1. ADAMALtd.AssessmentReportonInternalControlfor2022AllShareholdersofADAMALtd.:WeevaluatedtheeffectivenessoftheinternalcontrolfortheCompanyasofDecember31,2022(thebasedateoftheinternalcontrolassessmentreport)inaccordancewiththe"BasicStandardsforEnterpriseInternalControl",itssupportingguidelinesandotherinternalcontrolregulatoryrequirements(hereinafterreferredastheinternalcontrolsystemofenterprises),whiletakingintoconsiderationtheinternalcontrolmechanismandassessmentmethodsofourCompany(hereinafterreferredtoas“ADAMA”orthe“Company")andalsoonthebasisofdailyandspecialsupervision.I.ImportantStatementInaccordancewiththeinternalcontrolsystemofenterprises,theboardofdirectorsofacompanyholdstheresponsibilitytoestablishandimprovetheinternalcontrol,evaluateitseffectivenessandtruthfullydisclosethecorrespondingassessmentreport.Theboardofsupervisorsofacompanysupervisestheestablishmentandimplementationoftheinternalcontrolbytheboardofdirectors.Themanagementteamisresponsibleforinitiatingandorganizingdailyactivitiesoftheenterpriseinternalcontrol.Theboardofdirectors,boardofsupervisorsandallmembersthereof,includingdirectorsandsupervisors,aswellastheseniormanagementofthecompany,confirmthatthereportistrue,accurateandcomplete,doesnotcontainanymisleadingstatementsormaterialomissionsandassumejointandseverallegalliabilityarisingtherefrom.Thegoaloftheinternalcontrolistoensurethatthebusinessmanagementofacompanyislegitimateandcompliant,thecompany’sassetsaresecuredandthatitsfinancialreportingandrelatedreportedinformationaretrueandcomplete.Itisalsoaimedatimprovingoperationalefficiencyandeffectiveness,andpromotingtherealizationofdevelopmentstrategies.Duetotheinherentlimitationsofaninternalcontrol,itcanonlyprovidereasonableassurancetoachievethoseobjectivesmentionedabove.Moreover,changesincircumstancesmaycausetheinternalcontroltobeinappropria。
2. te,orreducecompliancewithpoliciesandprocedures.Therefore,thereisariskinspeculatingtheeffectivenessoffutureinternalcontrolsbasedontheseassessmentresults.II.ConclusionoftheInternalControlAssessment1.Doesthecompanyhaveamaterialdeficiencyintheinternalcontrolofthefinancialreportingonthebasedateoftheinternalcontrolassessmentreport□Yes√No2.Assessmentconclusionofinternalcontroloverfinancialreporting√Valid□InvalidAccordingtotheinternalcontrol'scriteriaforidentificationofmaterialdeficienciesintheinternalcontroloverfinancialreporting,thereisnosuchdeficiencyasofthebasedateoftheinternalcontrolassessmentreport.TheboardofdirectorsoftheCompanybelievesthattheCompanyhasmanagedaneffectiveinternalcontrolofitsfinancialreportinallmajoraspectsinaccordancewiththerequirementsoftheinternalcontrolsystemandrelatedregulations.3.Whetherthereisanymaterialdeficiencyintheinternalcontrolovernon-financialreporting□Yes√NoAccordingtotheinternalcontrol'scriteriaforidentificationofmaterialdeficienciesintheinternalcontrolrelatedtonon-financialreportingoftheCompany,nosuchdeficiencywasfoundonthebasedateoftheassessmentreport.4.Factorsaffectingtheeffectivenessoftheassessmentconclusionasofthebasedateuntiltheissuancedateoftheassessmentreportoftheinternalcontrol□Applicable√NotApplicableTherearenofactorsaffectingtheeffectivenessoftheassessmentconclusionasofthebasedateuntiltheissuancedateoftheassessmentreportoftheinternalcontrol.5.Whethertheauditopinionfortheinternalcontrolisconsistentwiththeeffectivenessassessmentconclusionontheinternalcontroloverfinancialreporting√Yes□No6.Whetherthedisclosureregardingmaterialdeficienciesintheinternalcontrolauditreportisconsistentwiththatoftheassessmentreportofthecompany’sinternalcontrol√Yes□NoIII.AssessmentofInternalControl(I)ScopeofInternalControlAssessmentTheCompanyconfirmsthemainunits,businesses,itemsandhighlyri。
3. skyareastobeincludedintheassessmentscopeaccordingtotherisk-orientedprinciple.1.MainUnitswithintheAssessmentScopeinclude:Majorsubsidiariesforthemanufacturing,formulation,R&Dandmarketing.2.ProportionofunitswithintheassessmentscopeIndexProportion(%)TotalAssetsofUnitswithintheAssessmentScopeComparedtoTotalAssetsintheConsolidatedStatementsoftheCompany74.4TotalOperatingIncomeofUnitswithintheAssessmentScopeComparedtoTotalOperatingIncomeintheConsolidatedStatementsoftheCompany74.03.MajorbusinessesanditemswithintheassessmentscopeFinancialReporting,ITGC,Sales,Assets,Payroll,Purchase,Inventory,Treasury,Entity-levelcontrols,ComprehensiveBudget,ResearchandDevelopment,RelatedParties,Contractmanagement.4.Highlyriskyareasofmajorconcerninclude:Sales,Assets,Purchase,Treasury(includingderivatives)5.Theabove-mentionedunits,businesses,itemsandhighlyriskyareaswithintheassessmentscopecoverthemainaspectsofthecompany'soperationandmanagement.Isthereanymaterialomission□Yes√No6.Isthereastatutorywaiver□Yes√No7.OtherMattersNone(II)WorkBasisoftheinternalcontrolassessmentandtheidentificationstandardsofdeficienciesTheCompanyconductedtheinternalcontrolevaluationbasedontherequirementsoftheinternalcontrolsystemandrelevantexternalsupervisionregulations.1.Whetherthereisanyadjustmentofthespecificcriteriafordefiningtheinternalcontroldeficiencycomparedtopreviousyears□Yes√No2.IdentificationcriteriaforadeficiencyintheinternalcontrolofthefinancialreportThequantitativecriteriafordeficiencyassessmentintheinternalcontrolofthefinancialreportsaswasdeterminedbytheCompanyareasfollows:IndexQuantitativeCriteriaforaMaterialDeficiencyQuantitativeCriteriaforaSignificantDeficiencyQuantitativeCriteriaforaGeneralDeficiencyMisstatementinFinancialReportThemisstatementinfinancialreportrelatestoanamountthatisgreaterthanorequaltoRMB100million.Themisstatementinfinanc。
4. ialreportrelatestoanamountthatisgreaterthanorequaltoRMB50million,butlessthanRMB100million.Resultinginothermisstatementrelatedamounts.ThequalitativecriteriafordeficiencyassessmentintheinternalcontrolofthefinancialreportsaswasdeterminedbytheCompanyareasfollows:ClassificationbyFeaturesQualitativeCriteriaMaterialDeficiencyResultinginanadverseopinionordisclaimerofopinion,byaCPA,ontheCompany’sfinancialstatements;orresultinginamaterialcorrectionoftheCompany’spubliclyannouncedfinancialstatements.SignificantDeficiencyResultinginaqualifiedopinion,byaCPA,ontheCompany’sfinancialstatements;orresultinginanadverseopinionordisclaimerofopinion,byaCPA,ontheCompany’smaterialsubsidiaries’(i.e.Solutions)financialstatements;orresultinginasignificantcorrectionoftheCompany’smaterialsubsidiaries’(i.e.Solutions)publiclyannouncedfinancialstatements.Inaddition,wherenointernalcontrolornorelevantcompensationcontrolisestablishedorimplementedfortheaccountingtreatmentforunusualorspecialtransactions.GeneralDeficiencyResultinginanunqualifiedopinion,withanexplanatoryparagraph,byaCPA,ontheCompany’sfinancialstatements;orresultinginaqualifiedopinion,orunqualifiedopinionwithanexplanatoryparagraph,byaCPA,ontheCompany’ssubsidiaries’financialstatements.3.Identificationcriteriaforadeficiencyintheinternalcontrolovernon-financialreportingThequantitativecriteriaforadeficiencyassessmentintheinternalcontrolovernon-financialreportingaswasdeterminedbytheCompanyareasfollows:IndexQuantitativeCriteriaofMaterialDeficiencyQuantitativeCriteriaofSignificantDeficiencyQuantitativeCriteriaofGeneralDeficiencyAssetLossAssetLoss≥RMB150millionRMB80million≤AssetLoss<150millionRMBAssetLoss<80millionRMBThequalitativecriteriaforadeficiencyassessmentintheinternalcontrolovernon-financialreportingaswasdeterminedbytheCompanyareasfollows:ClassificationbyFeaturesQualitativeCr。
5. iteriaMaterialDeficiency1)FraudcommittedintheCompanybyanyofitsdirectors,supervisorsandseniormanagementpersonnel;2)TheCompanymateriallyviolatesmateriallawsandregulations,resultinginamaterialeffectontheCompany'sbusiness;3)MaterialdesigndeficienciesintheCompany'srelevantmanagementsystem;4)TheCompanymateriallyviolatesthedecision-makingprocesstherebycausingamaterialnegativeimpactontheCompany'sbusiness(generallyrelatedtomattersthatneedtobeapprovedbytheshareholdersmeetingortheboardofdirectors).5)MaterialimpacttotheCompany’sreputation.SignificantDeficiency1)SignificantfraudcommittedbyanydepartmentheadoftheCompany;2)SignificantfraudcommittedbyaheadofanyoftheCompany’smaterialsubsidiaries;3)TheCompanyviolatessignificantlawsandregulations,resultinginsignificantfinesaswellasasignificanteffectontheCompany'sbusiness;4)SignificantdesigndeficienciesfoundintheCompany'srelevantmanagementsystem;Materialdesigndeficienciesarefoundintherelevantmanagementsystemsofsubsidiaries;5)TheCompanyviolatesmaterialdecision-makingprocedures,resultinginasignificanteffectontheCompany'sbusiness(generallyreferredtomatterssubjecttoseniormanagement'sdecision);6)MaterialSubsidiariesviolatedecision-makingprocess,therebycausingamaterialnegativeimpactontheCompany'sbusiness(generallyreferredtomattersthatneedtobedecidedbytheshareholders’meetingortheboardofdirectors).7)SignificantimpacttotheCompany’sreputation.GeneralDeficiency1)FraudcommittedbyanyotherpersonnelintheCompany;2)Fraudcommittedbyanyotherpersonnelinmaterialsubsidiaries;3)TheCompanymateriallyviolatesmaterialinternalregulationsornon-materiallyviolatesmateriallawsandregulations,resultinginnegativefeedbackfromregulatoryauthorities;4)Thereareotherviolationsoflawsandregulationsorinternalregulationsfoundinmaterialsubsidiaries.5)TherearegeneraldesigndeficienciesintherelevantmanagementsystemoftheC。
6. ompany;otherdesigndeficienciesexistintherelevantmanagementsystemofthematerialsubsidiaries;6)TheCompanyviolatesthedecision-makingprocess,resultinginanegativeimpactontheCompany'sbusiness;7)MaterialSubsidiariesviolatedecision-makingprocess,resultinginanegativeimpactontheCompany'sbusiness.(III)Identificationandrectificationofinternalcontroldeficiencies1.Identificationandremediationofdeficienciesincludedintheinternalcontroldeficienciesonthefinancialreporting1.1.MaterialDeficiencyWhetherthecompanyhasamaterialdeficiencyintheinternalcontrolofthefinancialreportingduringthereportingperiod□Yes√No1.2.SignificantDeficiencyWhetherthecompanyhasasignificantdeficiencyintheinternalcontrolofthefinancialreportingduringthereportingperiod√Yes□NoDuring2022,onesignificantdeficiencywasfound,duetotwoeventsoccurredinsubsidiarieslevelthathavenotbeenreportedbythesubsidiariestothegroup’smanagementinatimelymanneraccordingtotheentitylevelcontroldesigned.ThedeficiencydoesnothaveanysignificantimpactonthefinancialresultsoftheGroup.Themanagementisinaprocessofinternalinvestigationinordertodesignandimplementarectificationplan.1.3.GeneralDeficiencyThegeneralinternalcontroldeficienciesidentifiedbytheCompanydonotaffecttherealizationofthecontrolobjectives;theCompanyacknowledgeswithgreatimportancethegeneraldeficienciesfoundduringthereportingperiodandhasproposedremediationopinionsandactivelyformulatedcorrespondingplansfortheirimplementation.1.4.Aftertheremediation,asofthebasedateoftheinternalcontrolassessmentreport,whetherthecompanyhasamaterialdeficiencyintheinternalcontroloverfinancialreportingthathasnotbeenrectified□Yes√No1.5.Aftertheremediation,asofthebasedateoftheinternalcontrolassessmentreport,whetherthecompanyhasasignificantdeficiencyintheinternalcontroloverfinancialreportingthathasnotbeenrectified√Yes□No2.IdentificationandRectificationofI。
7. nternalControlDeficienciesoverNon-FinancialReporting2.1.MaterialDeficiencyWhetherthecompanyidentifiedanymaterialdeficiencyintheinternalcontrolovernon-financialreportingduringthereportingperiod□Yes√No2.2SignificantDeficiencyWhetherthecompanyidentifiedanysignificantdeficiencyintheinternalcontrolovernon-financialreportingduringthereportingperiod□Yes√No2.3.GeneralDeficiencyThegeneraldeficiencyidentifiedbythecompanydoesnotaffecttherealizationofthecontrolobjectives;theCompanyacknowledgeswithgreatimportancethegeneraldeficiencyfoundduringthereportingperiodandhasproposedrectificationopinionsandactivelyformulatedcorrespondingplansforimplementation.2.4.Aftertheaboverectification,asofthebasedateoftheinternalcontrolassessmentreport,whetherthecompanyhasamaterialdeficiencyintheinternalcontrolnotrelatedtofinancialreportingthathasnotbeenrectified□Yes√No2.5.Aftertherectification,asofthebasedateoftheinternalcontrolassessmentreport,whetherthecompanyhasasignificantdeficiencyintheinternalcontrolnotrelatedtofinancialreportingthathasnotbeenrectified□Yes√NoIV.Otherimportantmattersrelatedtointernalcontrol1.Rectificationofinternalcontroldeficienciesinthepreviousyear√Applicable□NotApplicableDuring2021,asignificantdeficiencywasidentifiedinamarketingsubsidiaryoftheGroupwhichwasrelatedtothedesignandoperationalcontrolsovertheaccuracyandcompletenessoftherebatecalculations.During2022,thedeficiencywasrectifiedthatthemanagementofthesubsidiaryredesignedthecontrolsregardingtherebateprocessincludingsegregationofdutiesandbuildingreportsinthesystemtoensurecompletenessandaccuracyoftherebateprovision.Additionally,themanagementhasimprovedtheestimationbasedonpastexperienceandapprovedrebateplans.2.InternalControlProgressoftheCurrentandtheNextYears□Applicable√NotApplicable3.OtherMajorItems□Applicable√NotApplicableByorderoftheBoardADAMALtd.March19,2。
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