Zhongxi Certified Public Accountants (special general partnership)
ZHONGXI CPAs（SPECIAL GENERAL PARTNERSHIP）
About Global Top E-Commerce Co.Ltd(002640)
Reply to letter of concern
Listed company management department I of Shenzhen Stock Exchange:
We have received the letter of concern on Global Top E-Commerce Co.Ltd(002640) issued by your management department on December 24, 2021, “company department concern letter [2021] No. 475” (hereinafter referred to as “concern letter”). With regard to the relevant issues raised in the attention letter that require the opinions of the annual audit accountant, Zhongxi Certified Public Accountants (special general partnership) (hereinafter referred to as “the exchange” or “we”) has verified the relevant materials of Global Top E-Commerce Co.Ltd(002640) (hereinafter referred to as “the company” or “cross-border communication”), and now replies to the relevant issues as follows:
Question 1 According to the announcement, your subsidiary Shenzhen global Tesco e-commerce Co., Ltd. (hereinafter referred to as “global Tesco”) transferred current accounts into inventory of RMB 4.424 billion in 2020 and previous years. In order to digest the falsely increased inventory, global Tesco falsely disposed of inventory of RMB 4.424 billion in 2020, including the falsely increased operating cost of RMB 1.779 billion in 2020, In 2020, the false write off of inventories was 2.645 billion yuan (corresponding to 2.479 billion yuan of impairment provision). Global Tesco shall offset the above falsely increased inventory business of RMB 4.424 billion, resume the increase of other receivables of RMB 4.223 billion, and fully withdraw the impairment provision in the corresponding year.
Question (1) please specify the specific year and corresponding amount of global Tesco’s false transfer of current accounts into inventory of RMB 4.424 billion, and the specific year and corresponding amount of impairment provision shall be fully accrued in the corresponding year. Please specify whether the audit report of the corresponding year issued by the audit institution of the corresponding year contains false records.
reply:
The firm served as the accountant for the annual report audit of cross border communication in 2019 and 2020, in which an unqualified audit report with highlighted items was issued in 2019 and an unqualified audit report was issued in 2020.
Cross border communication disclosed the announcement on special instructions for correction of accounting errors on December 24, 2021, “Shenzhen global Tesco e-commerce Co., Ltd. (hereinafter referred to as” global Tesco “), a subsidiary of the company, in 2020 and prior years
Address: floor 11, block a, Xincheng culture building, No. 11, Chongwenmenwai Street, Beijing
Tel: 010-67085873 Fax: 010-67084147 postal code: 100062
Zhongxi Certified Public Accountants (special general partnership)
ZHONGXI CPAs（SPECIAL GENERAL PARTNERSHIP）
The current account was transferred into the inventory of RMB 4.424 billion. In order to digest the falsely increased inventory, global Tesco falsely disposed of the inventory of RMB 4.424 billion in 2020, including the falsely increased operating cost of RMB 1.779 billion in 2020 and the falsely written off inventory of RMB 2.645 billion in 2020 (corresponding to the impairment provision of RMB 2.479 billion) “. According to the audit data provided by the company in previous years, we did not find the transfer of other receivables to inventory. As of the reply date of this letter of concern, no other relevant original materials have been obtained. The details are as follows:
(I) in our audit of the 2019 annual report of cross-border communication, the original value of global Tesco’s inventory on December 31, 2019 was 4.124 billion yuan, the inventory falling price reserve was 2.651 billion yuan, and the book value was 1.473 billion yuan, of which the original value of Hong Kong Global Tesco e-commerce Co., Ltd. (hereinafter referred to as “Hong Kong Global”) on December 31, 2019 was HK $4.515 billion, Equivalent to RMB 4.044 billion.
The inventory changes of Hong Kong Global, the grandson of cross-border communication, are as follows: unit: HK $100 million
Increase in current period and decrease in current period on January 31, 2019
Inventory – goods in stock 50.10 56.96 61.91 45.15
Inventory falling price reserves 6.32 28.98 5.73 29.56
In 2019, the stock out amount of Hong Kong global inventory orders was HK $5999 million, the other stock out amount was HK $449 million, the other stock in amount was HK $258 million, and the total inventory transfer in operating cost was HK $6191 million. In 2019, the main operating cost of universal Hong Kong was HK $5.568 billion, plus the provision for the decline in the value of inventory sold in this year was HK $573 million, which was HK $49 million different from the operating cost transferred from inventory. The difference was mainly due to the purchase price difference, fine deduction, expected return, etc. the difference was directly transferred to the operating cost without inventory accounting.
In 2019, Hong Kong Universal made provision for inventory falling price of HK $2.898 billion in accordance with the stock age method and individual provision. The audit procedures for inventories and inventory falling price reserves in 2019 are as follows:
1. The following substantive audit procedures shall be implemented for the inventory:
(1) The inventory details are obtained and checked with the book balance.
(2) Perform opposite account analysis on inventory amount to check whether there are abnormal transactions. No other receivables are found to be transferred to inventory
(3) Check the original documents related to the debit and credit amount of the current inventory, including contracts, invoices and warehousing records of the warehousing business system, and check with the inventory confirmed in the book.
Address: floor 11, block a, Xincheng culture building, No. 11, Chongwenmenwai Street, Beijing
Tel: 010-67085873 Fax: 010-67084147 postal code: 100062
Zhongxi CPA (special general partner ship)
(4) Pricing test was conducted for inventory, and no abnormality was found in the test results; Ask for inventory purchase, sales and inventory details to check with the book;
(5) Carry out the backward rolling procedure of operating cost, and determine the accuracy of operating cost in combination with the opposite account analysis procedure of inventory amount.
(6) Implement the inventory deadline test procedure, check the original vouchers corresponding to inventory receipt and delivery before and after the deadline of the balance sheet, and check whether there is inventory revenue or cross period issue.
(7) Spot check the original vouchers of large inventory amount, and check whether the original vouchers are complete, whether the bookkeeping vouchers are consistent with the original vouchers, whether the accounting treatment is correct, and whether they are recorded in an appropriate accounting period.
2. The following audit procedures shall be implemented for inventory impairment:
(1) Evaluate the effectiveness of the design and operation of internal control related to inventory falling price reserves;
(2) Obtain the inventory age table of the ending inventory and the calculation table of the provision for falling price according to the inventory age;
(3) Obtain the consultation report on net realizable value of inventory issued by the appraisal institution, check its qualification, review and evaluate its relevant parameters, and have oral communication with the appraisal institution;
(4) Communicate with the management on the reasons for impairment and obtain the approval resolution of the board of directors on the provision for inventory depreciation.
(5) Obtain the calculation table of inventory falling price reserves, check with the amount of net realizable value consultation report, and check whether the disclosure is correct.
3. Implement inventory supervision or alternative test procedures:
(1) Formulate supervision plan.
(2) Obtain the inventory check sheet of the company, and supervise the items with large balance in China warehouse of globegroup Hong Kong or the items with large amount recognized in the current period, and no significant difference is found; Letter confirmation of some Chinese custody warehouses; Due to the epidemic situation, it was impossible to implement the on-site supervision procedures for overseas warehouses. Some overseas warehouses were randomly inspected for video supervision, and the letter verification procedures were implemented for major overseas warehouses. The total amount of drawing and letter of credit was HK $4.156 billion, accounting for 92.07% of the original value of inventory at the end of the period.
4. As of December 31, 2019, other receivables of HK $286 million and bad debt reserves of other receivables of HK $15.27 million. The substantive audit procedures for other receivables are as follows:
(1) Obtain the details of other receivables and check whether the addition is correct. Combined with bad debt provision account and statement
Address: floor 11, block a, Xincheng culture building, No. 11, Chongwenmenwai Street, Beijing
Tel: 010-67085873 Fax: 010-67084147 postal code: 100062
Zhongxi Certified Public Accountants (special general partnership)
ZHONGXI CPAs（SPECIAL GENERAL PARTNERSHIP）
Check whether the number is consistent.
(2) Perform opposite account analysis on the debit / credit amount of other receivables. By analyzing the opposite account of current account amount, check whether there are accounting vouchers with economic business exceptions.
(3) Check the newly added contracts with large amount in the current year, including contract signing date, contract amount, contract payment terms, contract breach terms, etc., and check whether there are abnormalities.
(4) Implement letter of confirmation procedure for other receivables: determine the scope of letter of confirmation according to the list of other receivables on the balance sheet date and the principle of selecting the sample size of letter of confirmation; Confirm the confirmation methods, including personal letter, mail, etc., and fill in the confirmation letter of other receivables; Maintain the independence of the correspondence process; Prepare the summary table of letter of confirmation results of other receivables according to the reply, and evaluate the letter of confirmation results and further procedures to be implemented; Implement alternative procedures for letters that have not been answered to verify the existence of closing balance. At the same time, check the collection after the period to verify the existence of the ending balance; Perform analysis procedures for the aging of other receivables; Evaluate the appropriateness of bad debt provision / expected credit loss of other receivables; Spot check the original vouchers of other large receivables, check whether the original vouchers are complete, whether the bookkeeping vouchers are consistent with the original vouchers, whether the accounting treatment is correct, whether they are recorded in the appropriate accounting period, etc. Through audit, no inventory is transferred to other receivables.
To sum up, in view of the above matters, we carried out necessary audit procedures in accordance with the requirements of the auditing standards for Chinese certified public accountants, obtained sufficient and appropriate audit evidence, found no transfer of other receivables into inventory, and issued appropriate audit opinions on the 2019 financial statements of cross border communication without false records.
(II) in our audit of the 2020 annual report of cross border communication, the original value of global Tesco’s inventory on December 31, 2020 was 313 million yuan, the inventory falling price reserve was 9.3383 million yuan, and the book value was 304 million yuan, of which the original value of Hong Kong Global’s inventory on December 31, 2020 was 353 million Hong Kong dollars, equivalent to 297 million yuan.
During the audit of the 2020 annual report, the main audit procedures for the provision of inventories and inventory falling price reserves are as follows:
(1) Understand and evaluate whether the management’s design of inventory related internal control is effective and implemented; (2) Take a number of samples to perform control tests on the key control points involved in inventory circulation to confirm whether the internal control related to inventory has been operated effectively;
Address: floor 11, block a, Xincheng culture building, No. 11, Chongwenmenwai Street, Beijing
Tel: 010-67085873 Fax: 010-67084147 postal code: 100062
Zhongxi Certified Public Accountants (special general partnership)
ZHONGXI CPAs（SPECIAL GENERAL PARTNERSHIP）
(3) Perform on-site supervision on domestic inventory. Due to the impact of the global covid-19 pneumonia epidemic, on-site supervision cannot be performed on the inventory kept by an overseas third party. Implement alternative procedures such as remote video supervision and e-mail confirmation to check the rationality of inventory balance quantity;
(4) Check the accrual basis of inventory depreciation reserves of each category, obtain the calculation table of inventory depreciation reserves, and communicate with the management on the reasons for inventory impairment;
(5) Obtain the inventory disposal and scrap list and relevant accounting vouchers, and check the basis of inventory disposal and scrap and the relevant records of physical disposal of inventory scrap;
(6) Perform a cut-off test on inventory receipt / issue to determine whether inventory receipt / issue is recorded in the correct accounting period.
Through audit, the company failed to provide original vouchers such as purchase order, warehouse entry form and customs declaration procedures due to the fact that Hong Kong Universal recorded 630305034.94 yuan of commodity purchase after the period and increased inventory and accounts payable to suppliers. We are unable to obtain sufficient and appropriate audit evidence on the appropriateness of the company’s supplementary recording of purchased goods, so we are unable to determine the authenticity and accuracy of inventory goods and accounts payable; As Hong Kong Universal disposed of 1779099167.07 yuan of goods stored in other overseas warehouses, it failed to provide the original data and effective authorization and approval data for the disposal of goods stored in other overseas warehouses, and failed to provide sufficient evidence for the evaluation of the net realizable value of the above-mentioned goods stored in other overseas warehouses. We are unable to obtain sufficient and appropriate audit evidence for the company’s disposal of the above inventory goods, nor can we implement alternative audit procedures for the valuation of the net realizable value of the above inventory goods; Therefore, it is impossible to determine whether the inventory goods and main business costs are true and accurate.
To sum up, the exchange has issued appropriate audit opinions on the 2020 financial statements of cross border communication, and there are no false records.
Question (2) according to your company’s previous announcement, global Tesco accrued inventory falling price reserves at the end of 2019.26
