Special note on the elimination of significant impact of matters involved in non-standard opinions in audit reports in 2018, 2019 and 2020
Zhejiang Reclaim Construction Group Co.Ltd(002586) (hereinafter referred to as "the company") the financial statements of 2018, 2019 and 2020 were audited by Tianjian Certified Public Accountants (special general partnership), Lixin Certified Public Accountants (special general partnership) and Asia Pacific (Group) Certified Public Accountants (special general partnership), and were recorded on April 28, 2019, April 28, 2020 On April 15, 2022, an audit report with non-standard opinions was issued on the financial statements of the current year (TJs [2019] No. 5128, xksbz [2020] No. za12321, and yksz (2022) No. 01110511). The board of directors of the company hereby explains the elimination of the impact of matters involved in non-standard opinions in the audit reports of 2018, 2019 and 2020 as follows:
1、 Contents involved in non-standard opinions in 2018, 2019 and 2020 audit reports
(I) contents involved in the qualified opinions in the 2018 audit report
2、 Basis for forming reservations
As stated in notes IX (Ⅱ) 2 (2) and X (Ⅱ) 1 to the financial statements, Weihai Co., Ltd. failed to fulfill the approval decision-making procedures and guaranteed the financing of the controlling shareholder Zhejiang Weihai Holding Group Co., Ltd., its subsidiaries and related parties by means of time deposit and large unit time deposit certificate pledge. As of December 31, 2018, the total amount of pledged time deposit and large unit time deposit certificate was 460 million yuan, Accounting for 8.60% of the owner's equity of 5348023600 yuan belonging to the parent company at the end of 2018; As of April 26, 2019, the total amount of pledged time deposits and certificates of deposit of large units was 600 million yuan. We failed to obtain sufficient and appropriate audit evidence to prove the possibility of Waihai Co., Ltd. releasing the aforesaid illegal guarantee and whether there is guarantee loss.
(II) contents involved in which opinions cannot be expressed in the 2019 audit report
2、 Form a basis on which opinions cannot be expressed
1. As stated in note 10 (II) to the financial statements, Weihai Co., Ltd. failed to fulfill the approval decision-making procedures in 2018 and 2019 and guaranteed the financing of the controlling shareholder, the subsidiary and related parties of Zhejiang Weihai Holding Group Co., Ltd. in the form of fixed deposit pledge. As of December 31, 2019, the total amount of pledged certificates of deposit is 60000 reserves. We are unable to obtain sufficient and appropriate audit evidence on the possibility of Waihai shares releasing the above illegal guarantee and possible losses.
2. As stated in note x (II) to the financial statements, as of December 31, 2019, the cumulative amount of illegal external guarantees provided by Weihai Co., Ltd. for the controlling shareholders and their related parties was 718223700 yuan. In addition to the pledge guarantee of RMB 60 million certificate of deposit mentioned in Item 1 above, Waihai Co., Ltd. has accrued an estimated guarantee loss of RMB 591119 million according to 50% of the amount involved in litigation or arbitration. As of the date of the audit report, relevant litigation and arbitration are still in progress. We are unable to obtain sufficient and appropriate audit evidence on the adequacy and rationality of estimated liabilities.
3. As stated in note XII (III) to the financial statements, Weihai Co., Ltd. received the notice of investigation (yzzz No. 2019051) from China Securities Regulatory Commission on July 12, 2019 due to suspected illegal information disclosure. At present, the case is still under investigation and no final conclusion has been issued. We are unable to judge the results of the investigation and its possible impact on the financial statements of Weihai shares.
4. As stated in note V (XXII) to 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 Shanghai Millennium urban planning and Engineering Design Co., Ltd. in 2017. We are unable to obtain sufficient and appropriate audit evidence on the rationality of the above goodwill impairment provision.
5. On April 20, 2020, Weihai Co., Ltd. received the supervision reminder letter (YJH [2020] No. 27) from Ningbo regulatory bureau of China Securities Regulatory Commission. Weihai Co., Ltd. may be suspected that the funds are occupied by the controlling shareholders and related parties through the employees of the project Department of listed companies or labor companies, and the cumulative amount involved is up to 502 million yuan according to the preliminary statistics.
Due to the failure of relevant internal control of Weihai Co., Ltd., we are unable to obtain sufficient and appropriate audit evidence on the accuracy and completeness of related party relationships and related party transactions provided by Weihai Co., Ltd., as well as the commercial essence of related party transactions and the occupation of related party funds, and we are also unable to judge the possible impact of the above matters on the financial statements of Weihai Co., Ltd.
(III) contents involved in which opinions cannot be expressed in the 2020 audit report
2、 Matters for which opinions cannot be expressed:
(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, due to the performance of the new director, "Millennium design"), Millennium design refused to provide financial data, the company was unable to know the financial status and operating results of Millennium design, and the current director and supervisor of the company continued to take measures to achieve fruitless control. On August 21, 2020, Weihai announced that it lost control of Millennium design, 2020 will not be included in the scope of consolidated statements and will not be managed as a holding subsidiary of the company.
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.
2、 Elimination of the impact of non-standard opinions in the audit reports of 2018, 2019 and 2020
The board of directors of the company attaches great importance to the matters mentioned in the non-standard opinions of the above audit report, and actively takes effective measures to eliminate the impact of relevant matters. The non-standard opinions in the audit reports of the company in 2018, 2019 and 2020 mainly include: 1. Matters related to Millennium design of important subsidiaries of the company; 2. Matters related to the illegal occupation of funds and illegal guarantee of the listed company by the controlling shareholder; 3. The CSRC shall file a case for investigation on the company. The impact of non-standard opinions has been eliminated.
(I) important subsidiaries of the company are out of control
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 Millennium design control right of the company based on the principle of equality and voluntariness, and signed the agreement on restoration of control right. 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 takeover working group authorized by the company and the board of directors of Millennium design settled in Millennium design, the subsidiary of the company, and transferred the relevant functions, data, personnel rights, financial data and qualification management of its management organization; The takeover working group has taken over all kinds of seals of Millennium design (including but not limited to: official seal, special seal for finance, seal of board of directors, seal of supervisor, seal of legal representative, etc.). On December 31, 2021, the company regained control over Shanghai millennium, and its statements were included in the scope of the company's consolidated statements.
1. Judgment of out of control time point
The company confirmed that the actual out of control time point of Millennium design is May 15, 2020. The main reasons are:
(1) On May 15, 2020, the board of directors of Millennium design rejected the company's request to convene an extraordinary general meeting of shareholders in a written reply. After this point, the company has been unable to implement the effective management and control activities of Millennium design.
(2) Since May 2020, the company has been unable to know the financial status and operating results of Millennium design according to the requirements of internal management system and previous processes.
For relevant matters, the company held the 44th meeting of the 6th board of directors and the 20th meeting of the 6th board of supervisors on January 10, 2022, and deliberated and adopted the proposal on the rectification report on administrative supervision measures taken by Ningbo Securities Regulatory Bureau on the company. For details, see the announcement on the rectification report on administrative supervision measures taken by Ningbo Securities Regulatory Bureau on the company disclosed by the company on January 12, 2022.
2. Beginning balance of goodwill impairment
According to the retrospective asset evaluation report of Shanghai Millennium urban planning and Engineering Design Co., Ltd. including the recoverable amount of the goodwill asset group involved in the Zhejiang Reclaim Construction Group Co.Ltd(002586) proposed goodwill impairment test (glhpbz (2022) No. 038) issued by Gelu (Shanghai) asset evaluation Co., Ltd., the recoverable amount of the asset group including goodwill of Shanghai Millennium Design Co., Ltd. on December 31, 2019 was 1059 million yuan, As of December 31, 2019, the book value of the company's asset group including goodwill was 1038188600 yuan, and the asset group including goodwill was not impaired. The company has corrected corresponding accounting errors according to the intermediary report.
3. Other non current assets
According to the asset evaluation report on the recoverable amount of the asset group of the planning engineering survey and design consulting business involved in the impairment test of the goodwill formed by the merger of Shanghai Millennium Urban Planning Engineering Design Co., Ltd. issued by North Northking Information Technology Co.Ltd(002987) ASI Asset Evaluation Office (special general partnership), the recoverable amount of the company holding 894598% equity of Shanghai Millennium Design Co., Ltd. in 2020 was 131382 million yuan. The company has corrected corresponding accounting errors according to the intermediary report.
4. Profit compensation agreement
According to the verification report on the completion of performance commitments of Shanghai Millennium urban planning and Engineering Design Co., Ltd. issued by Lixin certified public accountants with the document number of Xin Hui Shi Bao Zi [2022] No. za12009, the verification conclusion shows that the audited net profit attributable to the shareholders of the parent company after deducting non recurring profits and losses of Shanghai Millennium Design Co., Ltd. in 2019 was 1826529 million yuan, which was In 2018 and 2019, the audited net profit attributable to the shareholders of the parent company after deducting non recurring profits and losses was RMB 432328600, exceeding the cumulative commitment of RMB 382 million by RMB 50328600. Implementation of profit compensation agreement
