Company Code: 603950 Company Abbreviation: Changyuan Donggu

 

Xiangyang Changyuan Donggu Industrial Co., Ltd.

 

2020 Annual Internal Control Evaluation Report

 

 

Xiangyang Changyuan Donggu Industrial Co., Ltd. To all shareholders:

In accordance with the "Basic Standards for Enterprise Internal Control" and its supporting guidelines, and other internal control regulatory requirements (hereinafter referred to as the enterprise internal control regulatory system), combined with the company's (hereinafter referred to as the "Company") internal control system and evaluation methods, based on daily and special supervision of internal control, we have evaluated the effectiveness of the Company's December 31, 2020 (Internal control evaluation report base date) internal control.

 

• Important Statement

In accordance with the provisions of the enterprise internal control regulatory system, establishing, improving and effectively implementing internal control, evaluating its effectiveness, and truthfully disclosing the internal control evaluation report are the responsibilities of the company's board of directors. The supervisory board supervises the board of directors in establishing and implementing internal control. The management team is responsible for organizing and leading the daily operation of enterprise internal control. The company's board of directors, supervisory board, and directors, supervisors, and senior management personnel guarantee that the content of this report does not contain any false records, misleading statements, or significant omissions, and assume individual and joint and several legal liabilities for the authenticity, accuracy, and completeness of the report content.

The goal of the company's internal control is to reasonably ensure that business management is legal and compliant, assets are safe, financial reports and related information are true and complete, to improve operational efficiency and effectiveness, and to promote the achievement of development strategies. Due to the inherent limitations of internal control, it can only provide reasonable assurance for achieving the above goals. In addition, because changes in circumstances may cause internal control to become inappropriate, or reduce the degree of compliance with control policies and procedures, there is a certain risk in inferring the effectiveness of future internal control based on the results of the internal control evaluation.

 

• Internal Control Evaluation Conclusion

1. Did the company have any material weaknesses in internal control over financial reporting on the internal control evaluation report base date?

2. Internal Control over Financial Reporting Evaluation Conclusion

Based on the determination of material weaknesses in the company's internal control over financial reporting, as of the internal control evaluation report base date, there were no material weaknesses in internal control over financial reporting. The board of directors believes that the company has maintained effective internal control over financial reporting in all material respects in accordance with the requirements of the enterprise internal control regulatory system and relevant regulations.

 

3. Were any material weaknesses in non-financial reporting internal control identified?

Based on the determination of material weaknesses in the company's non-financial reporting internal control, as of the internal control evaluation report base date, the company did not find any material weaknesses in non-financial reporting internal control.

 

4. Factors affecting the conclusion of the internal control effectiveness evaluation between the internal control evaluation report base date and the date of issuance of the internal control evaluation report

 

No factors affecting the conclusion of the internal control effectiveness evaluation occurred between the internal control evaluation report base date and the date of issuance of the internal control evaluation report.

5. Is the internal control audit opinion consistent with the company's evaluation conclusion on the effectiveness of internal control over financial reporting?

 

6. Is the disclosure of material weaknesses in non-financial reporting internal control in the internal control audit report consistent with the disclosure in the company's internal control evaluation report?

 

• Internal Control Evaluation Work

• Scope of Internal Control Evaluation

The company determines the main units, businesses, and matters included in the evaluation scope, as well as high-risk areas, based on the risk-oriented principle.

1. Main units included in the evaluation scope: 位包括： Xiangyang Changyuan Donggu Industrial Co., Ltd., Beijing Changyuan Longhong Technology Co., Ltd., Xiangyang Changyuan Donggu Logistics Co., Ltd., Wuhan Changyuan Longhong Technology Co., Ltd., Xiangyang Changyuan Longhong Technology Co., Ltd., Guangxi Changyuan Longhong Machinery Technology Co., Ltd.

2. Proportion of units included in the evaluation scope:

 

3. The main businesses and matters included in the evaluation scope include: :

Governance structure, organizational structure, development strategy, social responsibility, human resources, sales management, production management, asset management, financing and fund management, investment management, external guarantees, related party transactions, accounting system control, internal information transmission, internal supervision, etc.

4. The key high-risk areas focused on mainly include:

Sales management, production management, asset management, financing and fund management, investment management.

5. Do the units, businesses, matters, and high-risk areas included in the evaluation scope cover the main aspects of the company's business management, and are there any significant omissions?

 

6. Are there any statutory exemptions?

 

7. Other Description Matters

None    

• Basis for Internal Control Evaluation Work and Internal Control Deficiency Identification Standards

The company, based on the enterprise internal control regulatory system and the "Basic Standards for Enterprise Internal Control" and its supporting guidelines jointly issued by the Ministry of Finance, the China Securities Regulatory Commission, and other five ministries and commissions, and the relevant provisions of the Shanghai Stock Exchange's "Guidelines for Internal Control of Listed Companies" organized the internal control evaluation work.

1. Have the specific identification standards for internal control deficiencies been adjusted from previous years?   

The company's board of directors, based on the enterprise internal control regulatory system's requirements for material weaknesses, significant deficiencies, and general deficiencies, combined with the company's size, industry characteristics, risk preferences, and risk tolerance, distinguished between internal control over financial reporting and non-financial reporting, and studied and determined the specific identification standards for internal control deficiencies applicable to the company, and maintained consistency with previous years.

2. Identification Standards for Internal Control Deficiencies in Financial Reporting

The company's determined Financial Reporting The quantitative standards for evaluating internal control deficiencies are as follows:

Indicator Name	Quantitative Standard for Material Weakness	Quantitative Standard for Significant Deficiency	Quantitative Standard for General Deficiency
Total Profit	Misstatement amount greater than or equal to 5% of the total consolidated profit; absolute value exceeding 10 million yuan	Misstatement amount greater than or equal to 3% but less than 5% of the total consolidated profit; Absolute value less than 10 million yuan but exceeding 5 million yuan	Misstatement amount less than 3% of the total consolidated profit; Absolute value less than 5 million yuan
Total Assets	Misstatement amount greater than or equal to 1%	Misstatement amount greater than or equal to 0.5% but less than 1%	Misstatement amount less than 0.5%
Total Operating Revenue	Misstatement amount greater than or equal to 2%	Misstatement amount greater than or equal to 0.5% but less than 2%	Misstatement amount less than 0.5%
Total Net Assets	Misstatement amount greater than or equal to 2%	Misstatement amount greater than or equal to 0.5% but less than 2%	Misstatement amount less than 0.5%

Description :

None

The company's determined Financial Reporting The qualitative standards for internal control deficiency evaluation are as follows:

Nature of Deficiency	Qualitative Standard
Material Weakness	The auditor discovers fraudulent behavior by directors, supervisors, and senior management; the company corrects the already published financial statements; the registered accountant finds that there are material misstatements in the current financial statements, but the internal control fails to detect the misstatement during operation; the company's audit committee and internal audit institution's supervision of internal control is ineffective; the control environment fails; major deficiencies found by external audits, after communication with management and the audit committee, the company fails to rectify in time or after rectification, there is not enough time to confirm whether the control is effective after the rectification of the deficiency, which is identified as a material weakness.
Significant Deficiency	Failure to select and apply accounting policies in accordance with generally accepted accounting principles.
General Deficiency	After quantitative and qualitative consideration, those that do not belong to material weakness and significant deficiency are identified as general deficiencies.

Note:

None

3. Identification Standard for Non-Financial Reporting Internal Control Deficiencies

Company-determined non- Financial Reporting The quantitative standards for evaluating internal control deficiencies are as follows:

Indicator Name	Quantitative Standard for Material Weakness	Quantitative Standard for Significant Deficiency	Quantitative Standard for General Deficiency
Direct Property Loss Amount	Loss amount greater than or equal to 1000 million yuan	Loss amount greater than or equal to 500 million yuan but less than 1000 million yuan	Loss amount less than 5 million yuan

Note:

None

Company-determined non- Financial Reporting The qualitative standards for internal control deficiency evaluation are as follows:

Nature of Deficiency	Qualitative Standard
Material Weakness	The company's business activities seriously violate national laws and regulations and are subject to heavy penalties or criminal liabilities; due to product quality problems, resulting in unqualified products, and will lead to serious public safety problems; the media continues to pay attention to negative information about the company, causing a significant impact on the company's reputation; serious loss of middle and senior management personnel and senior technical personnel; lack of institutional control or systematic failure of important business; major and significant deficiencies in internal control evaluation results have not been rectified in time.
Significant Deficiency	Due to the company's violation of relevant regulations, it has been publicly warned and fined by government departments; due to product quality problems, or concerns that may lead to public safety risks, but control measures are timely and appropriate, avoiding serious public safety problems; serious loss of key personnel; Failure to establish anti-fraud procedures and control measures; Deficiencies in important business system control or system; significant deficiencies in internal control have not been rectified in time.
General Deficiency	Other internal control deficiencies besides material or significant deficiencies.

Note:

None

• Identification and Rectification of Internal Control Deficiencies

1. Identification and Rectification of Financial Reporting Internal Control Deficiencies
   1. Material Weakness

Did the company have any material weaknesses in financial reporting internal control during the reporting period?

1. 2. Significant Deficiency

Did the company have any significant deficiencies in financial reporting internal control during the reporting period?

1. 3. General Deficiency

The company's internal control processes have general control deficiencies in daily operations. The internal control deficiencies related to financial reports mainly lie in the unclear marking of the storage of semi-finished products and work-in-progress in inventory, the lack of signature by some delivery notice drivers, the lack of setting up a tool grinding ledger, and the lack of formal contracts for some iron filings sales business. The above deficiencies have been immediately rectified after being discovered. The overall risk of the company is controllable, and it does not have a material impact on the company's financial reports.

1. 4. After the above rectification, as of the benchmark date of the internal control evaluation report, did the company have any unrectified material weaknesses in financial reporting internal control?

1. 5. After the above rectification, as of Internal control evaluation report benchmark date, did the company have any unrectified significant deficiencies in financial reporting internal control?

2. Identification and Rectification of Non-Financial Reporting Internal Control Deficiencies
   1. Material Weakness

Did the company find any material weaknesses in non-financial reporting internal control during the reporting period?

1. 2. Significant Deficiency

Did the company find any significant deficiencies in non-financial reporting internal control during the reporting period?

1. 3. General Deficiency

The company's internal control processes have general control deficiencies in daily operations. The internal control deficiencies related to non-financial reports mainly lie in the untimely staffing of some positions. The above general deficiencies have been immediately rectified after being discovered. The overall risk of the company is controllable, and it does not affect the achievement of the company's non-financial reporting internal control objectives.

1. 4. After the above rectification as of the benchmark date of the internal control evaluation report, did the company find any unrectified material weaknesses in non-financial reporting internal control?

1. 5. After the above rectification, as of the benchmark date of the internal control evaluation report, did the company find any unrectified significant deficiencies in non-financial reporting internal control?

• Explanation of Other Material Matters Related to Internal Control

1. Rectification of Internal Control Deficiencies in the Previous Year

2. Internal Control Operation Status This Year and Improvement Directions for Next Year

During the reporting period, the company maintained effective internal controls in all material aspects of both financial and non-financial reporting, and the overall operation of internal controls was good. In 2021, the company will continue to improve its internal control system, standardize the implementation of internal control systems, and promote the company's healthy and sustainable development through effective internal control and risk prevention.

 

3. Explanation of other significant matters

 

 

 

Chairman (authorized by the Board of Directors): Li Zuoyuan

Xiangyang Changyuan Donggu Industrial Co., Ltd.

March 22, 2021