China Risun Group Limited — Governance Information 2019

Mar 13, 2019

CHINA RISUN GROUP LIMITED 中國旭陽集團有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1907)

TERMS OF REFERENCE FOR THE AUDIT COMMITTEE

ESTABLISHMENT

1. The audit committee (the “ Audit Committee ”) of China Risun Group Limited (the “ Company ”, and together with its subsidiaries, the “ Group ”) was established by resolution of the board of directors of the Company (the “ Board ”) on September 29, 2018.

PURPOSE

1. The purpose of the Audit Committee is to assist the Board in:

2. (a) ensuring that the Company has an effective financial reporting, risk management and internal control system in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”);

3. (b) overseeing the integrity of the financial statements of the Company;

4. (c) selecting, and assessing the independence and qualifications of the Company’s external auditor; and

5. (d) ensuring effective communication between the Company’s directors (the “ Directors ”), internal auditors and external auditors.

MEMBERSHIP

1. The members of the Audit Committee (the “ Members ”) shall be appointed by the Board. The Audit Committee shall comprise a minimum of three Members consisting of non-executive Directors only and a majority of which must be independent nonexecutive Directors. The Audit Committee shall have at least one independent nonexecutive Director who has the appropriate professional qualifications or accounting or related financial management expertise as required under the Listing Rules.

2. Appointments to the Audit Committee shall be for a period of up to three years, which may be extended by the Board provided that a majority of the Members remain independent non-executive Directors.

3. A former partner of the Company’s existing auditing firm shall be prohibited from acting as a Member for a period of one year from the date of his ceasing: (i) to be a partner of the firm; or (ii) to have any financial interest in the firm, whichever is the later.

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1. The chairman of the Audit Committee (the “ Chairman ”) shall be appointed by the Board and must be an independent non-executive Director.

2. The company secretary of the Company shall be the secretary (the “ Secretary ”) of the Audit Committee.

MEETINGS

1. The Audit Committee shall meet at least twice annually, or more frequently if circumstances require. The Board, any Member and/or the external auditors may request a meeting if they consider that one is necessary.

2. The chief financial officer of the Company, the head of internal audit of the Company and a representative of the external auditors shall normally attend meetings of the Audit Committee. Other Board members shall also have the right of attendance. However, at least once a year the Audit Committee shall meet with the external and internal auditors separately without the executive Directors or management of the Company (“ Management ”) present.

3. The Chairman (or in his or her absence, a Member designated by the Chairman) shall preside at all meetings of the Audit Committee. The Chairman shall be responsible for leading the Audit Committee, including scheduling meetings, preparing agendas and making regular reports to the Board.

4. An agenda and other relevant documents should be sent in full to all Members in a timely manner and at least three days before the intended date of a meeting of the Audit Committee (or such other period as may be agreed by its Members).

5. Meetings of the Audit Committee may follow the same procedures as those for meetings of the Board under the relevant provisions in the articles of association of the Company, as amended from time to time.

6. Minutes of meetings of the Audit Committee shall be prepared by the Secretary and sent to all Members as soon as practicable and within a reasonable time after the conclusion of the meeting. Minutes of meetings of the Audit Committee shall record the names of the Members present at each meeting of the Audit Committee, as well as in sufficient detail the matters considered by the Audit Committee and decisions reached, including any concerns raised by Members or dissenting views expressed. The minutes shall also be made available for inspection on reasonable notice by any Director.

AUTHORITY

1. The Audit Committee is authorised by the Board to perform and/or investigate any activity within these terms of reference, including without limitation the inspection of all accounts, books and records of the Company.

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1. The Audit Committee shall be provided with sufficient resources to perform its duties, including but not limited to obtaining independent professional advice and assistance from internal or external legal, accounting or other advisers at the expense of the Company. The Audit Committee shall be responsible for establishing the selection criteria, selecting, appointing and setting the terms of engagement for any external party who advises the Audit Committee.

2. The Audit Committee shall have full access to Management and may invite members of Management or others to attend its meetings. All employees of the Company are directed to cooperate with any information request made by the Audit Committee.

DUTIES

1. The duties of the Audit Committee shall include the following:

Relationship with the Company’s Auditors

• 17.1 be primarily responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditor, approve the remuneration and terms of engagement of the external auditor, and consider any questions of its resignation or dismissal. Where the Board disagrees with the Audit Committee’s view on the selection, appointment, resignation or dismissal of the external auditors, the Audit Committee shall provide a statement in the Corporate Governance Report explaining its recommendations to the Board and also the reason(s) why the Board has taken a different view;

• 17.2 establish procedure to review and monitor the independence of external auditors by (i) considering all relationships between the Company and the audit firm; (ii) obtaining from the audit firm annually, information about policies and processes for maintaining independence and monitoring compliance with relevant requirements; and (iii) meeting with the auditor annually in the absence of Management to discuss matters relating to its audit fees and any issues arising from the audit;

• 17.3 review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process in accordance with applicable standards. The Audit Committee should discuss with the auditor the nature and scope of the audit and reporting obligations before the audit commences;

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• 17.4 develop and implement policies on engaging an external auditor to supply nonaudit services, and ensure that an external auditor’s provision of non-audit services does not impair its independence or objectivity, by considering (i) whether the skills and experience of the audit firm make it a suitable supplier of non-audit services; (ii) the nature of the non-audit services, the related fee levels individually and in total relative to the audit fees; and (iii) whether there are safeguards in place to ensure there is no threat to the objectivity and independence of the audit because the external auditor provides non-audit services;

• 17.5 discuss with the Board the Company’s policies on hiring employees or former employees of external auditors and monitor the application of these policies;

• 17.6 oversee the audit process;

• 17.7 discuss problems and reservations arising from the interim and final audits, and any matters the external auditor may wish to discuss;

Review of the Company’s Financial Information

• 17.8 monitor the integrity of the Company’s financial statements and annual reports and accounts, half yearly reports and, if prepared for publication, quarterly reports, and review significant financial reporting judgements contained in them. In reviewing these reports before submission to the Board, the Audit Committee should focus particularly on:

• (a) any changes in accounting policies and practices;

• (b) major judgmental areas;

• (c) significant adjustments resulting from the audit;

• (d) the going concern assumptions and any qualifications;

• (e) compliance with accounting standards; and

• (f) compliance with the Listing Rules and legal requirements in relation to financial reporting;

• 17.9 Members should liaise with the Board and Management and the Audit Committee must meet, at least twice a year, with the Company’s auditors;

• 17.10 consider any significant or unusual items that are, or may need to be, reflected in the reports and accounts, and give due consideration to any matters that have been raised by the Company’s staff responsible for the accounting and financial reporting function, compliance officer or auditors;

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Oversight of the Company’s Financial Reporting System, Risk Management and Internal Control Systems

• 17.11 review and supervise the Group’s financial controls and financial reporting process, and unless expressly addressed by a separate board risk committee, or by the Board itself, review the Group’s risk management and internal control systems;

• 17.12 discuss the risk management and internal control systems with Management to ensure that Management has performed its duty to have effective systems. This discussion should include the adequacy of resources, staff qualifications and experience, training programmes and budget of the Company’s accounting and financial reporting function;

• 17.13 consider major investigation findings on risk management and internal control matters as delegated by the Board or on its own initiative, and Management’s response to these findings;

• 17.14 where an internal audit function exists, ensure coordination between the internal and external auditors, ensure that the internal audit function is adequately resourced and has the appropriate standing within the Company, and review and monitor its effectiveness;

• 17.15 review the Group’s financial and accounting policies and practices;

• 17.16 review the external auditor’s management letter, any material queries raised by the auditor to Management about accounting records, financial accounts or systems of control and Management’s response;

• 17.17 ensure that the Board will provide a timely response to the issues raised in the external auditor’s management letter;

• 17.18 oversee the implementation of internal control policies and procedures in relation to financing arrangements of the Group;

• 17.19 establish and review whistleblowing policies that employees of the Company or those who deal with the Company (e.g. customers and suppliers) can use, in confidence, to raise concerns about possible improprieties in financial reporting, internal control or other matters, and ensure that proper arrangements are in place for fair and independent investigation of these matters and for appropriate followup action;

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Others

• 17.20 be proactive in understanding the affairs of the Company and investigate any red flags;

• 17.21 act as the key representative body for overseeing the Company’s relationship with the external auditor;

• 17.22 review ongoing connected transactions of the Company and ensure compliance with the terms approved by shareholders of the Company;

• 17.23 monitor Management’s progress on implementing any new key financial reporting standards; and

• 17.24 to perform other duties and responsibilities as assigned by the Board.

REPORTING PROCEDURES

1. Without prejudice to the generality of the duties of the Audit Committee set out in these terms of reference, the Audit Committee shall report to the Board on a regular basis on its decisions or recommendations, unless there are legal or regulatory restrictions on its ability to do so. Where the monitoring activities of the Audit Committee reveal cause for concern or scope for improvement, the Audit Committee shall make recommendations to the Board to address the issue or to make improvements. At least annually, the Audit Committee shall present a report to the Board which addresses the work and findings of the Audit Committee during the year.

2. The Audit Committee shall evaluate its own performance, these terms of reference and its membership annually to ensure it is performing its duties effectively, and recommend to the Board any changes it considers necessary.

3. The Chairman or his duly appointed delegate shall attend the Company’s annual general meetings and respond to any questions from the shareholders of the Company on the Audit Committee’s activities.

TERMS AVAILABLE

1. The Audit Committee shall make available these terms of reference on request and by inclusion on the websites of the Company and The Stock Exchange of Hong Kong Limited in order to explain its role and authority delegated to it by the Board.

Hong Kong, March 14, 2019

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