BOE Technology Group Co., Ltd. ENGLISH TRANSLATION OF
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BOE Technology Group Co., Ltd. ENGLISH TRANSLATION OF FINANCIAL STATEMENTS FOR THE YEAR 1 JANUARY 2019 TO 31 DECEMBER 2019 IF THERE IS ANY CONFLICT OF MEANING BETWEEN THE CHINESE VERSION AND ENGLISH TRANSLATION, THE CHINESE VERSION WILL PREVAIL AUDITORS’ REPORT 毕马威华振审字第 2002383 号 All Shareholders of BOE Technology Group Co., Ltd.: Opinion We have audited the accompanying financial statements of BOE Technology Group Company Limited (“BOE”), which comprise the consolidated and parent company’s balance sheet as at 31 December 2019, the consolidated and parent company’s income statement, the consolidated and parent company’s cash flow statement, and the consolidated and parent company’s statement of changes in shareholders’ equity for the year then ended, and notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and parent company’s financial position of BOE as at 31 December 2019, and its consolidated and parent company’s financial performance and cash flows of BOE for the year then ended in accordance with Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China. Basis for Opinion We conducted our audit in accordance with China Standards on Auditing for Certified Public Accountants (“CSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of BOE in accordance with the China Code of Ethics for Certified Public Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Page 1 of 9 AUDITOR’S REPORT (continued) 毕马威华振审字第 2002383 号 Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Revenue recognition Refer to the accounting policies set out in the notes to the financial statements “III. Significant accounting policies and accounting estimates” 22 and “V. Notes to the consolidated financial statements” 42. How the matter was addressed in our The Key Audit Matter audit The revenue of BOE and its subsidiaries Our audit procedures to evaluate revenue (“BOE Group”) is mainly derived from the recognition included the following: sales of products relating to display device Evaluate the design and operation across the domestic and overseas market. effectiveness of key internal controls The sales contracts/orders signed between related to revenue recognition; BOE Group and its customers (mainly electronic equipment manufacturers) contain Check key sales contracts/orders on a various trading terms. BOE Group judges the sampling basis to identify relevant trading transfer timing of major risks and rewards terms, and evaluate whether the according to the trading terms, and accounting policies for revenue recognition recognizes revenue accordingly. Depending of BOE Group meet the requirements of on the trading terms, the income is usually the Enterprise Accounting Standards; recognized when the goods are delivered and On a sampling basis and according to received, or when they are received by the different trading terms, reconcile the carrier. revenue recorded in the current year to We identified the recognition of BOE Group’s relevant supporting files such as relevant revenue as a key audit matter because orders, shipping orders, sales invoices, revenue, as one of BOE Group’s key customs declarations, delivery receipts, performance indicators, involves various etc. to evaluate whether revenue is trading terms, and there is an inherent risk recognized in accordance with the that revenue may not be recognized in a accounting policy of BOE Group; correct period. On a sampling basis and according to different trading terms, cross check the revenue recorded before and after the balance sheet date against relevant supporting files such as relevant orders, shipping orders, sales invoices, customs declarations, delivery receipts, etc. to evaluate whether revenue is recorded in Page 2 of 9 the appropriate period; Page 3 of 9 AUDITOR’S REPORT (continued) 毕马威华振审字第 2002383 号 Key Audit Matters (continued) Revenue recognition Refer to the accounting policies set out in the notes to the financial statements “III. Significant accounting policies and accounting estimates” 22 and “V. Notes to the consolidated financial statements” 42. How the matter was addressed in our The Key Audit Matter audit Select a sample based on the characteristics and nature of customer's transaction, and perform certification on the balance of accounts receivable as at the balance sheet date and the sales transaction amount during the current year; On a sampling basis, check the written- back of revenue after the balance sheet date (including sales discounts and sales returns, etc.) with relevant supporting documents to assess whether revenue is recorded in the appropriate period; Select revenue accounting entries that meet specific risk criteria and check related supporting documents. Page 4 of 9 AUDITOR’S REPORT (continued) 毕马威华振审字第 2002383 号 Key Audit Matters (continued) Book value of fixed assets and construction in progress Refer to the accounting policies set out in the notes to the financial statements “III. Significant accounting policies and accounting estimates” 13, 14 and “V. Notes to the consolidated financial statements” 14, 15. The Key Audit Matter How the matter was addressed in our audit BOE Group continued to invest in building Our audit procedures to assess the book production lines of display device to expand value of fixed assets and construction in its production capacity. As at 31 December progress included the following: 2019, the book value of fixed assets and Evaluate the design and operation construction in progress amounted to RMB effectiveness of key internal controls 213.16 billion. (including estimating useful life and residual The judgement made by the management on values, etc.) related to the integrity, the following aspects will affect the book existence and accuracy of fixed assets and value of fixed assets and construction in construction in progress; progress, including: Check the physical status of construction in Determine which type of expenditures are progress and fixed assets on a sampling qualified for capitalization; basis; Determine the timing for transferring Check capital expenditures with relevant construction in progress to fixed assets supporting documents (including purchase and making depreciation; agreements/orders, acceptance orders, Estimate the useful life and residual value engineering construction contracts, project of corresponding fixed assets. progress reports, etc.) on a sampling basis; We identified the book value of fixed assets Assess whether the capitalized and construction in progress of BOE Group commissioning expenses for the current as a key audit matter because the valuation year are in compliance with relevant of the book value of fixed assets and capitalization conditions; check the construction in progress involves significant commissioning expenses with relevant judgement from the management and it is of supporting documents on a sampling basis; importance to the consolidated financial On the basis of sampling, assess the timing statements. for transferring construction in progress to fixed assets, through the inspection of commissioning situation and the documents for transferring construction in progress to fixed assets; Based on our understanding of industry practices and actual operating conditions of assets, we evaluate the management's estimation of the useful life and residual value of fixed assets. Page 5 of 9 AUDITOR’S REPORT (continued) 毕马威华振审字第 2002383 号 Key Audit Matters (continued) Impairment of fixed assets and intangible assets Refer to the accounting policies set out in the notes to the financial statements “III. Significant accounting policies and accounting estimates” 19 and “V. Notes to the consolidated financial statements” 14, 16. How the matter was addressed in our The Key Audit Matter audit BOE Group principally generates revenue Our audit procedures to assess the from the production and sale of display impairment of fixed assets and intangible panels. Due to the fluctuation of supply- assets included the following: demand relationship in the display panel industry and the influence of technology Evaluate management’s identification of upgrading, the profit level is unstable. As at asset groups, assessment of impairment 31 December 2019, the book value of fixed indications, and assess the design and assets and intangible assets amounted to operation effectiveness of key internal RMB 133.20 billion, the judgement on controls for impairment tests; impairment indications and impairment test Based on our understanding of BOE are material to BOE Group’s financial Group’s businesses and relevant statements. accounting standards, evaluate The management classifies asset groups management’s classification basis of asset based on the smallest identifiable group of groups and judgement basis of impairment assets