Audit Report
To the Shareholders of Beijing Leader High Temperature Materials Co., Ltd.:
I. Audit Opinion
We have audited the financial statements of Beijing Leader High Temperature Materials Co., Ltd. (hereinafter referred to as "the Company"), which comprise the consolidated and parent company balance sheets as of December 31, 2025, the consolidated and parent company income statements, consolidated and parent company cash flow statements, and consolidated and parent company statements of changes in owners' equity for the year then ended, and the notes to the financial statements.
In our opinion, the accompanying financial statements are prepared, in all material respects, in accordance with the provisions of the Accounting Standards for Business Enterprises, and fairly present the consolidated and parent company financial position of the Company as of December 31, 2025, and the consolidated and parent company results of operations and cash flows for the year then ended.
II. Basis for Audit Opinion
We conducted our audit in accordance with the Standards for Auditing of Financial Statements issued by the Chinese Institute of Certified Public Accountants. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants of China and the independence requirements of the China Securities Regulatory Commission, and we have fulfilled our other professional ethical responsibilities. We have complied with the independence requirements applicable to public interest entities in the audit of financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
III. Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.
(I) Provision for Bad Debts
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Matter Description As disclosed in Note III (XI) and Note V (IV) to the financial statements, as of December 31, 2025, the Company's accounts receivable had an original value of RMB 3,159,512,518.93, with an accumulated provision for bad debts of RMB 332,439,211.64, resulting in a net book value of RMB 2,827,073,307.29, which accounted for 34.09% of current assets. The Company measures its provision for impairment of accounts receivable based on the expected credit loss for the entire period. Due to the significant amount of accounts receivable and the significant estimates and judgments involved in determining the impairment of accounts receivable, we identified the recognition of impairment of accounts receivable as a key audit matter.
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Audit Response Our audit procedures for the provision for bad debts included: (1) Understanding and evaluating the internal controls related to the provision for bad debts. (2) Examining the accuracy and reasonableness of the information used by the Company to make relevant judgments, including the reasonableness of the classification of accounts receivable into different credit risk categories, the accuracy of historical loss rate data, and whether the expected credit losses were appropriately adjusted based on current economic conditions and forward-looking information. (3) Understanding whether there were any factors that had a significant adverse impact on the recoverability of accounts receivable. (4) Evaluating the reasonableness of the provision for bad debts and recalculating the accuracy of the provision.
(II) Revenue Recognition