Kairuide Holdings Co., Ltd. (hereinafter referred to as "Kairuide" or "the Company") engaged Asia Pacific (Group) CPA Firm (Special General Partnership) as the auditing firm for the Company's 2019 financial report. Asia Pacific (Group) CPA Firm issued a qualified audit report for the Company's 2019 financial report. In accordance with the requirements of the "Stock Listing Rules" and other relevant regulations, the Company provides the following explanation regarding the matters involved in the qualified audit report:
I. Content of Matters Involved in the Qualified Audit Report
(1) Content of the Qualified Opinion
- Receivables and Bad Debt Provisions
- As stated in the financial statement notes "XI. Related Parties and Related Transactions (5) Related Party Transactions 9. Related Party Asset Transfers and Debt Restructuring" and "12. Related Party Receivables and Payables (1) Receivables from Related Parties," as of December 31, 2019, Kairuide had receivables from shareholder Zhang Peifeng amounting to 249,508,699.00 yuan, which is related to the repayment of amounts owed to Kairuide by the original receivable from Demian Group Co., Ltd. (hereinafter referred to as "Demian Group") for the disposal of textile asset packages. Kairuide recognized an expected credit loss of 24,950,869.90 yuan on a single asset basis. As of the report date, Kairuide had received a total of 55,440,000.00 yuan from Baosheng Dingsheng International Trade (Beijing) Co., Ltd. on behalf of shareholder Zhang Peifeng, leaving a balance of 194,068,699.00 yuan owed by Zhang Peifeng. Regarding the transfer and repayment capacity of the aforementioned amounts, we communicated with the attorney representing shareholder Zhang Peifeng, Demian Group, the Company's governance team, and Kairuide's legal advisors, and performed necessary audit procedures such as correspondence and interviews. Given that shareholder Zhang Peifeng's actions are restricted and Demian Group only provided written confirmation of asset transfer according to the agreement, we did not obtain sufficient evidence to assess Zhang Peifeng's assumption of debt and repayment capacity, nor could we reasonably determine whether adjustments to the aforementioned receivables and bad debt provisions were necessary.
- As stated in the financial statement notes "VI. Major Items in the Consolidated Financial Statements Note 2, Accounts Receivable" and "Note 4, Other Receivables," as of December 31, 2019, Kairuide recognized an expected credit loss on accounts receivable amounting to 50,710,231.23 yuan, with a bad debt provision balance of 4,540,007.77 yuan; the book balance of other receivables with expected credit loss recognized was 74,703,385.15 yuan, with a bad debt provision balance of 13,727,526.40 yuan. Kairuide recognized expected credit losses on these receivables based on the credit situation of each unit at rates of 5% (for receivables aged 3 years or less) and 60% (for receivables aged over 3 years). We were unable to obtain the basis for Kairuide's expected credit loss recognition rates, making it impossible to assess their reasonableness and sufficiency, nor did we obtain sufficient evidence regarding the recoverability of the aforementioned receivables.