Security Code: 603950 Security Abbreviation: Changyuan Donggu Announcement No.: 2021-013

 

Xiangyang Changyuan Donggu Industrial Co., Ltd.

Announcement Regarding the Reappointment of the Accounting Firm

 

Important Note:

50. The Company proposes to re-appoint Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) as its auditor for the year 2021, to provide financial and internal control audits.

I. Basic Information on the Proposed Accounting Firm to Be Appointed

(1) Institutional Information

1. Basic Information

(1) Date of Establishment: Zhongshen Zhonghuan was founded in 1987 and is among the first large accounting firms nationwide to receive state approval for engaging in securities, futures-related, and financial services auditing. In November 2013, it transitioned to a special general partnership structure in accordance with relevant requirements from the Ministry of Finance and other authorities.

(2) Internal Governance Structure and Organizational System: Zhongshen Zhonghuan upholds the corporate core values of “Global Wisdom, Integrity in Action.” The firm has established a comprehensive internal governance structure and organizational system. Its highest authority is the Partners’ General Meeting, with the Partners’ Management Committee serving as the decision-making body. Additionally, several specialized committees have been set up, including the Strategic Development and Business Planning Committee, the Risk Management and Quality Control Committee, the Human Resources and Compensation Review Committee, the Finance and Budget Management Committee, the International Affairs Coordination Committee, and the Professional Technology and Informationization Committee. A management headquarters has been established in Beijing, and multiple regional operating centers have been set up nationwide, creating a service network that covers most of China. The firm maintains 36 branches across major provinces and large/medium-sized cities, including Wuhan, Beijing, Yunnan, Hunan, Guangzhou, Shanghai, Tianjin, Chongqing, Guangxi, Sichuan, Shanxi, Jiangxi, Hebei, Henan, Shenzhen, Zhuhai, Dongguan, Foshan, Hainan, Fujian, Xiamen, Zhejiang, Jiangsu, Shandong, Weifang, Anhui, Heilongjiang, Liaoning, Jilin, Dalian, Shaanxi, Xi’an, Guizhou, Xinjiang, Inner Mongolia, and Hong Kong. Comprehensive unified management by the head office is implemented across all areas, including quality control, human resources, business management, technical standards, and information management. The firm’s headquarters houses several specialized departments and technical support units, including the Management Consulting Department, the IT Information Audit Department, the Financial Services Department, the International Business Department, the Quality Control Department, the Professional Standards Training Department, the Marketing and Project Management Department, the Information Department, the Human Resources Department, and the Professional Ethics Supervision Department.

(3) Registered Address: Floors 2–9, No. 169 Donghu Road, Wuchang District, Wuhan, Hubei Province.

(4) Professional Qualifications: Zhongshen Zhonghuan has obtained the accounting firm practice qualification issued by the Hubei Provincial Department of Finance (Certificate No.: 42010005). It is among the first batch of large accounting firms nationwide approved by the state to engage in securities and futures-related services and financial business audits. The firm also holds U.S. public company audit qualifications issued by the Public Company Accounting Oversight Board (PCAOB) and has been registered as meeting the security and confidentiality requirements for providing consulting services related to classified military-industrial matters.

(5) Has the entity ever engaged in securities services business? Yes, Zhongshen Zhonghuan has been engaged in securities services business since obtaining its license for accounting firms to conduct securities and futures-related activities in 1993.

(6) Information on the branch office handling the company’s audit engagements: The company’s audit services are specifically handled by the Hainan Branch of Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) (hereinafter referred to as “Zhongshen Zhonghuan Hainan Branch”). The Zhongshen Zhonghuan Hainan Branch was established in August 2015 through a restructuring of the Hainan Branch of Zhongshen Asia-Pacific Certified Public Accountants (Special General Partnership); its predecessor was Haikou Certified Public Accountants, with Lei Xiaoling serving as its head. The Zhongshen Zhonghuan Hainan Branch has obtained a Practice Certificate for Branch Offices of Accounting Firms issued by the Hainan Provincial Department of Finance (Certificate No.: 420100054601). Its registered address is Marketing Center, Bao’an Jiangnancheng, No. 66 Heping Avenue, Meilan District, Haikou City, Hainan Province. As of the end of 2019, it employed over one hundred professionals, including 30 certified public accountants. Since its establishment, it has been engaged in securities-related services and has provided annual report audit services to more than ten listed companies.

(7) In 2019, the number of audit clients among listed companies in the same industry was six.

2. Personnel Information

(1) Chief Partner: Shi Wenxian.

(2) Number of partners at the end of 2020: 185.

(3) Number of certified public accountants at the end of 2020 and changes over the past year: 1,537.

(4) Have any certified public accountants engaged in securities services, and what was their number at the end of 2020? Yes; at the end of 2020, there were over 794 certified public accountants who had engaged in securities services.

(5) Total number of employees at the end of 2019: 4,834.

3. Business Scale

(1) Business revenue for 2019: RMB 1,471.9737 million, comprising audit service revenue of RMB 1,288.9869 million and securities service revenue of RMB 295.0120 million.

(2) Audit of listed companies’ annual reports:

In 2019, there were 160 listed companies.

Total fees collected from listed companies in 2019: RMB 160.3208 million.

In 2019, the main industries of listed companies included manufacturing; real estate; the production and supply of electricity, heat, gas, and water; agriculture, forestry, animal husbandry, and fisheries; wholesale and retail trade; and information transmission, software, and information technology services. Zhongshen Zhonghuan has audit experience in the industries in which the company operates.

4. Investor Protection Capability

Zhongshen Zhonghuan purchases professional liability insurance annually based on its business revenue and makes additional provisions for professional risk reserves, with a cumulative indemnity limit of RMB 600 million. This reserve has not yet been utilized and is sufficient to cover civil liability arising from audit failures. The accrual for the professional risk fund and the purchase of professional insurance by Zhongshen Zhonghuan comply with relevant regulations.

5. Independence and Integrity Record

Zhongshen Zhonghuan has not engaged in any conduct that violates the independence requirements of the Code of Ethics for Chinese Certified Public Accountants. Over the past three years, Zhongshen Zhonghuan has not been subject to criminal penalties, administrative penalties, self-regulatory measures, or disciplinary actions. However, it has received 20 supervisory and regulatory measures related to its professional practice during this period, all of which have been rectified as required, and corresponding rectification reports have been submitted to the relevant securities regulatory authorities.

(II) Project Team Member Information

1. Personnel Information

(1) Engagement Partner: Lu Jian, He became a certified public accountant in 2010, began auditing listed companies in 2010, joined this firm in 2015, and started providing audit services to our company in 2018. In the past three years, he has signed audit reports for listed companies including Hainan Natural Rubber Industry Group Co., Ltd. and Kangzhi Pharmaceutical Co., Ltd.

(2) Project Quality Control Review Partner: Li Ling, Became a certified public accountant in 2000, commenced auditing listed companies in 2000, began practicing at this firm in 2015, and started providing audit services to our company in 2018. In the past three years, the listed company audit reports reviewed have included those of Hainan Natural Rubber Industry Group Co., Ltd., Kangzhi Pharmaceutical Co., Ltd., Luoniu Mountain Co., Ltd., Hainan Yedao (Group) Co., Ltd., Caesar (China) Culture Co., Ltd., and Northeast Electric Power Development Co., Ltd., among others. 。

(3) Proposed Signing CPA: Fu charm ， Became a certified public accountant in 2014, began auditing listed companies in 2015, started practicing at this firm in 2015, and commenced providing audit services to our company in 2018; among the listed-company audit reports signed in the past three years is that of Kangzhi Pharmaceutical Co., Ltd. 。

2. The independence and integrity records of the aforementioned relevant personnel

(1) Project partners, quality control reviewers, and proposed signing accountants, along with other relevant personnel Does not exist violation Circumstances that contravene the independence requirements of the Code of Ethics for Chinese Certified Public Accountants.

(2) The engagement partner, the quality control reviewer, and the proposed signing accountant, along with other relevant personnel, have not been subject to criminal penalties, administrative penalties, administrative regulatory measures, or self-regulatory sanctions in the past three years.

(3) Audit Fees

The total audit fees for this period amounted to RMB 770,000, comprising RMB 500,000 for the annual report audit and RMB 270,000 for the internal control audit, remaining unchanged from the previous period.

II. Procedures Followed in Appointing the Accounting Firm

(I) Performance of Duties by the Audit Committee of the Board of Directors and Review Opinions

The Audit Committee of the Company’s Board of Directors has thoroughly reviewed and assessed Zhongshen Zhonghuan, evaluating its professional competence, investor protection capabilities, independence, and integrity. The Committee concludes that Zhongshen Zhonghuan is capable of performing audits in accordance with China’s Independent Auditing Standards for Certified Public Accountants, adheres to the principles of independence, objectivity, and fairness, and is qualified to engage in securities-related services. Furthermore, it meets the qualification requirements for providing audit services to the Company. Accordingly, the Committee approves the appointment of Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) as the auditor for the Company’s 2021 financial statements and internal control. The audit fees are set at RMB 500,000 for the financial statements and RMB 270,000 for internal control. The Committee also agrees to submit this matter to the eighteenth meeting of the third session of the Company’s Board of Directors for deliberation and approval.

(II) Opinion of the Independent Directors

Since the appointment, Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) has provided excellent services to the company. It has independently performed audit engagements in compliance with laws, regulations, and relevant policies, and the audit reports it has issued objectively and fairly reflect the company’s financial position and operating results. We have conducted a thorough assessment of Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) with respect to its professional competence, investor protection capabilities, integrity, and independence. We conclude that Zhongshen Zhonghuan is capable of performing audit work in accordance with China’s Independent Auditing Standards for Certified Public Accountants, adheres to the principles of independence, objectivity, and impartiality in its practice, and is qualified to engage in securities-related business. Furthermore, it meets the qualification requirements necessary to provide audit services to our company. We agree to submit the proposal to continue engaging Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) to provide the company’s annual audit services for 2021 to the company’s 2020 Annual General Meeting for consideration. We also agree to appoint Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) as the auditor of the company’s financial statements and internal control for 2021, and we agree to submit this matter to the company’s General Meeting for review and approval.

(III) Review by the Board of Directors

On March 22, 2021, the Company convened the eighteenth meeting of its third session of the Board of Directors, at which the “Proposal on Engaging an Accounting Firm and an Internal Control Audit Institution for 2021” was reviewed and approved. The Board agreed to continue engaging Zhongshen Zhonghuan Certified Public Accountants (Special General Partnership) as the auditor for the Company’s 2021 financial statements and internal control. This proposal is subject to review and approval by the Shareholders’ Meeting.

(4) The appointment of the accounting firm still requires approval by the Company’s Shareholders’ Meeting and shall take effect from the date of such approval.

 

This is hereby announced.

Xiangyang Changyuan Donggu Industrial Co., Ltd.

Board of Directors

2021 March 24