Causes of internal control failure of Red Sun

Inherent limitations of internal control: Internal control has inherent limitations, and there is the possibility that false positives cannot be prevented and found. In addition, due to changes in the situation, internal control may become inappropriate, or the degree of compliance with control policies and procedures may decrease, so it is risky to infer the effectiveness of future internal control based on the audit results of internal control.

In the audit process, internal implementation includes understanding, testing and evaluating the rationality of internal control design and the effectiveness of implementation, as well as other procedures that are considered necessary internally. The audit of Red Sun provides a reasonable basis for expressing opinions. Major events leading to negative opinions refer to one control defect or the combination of multiple control defects in internal control, which may lead to failure to prevent or find and correct major misstatements in financial statements in time.

In this internal control audit report, we noticed the following major defects in the internal control of financial reporting of Red Sun Company:

1.20 19 _, Red Sun Company and its subsidiaries paid the controlling shareholders of Red Sun Company Nanjing No.1 Pesticide Group Co., Ltd. and Red Sun Group Co., Ltd. a total of _ 4,679,290,900 yuan through the bank accounts of related parties Jiangsu Jinli Fertilizer Co., Ltd., Jiangsu Kebang Ecological Fertilizer Co., Ltd. and Jiangsu Zhongbang Pharmaceutical Co., Ltd.; Red Sun Company directly provided funds to Red Sun Group15 million yuan. The above-mentioned related party transactions did not fulfill the approval procedures and timely information disclosure obligations in accordance with relevant regulations, and there were major defects in the internal control of related financial reports. 2. The prepayments, other receivables and financial expenses formed by Red Sun _20 19_ degree partial payment lack reasonable commercial reasons and basis, and there are major defects in the internal control of financial reports related to fund payment.

3. Effective internal control can provide a reasonable guarantee for the truthfulness and completeness of financial reports and related information, and the above major defects make Red Sun Company lose this function of internal control. The management of Red Sun Company has identified the above major defects and incorporated them into the internal control evaluation report. In the audit of the financial statements of Red Sun Company in 20 19_, we considered the impact of the above major defects on the nature, progress and scope of the audit procedure. This report has an impact on our audit report on the financial statements of Red Sun Company _20 19_ on June 29th, 2020.