Shenzhen Changfang Group Co.Ltd(300301) board of directors
Internal control audit report on non-standard audit opinions of the company
Special description of matters involved
Shenzhen Changfang Group Co.Ltd(300301) (hereinafter referred to as “the company”) hired Dahua Certified Public Accountants (special general partnership) (hereinafter referred to as “Dahua firm”) as the internal control audit institution of the company, and Dahua firm issued an audit report with a negative opinion on the internal control of the company (Dahua neizi [2022] No. 000294). The board of directors of the company explained the matters involved in the audit opinion as follows:
1、 Basic information of matters involved
As stated in “IV. matters leading to negative opinions” in the internal control audit report (dahuanezi [2022] No. 000294):
A material defect is a control defect or a combination of multiple control defects existing in internal control that may lead to the failure to prevent, detect and correct the material misstatement of the financial statements in a timely manner Shenzhen Changfang Group Co.Ltd(300301) financial reporting internal control has the following major defects:
(I) major defects in the control of subsidiaries
Shenzhen Changfang Group Co.Ltd(300301) subsidiary Shenzhen Changfang Group Co.Ltd(300301) kangmingsheng (Shenzhen) Technology Co., Ltd. (hereinafter referred to as kangmingsheng company) said that for the sake of capital security, its daily funds were deposited in the bank account of Shenzhen shiyongcheng Technology Co., Ltd. until the account of shiyongcheng company was cancelled on December 13, 2021. This matter violates the provisions of the company law and the articles of association that the company’s funds shall not be deposited in its own name or in the name of others.
On April 22, 2022, kangmingsheng company found that there were unrecorded rebates. The amount involved in this matter is significant and Shenzhen Changfang Group Co.Ltd(300301) failed to find the above unrecorded situation in the daily supervision.
The above matters indicate that Shenzhen Changfang Group Co.Ltd(300301) had significant defects in internal control related to the management of subsidiaries during the reporting period.
(II) major defects in inventory management
In the process of annual audit and supervision, the accountant found that kangmingsheng company had a large number of Dead Inventory. As of the date of audit report, kangmingsheng company failed to provide a complete list of dead inventory and information on the formation process of Dead Inventory. The inventory of kangmingsheng company is stored in multiple warehouses, and the warehousing and outgoing of each warehouse are recorded uniformly, which is only distinguished according to the identification of materials. There is no corresponding sub warehouse accounting management, so it is impossible to judge the integrity and accuracy of the differentiation of materials in the warehouse.
The above major defects affect the existence, integrity, valuation and allocation of inventories in the financial statements, and the related internal control over financial reporting is invalid.
(III) major defects in sales and collection
Kangmingsheng company has the situation of third-party payment collection. During the reporting period, the amount of third-party collection accounts for a high proportion of the amount of tax included income. The third party of Kangsheng company failed to properly keep the relevant materials of the third party.
The lack of the above third-party payment collection data indicates that there are significant defects in the implementation of the company’s internal control system of sales and collection, and the operation of the internal control of financial reporting is ineffective.
(IV) major defects in information system management
Kangmingsheng company failed to properly save the data of the original system due to system replacement, resulting in the loss of module data such as personnel salary and cost accounting generated by the system. Although manual accounting can make up for the related impact to a certain extent, the related internal control over financial reporting may still fail.
Effective internal control can provide reasonable guarantee for the authenticity and integrity of financial reports and relevant information, and the above major defects make Shenzhen Changfang Group Co.Ltd(300301) internal control lose this function.
The above major defects have not been included in the enterprise internal control evaluation report. In the audit of 3 Guangdong Dongpeng Holdings Co.Ltd(003012) 021 financial statements, we have considered the impact of the above major defects on the nature, timing and scope of audit procedures. This report has no impact on the audit report we issued on the financial statements of 3 Guangdong Dongpeng Holdings Co.Ltd(003012) 021 on the audit report date.
2、 The board of directors of the company explains the matters involved in the major defects of internal control
The board of directors of the company attaches great importance to the audit opinions of Certified Public Accountants in the internal control audit report. The company will further improve the internal control system and continue to strengthen the construction of internal control. The board of directors of the company will actively urge the implementation of various rectification measures and strive to eliminate the impact caused by major defects in the early internal control as soon as possible.
3、 Specific measures to eliminate negative opinions and their impact
The board of directors attaches great importance to the above matters and has instructed the management to comprehensively sort out and inspect the matters related to the negative opinions of the internal control audit report and the perfection of the corresponding internal control measures, further improve the internal control system and implementation, and eliminate the adverse effects of relevant matters as soon as possible. The company will continue to safeguard the legitimate rights and interests of the company and all shareholders. Specifically, we should start from the following aspects:
1. The company will comprehensively sort out the company’s internal control system in accordance with the basic norms of enterprise internal control, the guidelines for the standardized operation of companies listed on the gem and the measures for the management of information disclosure of listed companies, improve the loopholes and defects existing in the current system, strengthen risk control and increase early warning mechanism. Strengthen the training and learning of standardized operation of the company’s management, and enhance the awareness of standardized operation.
2. Strengthen the executive ability of the company’s management for the internal control system. The management of the company should improve the fine management level, resolutely implement the standardized management of various business operations, improve and resolutely implement the approval process of the company’s daily operation, increase the accountability mechanism and implement the responsibility to individuals.
3. Organize internal audit institutions to conduct a comprehensive inspection of internal control, strictly control each internal control node, increase the audit accountability mechanism, and deal with violations strictly once found. Hire external internal control professional institutions to assist when necessary, sort out the list of major defects and important defects in internal control and make continuous rectification, and strive to eliminate the adverse impact of major defects and important defects on the company’s production and operation and the fairness and effectiveness of financial statements
4. Further strengthen the control and management of subsidiaries, improve the internal control and governance level of the company and the management level of managers, improve the management system of subsidiaries, comprehensively sort out the system system of subsidiaries, optimize the system documents such as the management system of holding subsidiaries and the appointment management system of directors, supervisors and senior managers of subsidiaries, and Clarify the management requirements and management boundaries in terms of major event management, so as to maintain the sustainable, stable and healthy development of the company and safeguard the interests of the company and small and medium-sized investors.
5. For the subsidiary kangmingsheng information system, it is required to gradually transition to the unified use of the company’s SAP system, so as to standardize kangmingsheng inventory management, fixed assets management and accounting, and ensure the authenticity and accuracy of data; Strengthen the management of loan recovery and capital control of subsidiaries, and prohibit the use of external accounts.
It is hereby explained.
Shenzhen Changfang Group Co.Ltd(300301) board of directors
April 29, 2022
