Datang Environment Industry Group Co., Ltd. — Audit Report / Information 2016

Nov 13, 2016

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Datang Environment Industry Group Co., Ltd.* 大唐環境產業集團股份有限公司

(A joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1272)

TERMS OF REFERENCE OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

• Article 1 Pursuant to the Company Law of the People’s Republic of China, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (hereinafter refer to as the “ Listing Rules ”), including the Code on Corporate Governance Practices as set out in Appendix 14 thereof and applicable regulatory rules, the Articles of Association of Datang Environment Industry Group Co., Ltd. (hereinafter refer to as the “ Articles of Association ”), and the Rules of Procedures of the Board Meetings of Datang Environment Industry Group Co., Ltd., the rules have been laid down to regulate the formulation, responsibilities and working procedures of the Audit Committee of the board of directors (the “ Board ”) of Datang Environment Industry Group Co., Ltd. (hereinafter referred to as the “ Company ” and hereinafter collectively referred to as the “ Group ” together with its subsidiaries) and to ensure the trueness of the financial information of the Company and the effectiveness of the internal control of the Company.

• Article 2 The Audit Committee, established by the Board as a special committee, is responsible for reporting duties to the Board and shall be accountable to the Board.

In fulfilling its responsibilities, the Audit Committee shall abide by the applicable laws, regulations, the Articles of Association and the rules herein. By virtue of legislative requirements, the Audit Committee shall be subject to the supervision by the general meeting and the Board of Supervisors of the Company.

• Article 3 The Audit Committee shall be composed of three non-executive directors, with independent non-executive directors taking the most seats. The Audit Committee shall have one chairman who shall be an independent non-executive director.

• For identification purpose only.

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Article 4 Members of the Audit Committee shall satisfy the following requirements:

• (i) possessing such skills and experience compatible to the business of the Company;

• (ii) possessing certain financial knowledge;

• (iii) at least one member possessing the expertise in accounting or financial management, meeting the requirements regarding the qualifications for financial professionals of the Audit Committee as provided in the Listing Rules.

The existing external auditor’s partner may not act as the member of the Audit Committee within one year commencing from the date on which such partner left the office or no longer enjoyed the financial benefits acting as the existing external auditor (whichever occurred later).

• Article 5 The election and replacement of the members of the Audit Committee shall be conducted by the Board. Should the term of office of the Audit Committee be the same as that of the Board. Members of the Audit Committee shall be eligible for re-election. During his/her term of office, if any committee member ceases to be a director or an independent executive director of the Company, his/her membership in the Audit Committee shall lapse automatically. In order to make the constitution of members of the Audit Committee satisfy the requirements of these Rules of Procedures, the Board may timely fill such vacancy/vacancies to make up the number of the members in accordance with the foregoing provisions of these Rules of Procedures.

Article 6 The Audit Committee shall convene at least two regular meetings a year. The meeting shall be held in form of on-site meeting or communication conference. The chairman of the Audit Committee shall convene a meeting unilaterally or at the request of the independent accountant or internal auditor. An interim meeting may also be convened if it is proposed by more than two members of the committee.

Such meeting of the Audit Committee may only be held with more than two third of the members of the committee attending such meeting. The meeting shall be presided over by the chairman and should the chairman fail to preside over the meeting, he/she may entrust one of the other committee members to preside over the meeting. Should a committee member fail to attend the meeting due to certain reasons, he/she may entrust other members to exercise his/her duties on his/her behalf in written form.

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Article 7

After each regular meeting, the Audit Committee shall submit the letter of opinions to the Board based on the discussion at the meeting.

• (i) The first regular meeting shall be convened prior to the convening of the meeting for the consideration and approval on the annual financial report for the current year. The main topics are:

To discuss about the financial report and profit distribution proposal of the Company for the previous year;

To discuss about the internal audit report of the Company for the previous year;

To discuss about the internal control report of the Company for the previous year;

To discuss about the connected transactions of the Company for the previous year;

To discuss about the report on audit fees of the independent accounting firm;

To discuss about the proposal for appointing the overseas and domestic accounting firm for the Company for the current year; and

To listen to the audit report on the financial condition for the previous year prepared by the independent accounting firm.

• (ii) The second regular meeting shall be convened prior to the convening of the meeting for the consideration and approval on the interim financial report for the current year. The main topics are:

To discuss about the interim financial report and profit distribution proposal of the Company for the year; and

To listen to the audit report on the review opinions regarding the interim financial condition prepared by the independent accounting firm.

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Article 8 The Audit Committee may entrust the secretary of the Board to deal with the following routine matters:

• (i) To dispatch the agenda of the meeting and the relevant supporting materials to the members of the Audit Committee seven days prior to the convening of each meeting of the Audit Committee;

• (ii) To be responsible for recording and compiling various opinions from such committee members who attended the meeting to form the letter of opinions and to deliver such letter of opinions to committee members who attended the meeting for signature; and

• (iii) To dispatch the minutes of the Board meeting and the members of the Audit Committee within fourteen days upon conclusion of the meeting.

• Article 9 The Audit Committee shall be responsible for auditing and examining the completeness of the annual reports, interim reports and relevant financial reports and accounts of the Company, and for reviewing the significant opinions on financial reporting as contained in the foregoing statements and reports.

The Audit Committee shall review such financial and accounting statements prepared by the Company and form written opinions prior to the engagement of the accountant(s) for the annual audit. After the preliminary audit opinions have been issued by the accountant(s) for the annual audit, the Audit Committee shall again review the financial and accounting statements of the Company and form the written opinions.

• Article 10 Prior to its submission of the annual, interim and quarterly financial reports (if any) to the Board for approval, the Audit Committee shall submit such letter of review opinions regarding financial reports of the Company and relevant information to the Board. The Audit Committee shall take into consideration such any material and unusual matters which are reflected in or are required to be reflected in such financial reports and accounts and shall take into account of such matters proposed by the chief accountant and the independent accountant of the Company in appropriate manner, and shall pay special attention to the following matters:

• (i) Any change in the accounting policies and practices;

• (ii) Such areas involving important judgment;

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• (iii) Such significant adjustment arising from the conducting of audit works;

• (iv) Going-concern assumptions for the enterprise and any qualified opinions;

• (v) Whether it is in compliance with relevant accounting standards that must be observed; and

• (vi) Being in compliance with such applicable provisions of the Listing Rules and the laws and regulations regarding financial reporting, including such new rules recently promulgated by professional and regulatory institutions, and understanding the possible impact on the financial reports.

For purposes of the foregoing items,

• (i) Members of the committee shall consult with and maintain periodic contact with directors, senior management members and independent accountants. Moreover, the committee shall meet external auditor(s) at least twice each year; and

• (ii) The committee shall take into consideration such any material or unusual matters which are reflected in or are probably required to be reflected in such financial reports and accounts, and shall prudently and cautiously take into consideration any matters proposed by the person in charge of accounting and financial reporting or the auditor.

• Article 11 The Audit Committee shall examine and supervise the work of internal audit department in accordance with the relevant rules of the place where the Company is listed overseas.

Article 12 The Audit Committee shall be responsible for monitoring the financial reporting system and internal control procedures and shall audit and assess the following items:

• (i) To audit and verify the accounting policies and practices adopted by the Company for its preparation of financial statements;

• (ii) To monitor the preparation of regular financial reports (interim financial report and annual financial report) and audit and verify relevant information disclosure in regular financial reports, financial results and other announcements;

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• (iii) To evaluate the effectiveness of the internal control and risk management framework, to discuss with the management level regarding the scope and quality of the internal control system, and to ensure that the management level has performed its job duties so as to ensure the effectiveness of the internal control system, including whether the following are sufficient: the resources required, qualifications and experience of such accounting and financial reporting staff, and the training program and budget for relevant employees;

• (iv) To review and examine the results of internal investigation and feedback of the management level with respect to any doubtful and dishonest act or non-compliance, deficiency of internal control or involvement in violation of laws, regulations and rules;

• (v) To investigate and monitor the scope of functions regarding internal audit, such effectiveness and results, ensure the mutual coordination between internal and external auditors, and to ensure that the internal auditing department obtains sufficient resources and is able to exercise its power in appropriate position within the Group;

• (vi) To investigate the financial and accounting policies and practices of the Group;

• (vii) To discuss with external auditors about any suggestions arising from audit works; to review such management proposal regarding the audit proposed by auditor to the management level; to check and examine any major questions regarding the accounting record, financial accounts or regulatory system proposed by the accounting firm to the management level, the feedback of the management level or other correspondence documents, and to ensure that the independent accountant(s) and the management level communicate effectively;

• (viii) To ensure that the Board timely responds to such matters raised by external auditors in the management proposal;

• (ix) To understand the internal control and process implemented by the management level and to guarantee that the financial statement(s) obtained from the established financial system shall be in compliance with relevant standards and requirements and shall be reviewed and approved by the management level;

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• (x) To investigate the following arrangement set by the Company: the employees of the Company may secretly express concern regarding the improper act that may be caused by financial reporting, internal control or other aspects; to ensure that there are appropriate arrangements such that the Company may conduct fair and independent investigation and take appropriate actions regarding such matters;

• (xi) To report to the Board regarding the matters concerning the provisions of the Corporate Governance Code; and

• (xii) To take into consideration such other topics proposed by the Board.

Article 13 The Audit Committee shall review and supervise the appointment of and works performed by the accounting firm:

• (i) The Audit Committee shall consult with the accounting firm to confirm the arrangement regarding the schedule of the audit work on the financial report for the current year; shall procure the accounting firm to submit the audit report within the agreed timeframe and shall record the manner, frequency and results of such supervision in form of written opinions, with signature of the party/parties in charge for confirmation;

• (ii) To conduct annual review regarding the performance of the accounting firm, to submit to the Board the summarized report of the accounting firm on its audit work for the Company for the current year, to submit, jointly with the Board of Supervisors, to the general meeting such proposals regarding the appointment, re-appointment and dismissal of the accounting firm for the coming year and the audit service fees thereof, to approve the remuneration and appointment terms regarding the independent accountant(s), and to deal with any issues regarding the resignation or dismissal of such accountant(s);

• (iii) To review the qualifications of the accounting firm (including the background and experience of the partners and auditing personnel), its independence and objectiveness, to check and investigate whether the auditing procedures of the independent accountant are effective or not, and to ensure that the regular replacement of its managing partner(s) is in compliance with the relevant laws and regulations and the provisions of the listing rules of the place where the Company is listed;

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• (iv) In accordance with the changes made to the existing laws and regulations and other regulatory requirements and prior to the commencement of the audit work, to discuss with the independent accountant(s) and review the nature of the audit, scope and methods of audit proposed by the independent accountant(s), and the relevant accountability of declaration, to evaluate whether the content and procedures of its work are objective and effective, and to pre-approve such audit service;

• (v) To formulate and implement such policy regarding the nonaudit service provided by the accounting firm, to ensure that such non-audit service shall not affect its independence or objectiveness, to propose to the Board the suggestion for improvement or to adopt such steps with respect to such matters which may affect the non-audit service provided by the accounting firm, and to audit and approve such non-audit service provided by the accounting firm and the relevant fee of such service;

• (vi) To discuss with the independent accountant(s) about the items that both parties believe they shall separately discuss, and to guarantee that the independent accountant(s) shall have clear communication channel with the Audit Committee when required;

• (vii) The report from the accounting firm describing the Company’s internal control quality and the material defects and insufficiency that may exist shall be obtained in each year;

• (viii) To act as the major representative and supervise the relationship between the Company and the independent accountant(s); and

• (ix) To audit the policy regarding employees and former employees of the accounting firm hired by the Company and to monitor the implementation of the policy.

Article 14 The Audit Committee shall establish relevant procedures and deal with the complaints as follows:

• (i) To receive, reserve and deal with complaints related to accounting, internal accounting control or audit matters as being informed by Company;

• (ii) To receive and deal with complaints of accounting or audit matters or anonymous reports and to guarantee its confidentiality; and

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• (iii) To review the arrangement to let employees raise concerns anonymously about the financial reporting, internal control or other matters which may be under inappropriate circumstances. The committee shall ensure that the Company makes appropriate arrangement to fairly and independently investigate the relevant matters and to adopt appropriate follow-up actions.

• Article 15 When exercising its functions and powers, the Audit Committee is entitled to engage independent accountant(s) or other advisor(s) (external advisor(s)) for provision of consultancy service to the committee.

The Company shall be liable for such reasonable fees incurred by the engagement of external advisor(s) by the Audit Committee when performing its job duties.

Article 16 The decision made and opinions formed by the Audit Committee shall be submitted to the Board in written form, and the following items shall be reported to the Board on a regular basis:

• (i) Important items that can help the Board understand the Company’s financial status and operating business in a timely manner; and

• (ii) Self-appraisal of members of the Audit Committee and the performance of job duties of the committee as a whole.

• Article 17 In the rules, the meaning of “more than” includes the underlying number, and “day(s)” refers to business day(s). Unless otherwise stated, technical terms used herein shall have the same meanings as they appear in the Articles of Association.

• Article 18 The rules shall come into effect from the date when it is passed by the Board.

• Article 19 The rules shall be interpreted by the Board.

Important Note: The English version is for reference only. Should there be any inconsistency between the English and Chinese versions, the latter shall prevail.

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