Special Explanation on Matters Related to the Qualified Audit Report for 2021 Annual Financial Statements
Jiangxi Qixin Group Co., Ltd. (hereinafter referred to as "the Company") engaged Tianzhi International Accounting Firm (Special General Partnership) (hereinafter referred to as "Tianzhi International") to audit the Company's 2021 financial statements, resulting in a qualified audit report (Tian Zhi Ye Zi [2022] No. 25747). In accordance with the relevant provisions of the Shenzhen Stock Exchange Listing Rules and the Guidelines for the Disclosure of Information by Companies Issuing Securities No. 14 - Handling of Non-standard Audit Opinions and Related Matters (2020 Revision), the board of directors provides the following explanation regarding the matters involved in the qualified audit report:
I. Content of Matters Involved in the 2021 Audit Report
(1) Matters Involving Qualified Opinions
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Suspected Non-operational Fund Occupation As stated in the financial statement notes "XI. Related Party Relationships and Transactions (8) Related Party Transactions" and "XIV. Other Important Matters (2) Other Important Matters," Qixin transferred a total of RMB 130.875 million to Shenzhen Daxin Trading Co., Ltd. on January 1, 2021, which had not been repaid by December 31, 2021. This amount is suspected to be non-operational fund occupation by related parties of the original actual controller. Following this significant fund outflow, Qixin established an investigation leadership group to initiate a self-examination and reported the case to the Xinyu Public Security Bureau on January 23, 2022. The bureau officially opened an investigation on March 15, 2022. We conducted checks on the suspected non-operational fund occupation and related cash flows, interviewed relevant companies and personnel, and performed confirmation procedures, but were unable to obtain sufficient and appropriate audit evidence to determine whether there was non-operational fund occupation by related parties of the original actual controller, nor could we assess the impact of these matters on the financial statements.
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Audit Limitations on Subsidiaries As noted in the financial statement notes "VIII. Interests in Other Entities (1) Interests in Subsidiaries" and "XV. Major Items in the Parent Company Financial Statements (3) Long-term Equity Investments," Beijing Yinghao Architectural Decoration Design Engineering Co., Ltd. (hereinafter referred to as Beijing Yinghao) is a wholly-owned subsidiary of Qixin, primarily engaged in architectural decoration business, with current operating revenue of RMB 73.5553 million and a net profit of -RMB 10.1683 million, total assets of RMB 241.065 million, and net assets of RMB 84.9377 million as of the end of the period. Beijing Yinghao's operating revenue accounted for 5.06% of consolidated operating revenue. During the audit of Beijing Yinghao's operating revenue and related cost statements, we were unable to obtain some important documents, including the project quantity list confirmed with the client and cost analysis reports. Beijing Yinghao failed to accurately provide the names, phone numbers, and addresses of the recipients of the confirmation letters, as well as accurate contact information for project site personnel. Due to these limitations, we could not perform necessary checks, confirmations, inventory observations, and site visits for the audit of Beijing Yinghao's operating revenue and cost statements, nor could we execute suitable alternative audit procedures, leaving us unable to make accurate judgments regarding the financial statement presentation related to Beijing Yinghao.