, and take measures such as regular inventory, property records, account verification and property insurance to ensure the safety and integrity of all kinds of property. (5) Independent inspection and control: the company has set up a special internal audit organization to audit and assess the authenticity, accuracy and completeness of procedures of monetary funds, securities, vouchers and account books, material procurement, consumption quota, payment, salary management, entrusted processing materials and account reality.
(6) The company has formulated a relatively strict electronic information system control system, and has done more work in the development and maintenance of electronic information system, data input and output, document storage and custody, etc.
5. Supervision of control
The company regularly evaluates various internal controls, and on the one hand, establishes various mechanisms to enable relevant personnel to obtain evidence of the effective operation of internal control to a considerable extent when performing their normal post responsibilities; On the other hand, confirm the internal information or point out the existing problems through external communication. The management of the company attaches great importance to the reports and suggestions of various functional departments and regulatory bodies of internal control, and takes various measures to correct the deviations in the control operation in time.
（2） Implementation and existing problems of the company’s main internal control system
The company has conducted self-assessment on the effectiveness of the design and implementation of the internal control system for financial reporting. Now the implementation and existing problems of the company’s main internal control system for financial reporting are explained as follows:
1. The company has established strict authorization and approval procedures for the revenue and expenditure and custody of monetary funds. Incompatible positions for handling monetary funds business have been separated, and there are mutual constraints between relevant institutions and personnel. The company has defined the scope of use of cash and the provisions that should be observed when handling cash revenue and expenditure business in accordance with the Interim Regulations on cash management of the State Council. The company has formulated the settlement procedures for bank deposits in accordance with the payment and settlement measures of the people’s Bank of China and relevant regulations. The company stipulates that subordinate enterprises are strictly prohibited from futures trading, lending excess funds to units without authorization, raising funds from employees, and setting up private bank accounts. As of December 31, 2020, the company has no major inadequacies affecting the safety of monetary funds.
2. The company has formed a management system for financing business, which can reasonably determine the financing scale and structure, select appropriate financing methods, and strictly control financial risks to reduce capital costs. The funds raised by the company did not deviate seriously from the original plan.
3. The company has reasonably planned and established institutions and posts for procurement and payment business. The purchase requisition, approval, purchase and acceptance procedures of inventory are clarified, especially the management of entrusted processing materials is strengthened. The payment of accounts payable and prepayments can only be handled after the relevant procedures are complete. In terms of authority, within the authorization scope of the headquarters of the company, subordinate enterprises can independently handle procurement and payment business. The company has no major loopholes in the control of procurement and payment.
4. The company has established a post responsibility system for physical asset management, which can control the key links such as acceptance and warehousing, receiving and issuing, storage and disposal of physical assets, and has taken measures such as division of responsibilities, regular physical inventory, property records, account verification and property insurance, which can effectively prevent the theft, theft, damage and major loss of various physical assets. Due to the influence of the company’s sales system, some of the company’s products are stored at customers for trial use. The company designates relevant personnel to track and manage, and reconcile regularly, which can be reflected in the accounting system in a timely and accurate manner. However, the regular inventory of these physical assets needs to be further implemented.
5. The company has established a cost control system and a comprehensive budget system, which can do a good job in the basic work of cost management and budget, and clarify the expenditure standard of expenses. Be able to compare the actual performance and planned objectives in time, and apply the comparison results to the actual work.
6. The company has formulated a relatively feasible sales policy, and has made clear provisions on the pricing principle, credit standards and conditions, collection method, responsibilities and authorities of institutions and personnel involved in sales business. The sale of goods and provision of labor services between enterprises within the consolidation scope shall be settled according to the unified internal settlement price. The responsibility system for Dunning and collection is implemented, and the management of reconciliation recovery is strong. The company and subordinate enterprises all implement the collection responsibility to the sales department, and list the sales payment recovery rate as one of the main assessment indicators. However, in the actual operation process, some customers fail to pay the payment in time as agreed. In terms of authority, within the authorization scope of the headquarters of the company, subordinate enterprises can independently handle the business of selling goods, providing labor services and payment settlement.
7. The company has established more scientific fixed assets management procedures and project decision-making procedures. Fixed assets shall be subject to the method of “unified management, unified dispatching, hierarchical use and hierarchical accounting”. Strong management on the budget, final accounts, project quality supervision and other links of the project. The payment of fixed assets and engineering projects can only be paid after the relevant assets have been implemented and the procedures are complete. There is no uncontrolled cost management and major fraud in the project.
8. In order to strictly control the investment risk, the company has established a more scientific decision-making procedure for foreign investment and implemented the responsibility system for major investment decisions. The corresponding authority for foreign investment is concentrated in the company’s headquarters (using the mechanism that different investment amounts are decided by the power organs at different levels of the company). All branches are not allowed to invest abroad without authorization. Strong management of investment project initiation, evaluation, decision-making, implementation, management, income, investment disposal and other links. The company has not seriously deviated from the company’s investment policies and procedures.
9. The guarantor has established strict rules and regulations on the guarantor’s liability and operation conditions in order to prevent and control the possible losses of the guarantor in a timely manner.
10. The company strengthens the management and control of its subsidiaries and supervises and manages their operation, finance, investment, mortgage guarantee, dividend distribution and other activities. Subsidiaries must submit financial statements and various internal management statements in a timely manner, and implement regular or irregular audit supervision on them. The subsidiary shall report the financial statements and operation to the company after the end of each month or quarter; The external guarantee and investment of subsidiaries shall be examined and approved by the company.
4、 Measures to be taken by the company
The company’s existing internal control system for financial reporting can basically meet the requirements of the company’s management, provide reasonable guarantee for the preparation of true and fair financial statements, and ensure the health of the company’s business activities
