Kelin Environmental Protection Equipment Inc(002499)
Financial statements for the year of 2012
Audit report
catalogue
1、 Audit report II. Financial statements
1. Consolidated balance sheet and parent company’s balance sheet as of December 31, 2021
2. Consolidated income statement of 2021 and income statement of parent company 3. Consolidated cash flow statement of 2021 and cash flow statement of parent company 4. Consolidated statement of changes in owner’s equity of 2021 and statement of changes in owner’s equity of parent company 5. Notes to financial statements of 2021
YONGTUO Certified Public Accountants (special general partnership)
Audit report
YZSZ (2022) No. 110032 Kelin Environmental Protection Equipment Inc(002499) all shareholders:
1、 Audit opinion we have audited the consolidated and parent company’s financial statements of Kelin Environmental Protection Equipment Inc(002499) (hereinafter referred to as “Colin environmental protection company”), including the consolidated balance sheet and parent company’s balance sheet as of December 31, 2021, the consolidated income statement and parent company’s income statement, consolidated cash flow statement and parent company’s cash flow statement, consolidated statement of changes in shareholders’ equity and parent company’s statement of changes in shareholders’ equity and notes to relevant financial statements in 2021.
In our opinion, the attached financial statements are prepared in accordance with the accounting standards for business enterprises in all material aspects, and fairly reflect the consolidated and parent company’s financial position as of December 31, 2021 and the consolidated and parent company’s operating results and cash flow in 2021.
2、 Basis for forming audit opinions
We conducted our audit in accordance with the auditing standards for Chinese certified public accountants. The “responsibilities of certified public accountants for the audit of consolidated financial statements” in the audit report further expounds our responsibilities under these standards. In accordance with the code of professional ethics for Chinese certified public accountants, we are independent of Colin environmental protection company and have fulfilled other responsibilities in terms of professional ethics. We believe that the audit evidence we have obtained is sufficient and appropriate, which provides a basis for our audit opinion.
3、 Key audit matters
The key audit matters are the most important matters that we consider to audit the current financial statements according to our professional judgment. The response to these matters is based on the overall audit of the financial statements and the formation of audit opinions. We will not express separate opinions on these matters. (4) Recognition of operating income
(5) Item description
As stated in note V (Ⅱ) 1 of the financial statements, Colin environmental protection company realized an operating income of 17001234423 yuan in 2021, which is a significant amount, mainly the software development income and information technology service income (hereinafter referred to as “new business”) realized by its subsidiary yiyoule network technology (Beijing) Co., Ltd. this kind of business is a new business of the company, and its revenue recognition depends on more complex professional judgment, Moreover, operating revenue is an important financial indicator for Colin environmental protection company to remove the delisting risk. The management may have the risk of material misstatement or fraud in the recognition and presentation of revenue. Therefore, we identify revenue recognition as a key audit matter.
2. Audit response
Our main audit procedures for revenue recognition of Colin environmental protection company include:
(1) Understand and evaluate the effectiveness of the design and operation of key internal controls related to revenue recognition;
(2) Understand and check the relevant data of Colin environmental protection’s new business, including but not limited to the business negotiation process of obtaining customers and determining suppliers, check the key contract terms of the service business contract, understand and investigate the service contents of suppliers and customers, and judge whether the company has the ability to independently select suppliers and customers and whether it has the ability of independent pricing, Evaluate whether the company’s revenue recognition policies comply with the provisions of the accounting standards for business enterprises and whether there are abnormal deviations from the revenue recognition policies of Companies in the same industry;
(3) Perform detail test on service revenue, select samples to check the relevant documents of revenue recognition, including but not limited to service business contracts, invoices, service achievement acceptance forms, sales collection documents, etc., and check the authenticity, integrity and rationality of the recognized revenue;
(4) Carry out detail test on service cost, select samples to check the relevant documents of cost confirmation, including but not limited to outsourcing service contract, invoice, service result acceptance form, allocation and carry forward of employee salary cost, purchase collection documents, etc., and check the authenticity, integrity and rationality of the confirmed cost
(5) Combined with the audit of accounts receivable, carry out independent letter audit procedures for major customers, confirm the revenue transaction volume and current account balance, carry out alternative tests for customers who do not reply, and evaluate the impact on revenue recognition, so as to confirm the authenticity and accuracy of relevant revenue recognition;
(6) Select and check the sample of sales contract, read and evaluate the transaction terms, interview the main customers and suppliers, investigate whether the customers and suppliers of Colin environmental protection have related relationship, transaction capital source and performance ability, and judge whether the transaction has commercial essence;
(7) Select major technology R & D projects, carry out it special audit, and confirm that the life cycle and code of software R & D business are consistent with the contract requirements, the authenticity of R & D process and whether the success of R & d meet the requirements of business contract;
(8) Analyze and review the operating income and gross profit margin, and check whether there are abnormal differences compared with the same industry;
(9) Carry out detailed tests on the revenue recognition after the balance sheet date, check the subsequent collection of accounts receivable, and investigate the business model of the company’s service business to evaluate the continuity of the business.
(10) Analyze and evaluate the commercial essence of various businesses to confirm whether they belong to the situation of deduction of business income related matters in the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 1 – business handling.
（2） Impairment of accounts receivable
1. Event description
As stated in note III (IX) and note V (I) 2 of the financial statements, as of December 31, 2021, the book balance of accounts receivable of Colin environmental protection company was RMB 498572900, the bad debt provision was RMB 921988 million, and the book value was RMB 406373100. When there is objective evidence indicating the impairment of accounts receivable subject to independent impairment test, the management of Colin environmental protection company (hereinafter referred to as the management) comprehensively considers the debtor’s industry status, operation status, financial status, litigation involvement, repayment record, collateral value and other factors, estimates the present value of future cash flow and determines the bad debt reserves to be withdrawn; For the accounts receivable that are subject to impairment test in combination, the management divides the combination according to the aging and other basis, based on the historical loss rate of the combination with similar credit risk characteristics, adjusts it in combination with the actual situation, estimates the present value of future cash flow, and determines the bad debt reserves that should be withdrawn.
As the amount of accounts receivable is significant and the impairment test of accounts receivable involves significant management judgment, we determine the impairment of accounts receivable as a key audit event.
2. Audit response
For the impairment of accounts receivable, our audit procedures mainly include:
(1) Understand the key internal controls related to the impairment of accounts receivable, evaluate the design of these controls, determine whether they have been implemented, and test the operation effectiveness of relevant internal controls;
(2) Review the subsequent actual write off or reversal of accounts receivable for which bad debt reserves have been accrued in previous years, and evaluate the accuracy of previous forecasts of the management;
(3) Review the relevant considerations and objective evidence of the management’s credit risk assessment of accounts receivable, and evaluate whether the management has properly identified the credit risk characteristics of various accounts receivable;
(4) For accounts receivable that measure the expected credit loss on a single basis, understand the management’s method of predicting the expected cash flow received, understand the qualification and business scope of the evaluation institution, and evaluate the professional competence of the evaluation institution; Obtain the value analysis report of creditor’s rights receivable issued by the appraisal institution, and evaluate the rationality of key assumptions used in the forecast and the accuracy of data;
(5) Evaluate the rationality of the management’s classification of the combination according to the characteristics of credit risk for the accounts receivable that are tested for impairment by combination; Evaluate the rationality of the impairment test method of the management (including the withdrawal proportion of each combination of bad debt reserves determined according to the historical loss rate and relevant observable data reflecting the current situation); Test the accuracy and completeness of the data used by the management (including the aging of accounts receivable) and whether the calculation of bad debt reserves is accurate;
(6) Check the post period collection of accounts receivable and evaluate the rationality of the management’s provision for bad debts of accounts receivable;
(7) Check whether the information related to the impairment of accounts receivable has been properly presented in the financial statements. （3） Recognition of profit and loss from debt restructuring
1. Event description
As stated in note V (Ⅱ) 8 and note Xi (Ⅰ) of the financial statements, Colin environmental protection company confirmed the income from debt restructuring of RMB 277954 million in 2021. Since this amount has a significant impact on the net profit of 2021 and is a non recurring profit and loss, we identified the recognition of profit and loss from debt restructuring as a key audit matter.
2. Audit response
For the recognition of profit and loss of debt restructuring, the audit procedures we implemented mainly include:
(1) Obtain agreements and court ruling documents related to debt restructuring, understand the methods and specific contents of debt restructuring, and evaluate the commercial rationality of debt restructuring;
(2) Implement audit procedures such as inquiry, letter confirmation and interview with counterparties to verify the business reasons, authenticity and accuracy of the amount of debt restructuring;
(3) Check the accounting records related to debt restructuring and check whether the accounting treatment of debt restructuring is correct;
(4) Check whether the information related to debt restructuring has been properly presented in the financial statements.
4、 Other information
The management of Colin environmental protection company (hereinafter referred to as the management) is responsible for other information. Other information includes the information covered in the annual report, but does not include the financial statements and our audit report.
Our audit opinion on the financial statements does not cover other information, and we will not issue any form of assurance conclusion on other information.
In combination with our audit of the financial statements, our responsibility is to read other information and consider whether other information is materially inconsistent with the financial statements or the information we have learned in the audit process, or there seems to be material misstatement.
Based on the work we have performed, if we determine that there is a material misstatement in other information, we should report that fact. In this regard, we have nothing to report.
5、 Responsibilities of management and governance for financial statements
The management of Colin environmental protection company (hereinafter referred to as the management) is responsible for preparing the financial statements in accordance with the accounting standards for business enterprises to achieve a fair reflection, and designing, implementing and maintaining necessary internal control so that the financial statements are free from material misstatement caused by fraud or error.
When preparing the financial statements, the management is responsible for evaluating the sustainable operation ability of Colin environmental protection company, disclosing matters related to sustainable operation (if applicable), and applying the assumption of sustainable operation, unless the management plans to liquidate Colin environmental protection company, terminate operation or has no other realistic choice.
The management is responsible for supervising the financial reporting process of Colin environmental protection company.
6、 Responsibilities of certified public accountants for the audit of financial statements
Our goal is to obtain reasonable assurance on whether the financial statements as a whole are free from material misstatement due to fraud or error, and issue an audit report containing audit opinions. Reasonable assurance is a high-level assurance, but it does not guarantee that the audit performed in accordance with the audit standards will always be found when a major misstatement exists. Misstatement may be caused by fraud or error. If it is reasonably expected that the misstatement alone or in summary may affect the economic decisions made by the users of the financial statements based on the financial statements, the misstatement is generally considered to be significant.
In the process of carrying out the audit work in accordance with the audit standards, we use professional judgment and maintain professional doubt. At the same time, we also carry out the following work:
(1) Identify and assess the risks of material misstatement of financial statements due to fraud or error, design and implement audit procedures to deal with these risks, and obtain sufficient and appropriate audit evidence as the basis for issuing audit opinions. Since fraud may involve collusion, forgery, intentional omission, misrepresentation or override of internal control, the risk of failing to find major misstatement caused by fraud is higher than that caused by error.
(2) Understand the internal control related to audit in order to design appropriate audit procedures, but the purpose is not to express an opinion on the effectiveness of internal control.
(3) Evaluate the appropriateness of accounting policies selected by the management and the rationality of accounting estimates and related disclosures.
(4) Draw conclusions on the appropriateness of management’s use of going concern assumptions. At the same time, according to the audit evidence obtained, draw a conclusion on whether there are major uncertainties in the matters or circumstances that may lead to major doubts about the sustainable operation ability of Colin environmental protection. If we conclude that there is significant uncertainty, the auditing standards require us to draw the attention of statement users to the relevant disclosures in the financial statements in the audit report; If the disclosure is insufficient, we should express a non unqualified opinion. Our conclusions are based on the information available as of the date of the audit report. However, future events or circumstances may cause Colin environmental protection to be unable to operate continuously.
(5) Evaluate the overall presentation, structure and content of the financial statements, and evaluate whether the financial statements fairly reflect relevant transactions and events.
(6) Obtain sufficient and appropriate audit evidence on the financial information of entities or business activities in Colin environmental protection company to express an audit opinion on the financial statements. We are responsible for guiding, supervising and implementing the group audit, and take full responsibility for the audit opinions.
We communicated with the management on the planned audit scope, schedule and major audit findings, including the internal control defects that we identified in the audit.
We also provide a statement to the management that we have complied with the professional ethics requirements related to independence, and communicate with the management all relationships and other matters that may reasonably be considered to affect our independence, as well as relevant preventive measures.
From the matters communicated with the management, we determine which matters are the most important for the audit of the current financial statements, thus constituting key audit matters. We describe these matters in the audit report, unless laws and regulations prohibit public disclosure of these matters, or in rare cases, if we reasonably expect to communicate a matter in the audit report, the negative consequences will exceed those in the company
