Internal audit system
April 2022
catalogue
Chapter I General Provisions- 1 – Chapter III responsibilities and general requirements- 2 – Chapter IV specific implementation- 4 – Chapter V information disclosure- 7 – Chapter VI Legal Liability- 8 – Chapter VII Supplementary Provisions- 9 –
Internal audit system
Chapter I General Provisions
Article 1 in order to establish and improve the internal audit system of Midea Group Co.Ltd(000333) (hereinafter referred to as “the company”), improve the quality of internal audit work and protect the legitimate rights and interests of investors, this system is hereby formulated in accordance with the Audit Law of the people’s Republic of China, the stock listing rules of Shenzhen Stock Exchange and other laws, regulations, normative documents and the relevant provisions of the articles of association, in combination with the actual situation of the company.
Article 2 the term “internal audit” as mentioned in this system refers to an evaluation activity carried out by the company’s internal institutions or personnel on the effectiveness of its internal control and risk management, the authenticity and integrity of financial information, as well as the efficiency and effect of business activities.
Article 3 the term “internal control” as mentioned in this system refers to the process in which the board of directors, the board of supervisors, senior managers and other relevant personnel of the company provide reasonable assurance to achieve the following objectives:
(I) comply with national laws, regulations, rules and other relevant provisions;
(II) improve the efficiency and effect of the company’s operation;
(III) ensure the safety of the company’s assets;
(IV) ensure that the company’s information disclosure is true, accurate, complete and fair.
Article 4 the internal audit department of the company shall inspect and evaluate the financial revenue and expenditure, economic activities, operation and management of the company and its affiliated units (including those holding or dominant).
Article 5 the internal audit department of the company shall exercise its functions and powers independently under the leadership of the board of directors of the company and shall not be interfered by other departments or individuals. The board of directors of the company shall be responsible for the establishment, improvement and effective implementation of the internal control system, and important internal control systems shall be reviewed and approved by the board of directors. The board of directors and all its members shall ensure the authenticity, accuracy and completeness of information disclosure related to internal control.
Chapter II General Provisions
Article 6 the company shall establish an internal audit system and an internal audit department to inspect and supervise the authenticity and integrity of the company’s financial information and the establishment and implementation of the internal control system. The internal audit department is responsible to the audit committee of the board of directors and reports to the audit committee of the board of directors.
Article 7 the company shall allocate full-time personnel to engage in internal audit according to the company’s scale, production and operation characteristics and relevant regulations, and the full-time personnel shall not be less than three.
Article 8 the head of the internal audit department must be full-time, nominated by the audit committee and appointed or removed by the board of directors. Article 9 the company shall disclose the educational background, professional title, work experience of the person in charge of the internal audit department, and whether there is any relationship with the controlling shareholder and actual controller of the company.
Article 10 the internal audit department shall maintain its independence and shall not be placed under the leadership of the financial department or work together with the financial department.
Article 11 the company shall ensure that the internal audit department has a comprehensive and unobstructed access to relevant materials and information, such as arranging the internal audit department to participate in relevant meetings on the company’s financial management and business decision-making, so that it can fully understand and master the policies of the board of directors and management department, and timely obtain the information about the plan, organization, leadership and control of the company’s production and operation business.
Article 12 the company’s internal organs, holding subsidiaries and joint-stock companies with significant influence shall actively cooperate with the internal audit department to perform their duties according to law and shall not hinder the work of the internal audit department.
Chapter III responsibilities and general requirements
Article 13 when guiding and supervising the work of the internal audit department, the audit committee shall perform the following main duties:
(I) guide and supervise the establishment and implementation of internal audit system;
(II) review the company’s annual internal audit work plan;
(III) supervise and urge the implementation of the company’s internal audit plan;
(IV) guide the effective operation of the internal audit department. The internal audit department of the company shall report to the audit committee. All kinds of audit reports, rectification plans and rectification conditions of audit problems submitted by the internal audit department to the management shall be submitted to the audit committee at the same time;
(V) report to the board of directors on the progress and quality of internal audit and major problems found;
(VI) coordinate the relationship between the internal audit department and external audit units such as accounting firms and national audit institutions.
Article 14 the internal audit department shall perform the following main duties:
(I) inspect and evaluate the integrity, rationality and effectiveness of the internal control system of the company’s internal institutions, holding subsidiaries and joint-stock companies with significant influence;
(II) audit the accounting data and other relevant economic data of the company’s internal institutions, holding subsidiaries and joint-stock companies with significant influence, as well as the legality, compliance, authenticity and integrity of the reflected financial revenue and expenditure and relevant economic activities, including but not limited to financial reports, performance letters, voluntary disclosure of predictive financial information, etc;
(III) assist in establishing and improving the anti fraud mechanism, determine the key areas, key links and main contents of anti fraud, and reasonably pay attention to and inspect possible fraud in the process of internal audit;
(IV) report to the audit committee at least once a quarter, including but not limited to the implementation of the internal audit plan and the problems found in the internal audit.
Article 15 the internal audit department shall report the internal audit work and problems found to the board of directors or the audit committee at least once a quarter, and submit an internal audit report to it at least once a year.
The audit committee shall supervise the internal audit department to inspect the following matters at least once every six months, issue inspection reports and submit them to the audit committee. If it is found that the company has violations of laws and regulations and non-standard operation, it shall timely report to the Shenzhen Stock Exchange and urge the company to disclose:
(I) the implementation of high-risk investments such as the use of raised funds, provision of guarantees, related party transactions, securities investment and derivatives transactions, provision of financial assistance, purchase or sale of assets, foreign investment and other major events;
(II) the company’s large amount of capital transactions and capital transactions with directors, supervisors, senior managers, controlling shareholders, actual controllers and their affiliates.
The audit committee shall issue a written evaluation opinion on the effectiveness of the company’s internal control according to the internal audit report and relevant materials submitted by the internal audit department, and report to the board of directors.
Article 16 the internal audit department shall take the audit of important external investment, purchase and sale of assets, external guarantee, related party transactions, use of raised funds and information disclosure as the necessary contents of the annual work plan.
Article 17 the internal audit department shall carry out audit work on the basis of business links, and evaluate the rationality of the design and effectiveness of the implementation of internal control related to financial reports and information disclosure according to the actual situation.
Article 18 internal audit shall generally cover all business links related to financial reports and information disclosure in the company’s business activities, including but not limited to: Sales and collection, procurement and payment, inventory management, fixed assets management, fund management, investment and financing management, human resources management, information system management and information disclosure management.
Article 19 the internal audit department may adjust the above business links according to the industry and production and operation characteristics of the company.
Article 20 the audit evidence obtained by internal auditors shall be sufficient, relevant and reliable. The internal auditors shall clearly and completely record the name, source, content, time and other information of the audit evidence in the working paper.
Article 21 the internal auditors shall prepare and review the audit working papers in accordance with the relevant provisions in the audit work, and timely sort out and file the audit working papers after the completion of the audit project. Article 22 the internal audit department shall establish a confidentiality system for working papers, establish a corresponding file management system in accordance with the provisions of relevant laws and regulations, and specify the storage time of internal audit work reports, working papers and relevant materials.
Chapter IV specific implementation
Article 23 the internal audit department shall implement appropriate review procedures in accordance with relevant regulations, evaluate the effectiveness of the company’s internal control, and submit an internal control evaluation report to the audit committee at least once a year. Article 24 the evaluation report shall state the purpose, scope, conclusion and suggestions for improving internal control of the review and evaluation.
Article 25 the scope of internal control review and evaluation shall include the establishment and implementation of internal control systems related to financial reports and information disclosure.
Article 26 the internal audit department shall focus on the integrity, rationality and effectiveness of the internal control system related to foreign investment, purchase and sale of assets, external guarantee, related party transactions, use of raised funds, information disclosure and other matters.
Article 27 the internal audit department shall urge the relevant responsible departments to formulate rectification measures and rectification time for the internal control defects found in the review process, conduct follow-up review of internal control, and supervise the implementation of rectification measures.
Article 28 the head of the internal audit department shall timely arrange the follow-up review of internal control and incorporate it into the annual internal audit work plan.
Article 29 If the internal audit department finds major defects or risks in internal control during the review process, it shall report to the audit committee in time. If the audit committee considers that there are major defects or risks in the company’s internal control, it shall report to the board of directors in a timely manner.
Article 30 the internal audit department shall conduct audit in time after the occurrence of important foreign investment. When auditing foreign investment, we should focus on the following contents:
(I) whether the examination and approval procedures for foreign investment are performed in accordance with relevant regulations;
(II) whether the contract is concluded according to the approved contents and whether the contract is normally performed;
(III) whether to assign special personnel or establish special institutions to study and evaluate the feasibility, investment risks and investment returns of major investment projects, and track and supervise the progress of major investment projects;
(IV) in case of entrusted financial management matters, pay attention to whether the company authorizes the approval power of entrusted financial management to the individual directors or management of the company, whether the trustee’s integrity record, operating status and financial status are good, and whether special personnel are assigned to track and supervise the progress of entrusted financial management;
(V) if securities investment, venture capital and other matters are involved, pay attention to whether the company has established a special internal control system for securities investment, venture capital and other matters, whether the investment scale affects the normal operation of the company, whether the source of funds is its own funds, whether the investment risk is beyond the scope of the company, and whether it uses other people’s accounts or provides funds to others for securities investment and venture capital, Whether there is a situation that the company is not allowed to make securities investment, venture capital, etc. according to the relevant business rules, and whether the independent directors and / or sponsors (including the sponsor and the sponsor representative, the same below) express their opinions.
Article 31 the internal audit department shall conduct audit in a timely manner after important asset purchases and sales occur. When auditing the purchase and sale of assets, we should focus on the following contents:
(I) whether the purchase and sale of assets are subject to the approval procedures in accordance with relevant regulations;
(II) whether the contract is concluded according to the approved contents and whether the contract is normally performed;
(III) whether the operation status of the purchased assets is consistent with the expectation;
(IV) whether there is any guarantee, mortgage, pledge or other restricted transfer of the purchased assets, and whether it involves litigation, arbitration and other major disputes.
Article 32 the internal audit department shall conduct audit in time after the occurrence of important external guarantee matters. When auditing external guarantees, we should focus on the following contents:
(I) whether the external guarantee has performed the examination and approval procedures in accordance with relevant regulations;
(II) whether the guarantee risk is beyond the company’s tolerance, and whether the guaranteed party’s integrity record, business status and financial status are good;
(III) whether the guaranteed party provides counter guarantee and whether the counter guarantee is enforceable;
(IV) whether the independent directors and sponsors express opinions (if applicable);
(V) whether to assign special personnel to continuously pay attention to the operation and financial status of the guaranteed party.
Article 33 the internal audit department shall conduct audit in time after the occurrence of important related party transactions. When auditing related party transactions, we should focus on the following contents:
(I) whether the list of related parties is determined and updated in time;
(II) whether the related party transactions fulfill the approval procedures in accordance with relevant regulations, and whether the related shareholders or related directors avoid voting when considering the related party transactions;
(III) whether the independent directors have approved and expressed independent opinions in advance, and whether the sponsor has expressed opinions (if applicable);
(IV) whether the related party transaction has signed a written agreement, and whether the rights, obligations and legal liabilities of both parties to the transaction are clear;
(V) whether there is any guarantee, mortgage, pledge or other restricted transfer of the transaction object, and whether it involves litigation, arbitration and other major disputes;
(VI) whether the credit record, operation status and financial status of the counterparty are good;
(VII) whether the pricing of related party transactions is fair, whether the subject matter of transactions has been audited or evaluated in accordance with relevant regulations, and whether related party transactions will encroach on the interests of the listed company.
Article 34 the internal audit department shall audit the deposit and use of the raised funds at least once a quarter, and express opinions on the authenticity and compliance of the use of the raised funds. When auditing the use of raised funds, we should focus on the following contents:
(I) whether the raised funds are deposited in the special account determined by the board of directors for centralized management, and whether the company has signed a tripartite supervision agreement with the commercial bank and sponsor that deposit the raised funds;
(II) whether it is used in accordance with the investment plan of raised funds promised in the issuance application documents
