Hualan Biological Engineering Inc(002007) vaccine Co., Ltd
audit report
Dhsz [2021] No. 0015629
Dahua Certified Public Accountants (special general partnership)
DaHuaCertifiedPublicAccountants（SpecialGeneralPartnership）
Hualan Biological Engineering Inc(002007) vaccine Co., Ltd
Audit report and financial statements
(from January 1, 2018 to June 30, 2021)
Contents page I. audit report 1-8 II. Audited financial statements
Consolidated balance sheet 1-2 consolidated income statement 3 consolidated cash flow statement 4 consolidated statement of changes in shareholders’ equity 5-8 parent company balance sheet 9-10 parent company income statement 11 cash flow statement of parent company 12 statement of changes in shareholders’ equity of parent company 13-16 notes to financial statements 1-130
3、 Key audit matters
Key audit matters are the most important matters that we believe are the most important to audit the financial statements from January to June 2021, 2020, 2019 and 2018 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 do not express separate opinions on these matters.
The key audit matters identified in our audit are summarized as follows:
1. Provision for bad debts of accounts receivable;
2. Revenue recognition;
3. Confirmation of promotion expenses.
（1） Bad debt provision for accounts receivable
1. Event description
Accounting periods applicable to key audit matters: January June 2021, 2020, 2019 and 2018
For the accounting policy and book amount of bad debt provision for accounts receivable of Hualan vaccine, please refer to note 4 of “IV. important accounting policies and accounting estimates” (IX), (x), (XII), (XIII) and “VI. notes to main items of consolidated financial statements”. The book balance of accounts receivable on June 30, 2021, December 31, 2020, December 31, 2019 and December 31, 2018 were 638376761.10 yuan, 1657317239.93 yuan, 773815340.01 yuan and 613696302.71 yuan respectively, and the amount of bad debt provision was 75922466.58 yuan, 127510409.85 yuan, 84368519.96 yuan and 73734296.81 yuan respectively.
Since the management of Hualan vaccine needs to identify the items and objective evidence that have been impaired, evaluate the expected future available cash flow and determine its present value when determining the bad debt reserves of accounts receivable, which involves the management’s use of significant accounting estimates and judgments, and the amount of accounts receivable is large, and its recoverability is important to the financial statements of each period, We refer to bad accounts receivable page 2
Prepare matters identified as key audit matters.
2. Audit response
In the audit of financial statements from January to June 2021, 2020, 2019 and 2018, our important audit procedures for bad debt reserves of accounts receivable include:
(1) We understand and evaluate the design and operation effectiveness of internal control related to the provision for bad debts of accounts receivable. These internal controls mainly include customer credit risk assessment, basis for determining credit risk characteristic combination, identification of events triggering impairment of accounts receivable, estimation of bad debt provision, etc;
(2) For the accounts receivable for which the management withdraws bad debt reserves according to the credit risk characteristics, evaluate whether the proportion of bad debt reserves determined by the management is reasonable;
(3) Understand the historical loss rate of accounts receivable in the early stage of Hualan vaccine, review the rationality of expected credit loss rate of accounts receivable on each balance sheet date in the reporting period, and analyze whether the provision for bad debts of accounts receivable is sufficient;
(4) Obtain the bad debt provision table of Hualan vaccine, check whether the provision method is implemented in accordance with the bad debt policy, and recalculate whether the bad debt provision amount is accurate;
(5) Evaluate whether the management’s accounting treatment and disclosure of bad debt reserves for accounts receivable are appropriate.
According to the audit work performed, we believe that the recognition of bad debt provision for accounts receivable of Hualan vaccine is reasonable.
（2） Revenue recognition
1. Event description
Accounting periods applicable to key audit matters: January June 2021, 2020, 2019 and 2018
For the accounting policies and book amount information of revenue recognition, please refer to “IV. important accounting policies and accounting estimates” (xxx), (XXXI) and “VI. page 3 of consolidated finance” in the notes to the financial statements
Notes to main items of the report 34. The sales revenue of Hualan vaccine from January to June 2021, 2020, 2019 and 2018 were 10905753.64 yuan, 2426328945.71 yuan, 1048988237.20 yuan and 802738151.76 yuan respectively.
As revenue is one of the key performance indicators and one of the important financial indicators of Hualan vaccine, and has increased year by year during the reporting period, there may be potential misstatement whether its revenue recognition is true, whether its measurement is accurate and whether it is recorded in the appropriate financial statements, so we regard revenue recognition as a key audit matter.
2. Audit response
In the audit of financial statements from January to June 2021, 2020, 2019 and 2018, our important audit procedures for revenue recognition include:
(1) Evaluate the effectiveness of the management’s design and implementation of the internal control of sales and collection, test the internal control of the sales and collection process, and test the effectiveness of the operation of key control measures;
(2) Select samples to check the sales contracts, identify the contract terms and conditions related to the transfer of risks and rewards or control rights in the ownership of goods, and evaluate whether the revenue recognition time point of Hualan vaccine meets the requirements of accounting standards for business enterprises;
(3) Select samples from revenue transactions occurred during the reporting period, obtain relevant sales contracts, invoices, delivery notes, transportation notes, customer receipt notes and other supporting documents, check them, and evaluate whether relevant revenue recognition complies with the accounting policies of Hualan vaccine and whether they are recorded in time and accurately;
(4) Implement analysis procedures for revenue and cost, including: overall analysis of gross profit margin of each period in the reporting period by month and year, and comparative analysis of current revenue, cost and gross profit margin of main products with previous periods;
(5) Implement on-site visit and letter confirmation procedures for accounts receivable, sales and other information of major customers to confirm the authenticity of relevant transaction information;
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(6) Conduct a cut-off test on the revenue transactions recorded before and after the balance sheet date, and check the supporting documents such as delivery order, transportation order, contract, invoice and receipt, so as to evaluate whether the revenue is recorded in the appropriate accounting period;
Based on the audit work performed, we believe that the revenue recognition is in line with the accounting policies of Hualan vaccine.
（3） Confirmation of promotion expenses
1. Event description
Accounting periods applicable to key audit matters: January June 2021, 2020, 2019 and 2018
For the carrying amount of Hualan vaccine promotion expenses, please refer to note 25 of “VI. notes to main items of consolidated financial statements” to the financial statements. The book balance of promotion expenses on June 30, 2021, December 31, 2020, December 31, 2019 and December 31, 2018 were 635373943.64 yuan, 941404821.24 yuan, 446915519.17 yuan and 370895885.98 yuan respectively.
Since the recognition of promotion expenses requires the management to identify historical experience data and objective evidence and evaluate the probability of expected occurrence, involves the management to use major accounting estimates and judgments, and the recognition of promotion expenses is important to the financial statements, we recognize the recognition of promotion expenses as a key audit event.
2. Audit response:
In the audit of financial statements from January to June 2021, 2020, 2019 and 2018, our important audit procedures for the confirmation of promotion expenses include:
(1) Understand and evaluate whether the design of internal control system related to promotion expenses is reasonable and effectively implemented;
(2) Understand the accounting method, accrual basis, reimbursement standard and reimbursement process of promotion expenses, and analyze the rationality of promotion expense accounting policy;
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(3) We have obtained the relevant policies and contract documents of promotion expenses and calculated whether the provision of book promotion expenses is accurate and complete;
(4) We focused on checking the relevant bills when the promotion expenses actually occurred, and checked the integrity of the approval process of relevant bills.
Based on the audit work performed, we believe that the relevant judgments and estimates of the management on the occurrence of promotion expenses are reasonable.
4、 Responsibilities of management and governance for financial statements
The management of Hualan vaccine 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 of Hualan vaccine is responsible for evaluating the continuous operation ability of Hualan vaccine, disclosing matters related to continuous operation (if applicable), and applying the assumption of continuous operation, unless the management plans to liquidate Hualan vaccine, terminate operation or has no other realistic choice. The management is responsible for supervising the financial reporting process of Hualan vaccine.
5、 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 an audit performed in accordance with audit standards can 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 the financial statements due to fraud or error, design and implement audit procedures to deal with these risks, and obtain sufficient and appropriate audit evidence, page 6
As the basis for issuing audit opinions. As fraud may involve collusion, forgery, intentional omission, misrepresentation or override of internal control, the risk of failure to find material misstatement caused by fraud is higher than that caused by error.
2. Understand the internal control related to audit to design appropriate audit procedures.
3. Evaluate the appropriateness of accounting policies selected by the management and the rationality of accounting estimates and related disclosures.
4. Draw a conclusion on the appropriateness of the going concern assumption used by the management. At the same time, according to the audit evidence obtained, draw a conclusion on whether there are major uncertainties in matters or circumstances that may lead to major doubts about the sustainable operation ability of Hualan vaccine. If we conclude that there is significant uncertainty, the auditing standards require us to draw the attention of report 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 lead to the unsustainable operation of Hualan vaccine.
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 Hualan vaccine to express an opinion on the financial statements. We are responsible for directing, supervising and performing group audits. We are fully responsible for the audit opinion.
We discussed the plan with the management
