Special Explanation on Non-Standard Opinion Audit Report
Changcheng Film and Television Co., Ltd. (hereinafter referred to as "the Company" or "Changcheng Film") engaged Zhongxinghua Certified Public Accountants (Special General Partnership) as the auditing firm for the Company's 2020 financial report. Zhongxinghua Certified Public Accountants issued a non-standard opinion audit report for the Company's 2020 financial statements. In accordance with the requirements of the "Stock Listing Rules," "Rules for the Disclosure of Information by Companies Issuing Securities to the Public No. 14 - Non-Standard Unqualified Audit Opinions and Related Matters," and "Guidelines No. 2 on the Content and Format of Annual Reports," the Company provides the following special explanation regarding the matters involved in the inability to express an opinion in the audit report:
I. Basic Situation of Matters Involving Inability to Express an Opinion
(1) Significant Uncertainty Regarding Going Concern
In 2020, Changcheng Film's operating revenue decreased by 67.30% compared to the previous year, with a net profit attributable to the parent company of -250 million yuan. The Company has incurred losses for three consecutive years; as of December 31, 2020, the equity attributable to the parent company's shareholders was -1.022 billion yuan. At the end of the reporting period, 1.057 billion yuan of principal and interest on debts were overdue. Due to overdue debts and other matters, the Company is involved in multiple lawsuits, with 34 bank accounts and some subsidiary equity frozen. As stated in the financial statement notes "II. Basis for Preparing Financial Statements," the Company's management plans to take measures to improve its operational and financial conditions, but significant uncertainty remains regarding the Company's ability to continue as a going concern. We were unable to obtain sufficient and appropriate audit evidence related to the going concern assumption to determine whether the financial statements were prepared appropriately based on this assumption.
(2) Investigation by the China Securities Regulatory Commission
On April 11, 2020, Changcheng Film received the "Investigation Notice" (No. Su Zheng Diao Zi 2020015) from the China Securities Regulatory Commission (CSRC) due to suspected violations of information disclosure laws and regulations. The CSRC decided to conduct an investigation into the Company. As of the date of this audit report, the Company has not received a conclusive opinion or decision from the CSRC regarding the aforementioned investigation, and we cannot predict the outcome of the investigation or its potential impact on the Company's financial statements.
(3) Violations of External Guarantees
As noted in the financial statement notes "XIII. Commitments and Contingent Matters (2) Contingent Matters 1. Guarantee Matters," we identified five instances of violations regarding guarantees. Due to significant deficiencies in the internal controls related to the management of the Company's seal, we were unable to obtain sufficient and appropriate audit evidence to assess the completeness of the Company's guarantee matters and their potential impact on the financial statements.