Shandong Jincheng Pharmaceutical Group Co., Ltd. issues internal control deficiency identification standards

China Visit Network data — Shandong Jincheng Pharmaceutical Group Co., Ltd. has recently officially released the “Internal Control Defect Identification Standards,” aiming to standardize the work of identifying internal control defects, and to ensure the effective operation of the internal control system. The Standards clearly specify the classification of internal control defects, the identification procedures and scope, and also formulate specific quantitative and qualitative identification criteria.

According to the announcement, the company’s internal control defects are divided into design defects and operating defects, and are further classified into major defects, significant defects, and general defects according to their severity. In terms of identification procedures, defects are proposed by the Audit Department based on comprehensive analysis; after review and deliberation by the board of directors’ Audit Committee, the board of directors makes the final determination.

It is noteworthy that the Standards separately establish quantitative indicators for defects in internal control over financial reporting and defects in internal control over non-financial reporting. Among them, the quantitative criteria for defects in internal control over financial reporting are based on operating revenue: if the defect may lead to a misstatement amount in the financial reporting that is greater than or equal to 2.5% of operating revenue, it is identified as a major defect; if it is between 2.5% and 1.25%, it is a significant defect; if it is less than 1.25%, it is a general defect. The quantitative criteria for defects in internal control over non-financial reporting are consistent with the above.

In terms of qualitative criteria, the company lists the features of various types of defects. For example, ineffective audit supervision, fraud by senior management personnel, failure to identify material misstatements in the financial statements pointed out by external auditors, and so on, will be identified as major defects in internal control over financial reporting; whereas, decision-making procedures leading to major misjudgments, systematic failures of key business system controls, and so on, constitute major defects in internal control over non-financial reporting.

The implementation scope of the Standards covers Shandong Jincheng Pharmaceutical Group Co., Ltd. and its subsidiaries. They take effect from the date the board of directors approves them. This move is expected to further enhance the company’s governance capabilities, strengthen risk management, and protect the legitimate rights and interests of investors.