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2017-12-26 15:11:53

Audit Engagement Letter
 
Party A: xxHigh-Tech Development Co., Ltd.
Party B: xxxHuazhen Certified Public Accountants
 
1. Introduction
1.1 Party A hereby engages Party B to audit its financial statements for 2009 and through consultation, the parties reach the agreement set forth in the Service Contract. The Service Contract includes the Letter (“the Engagement Letter”) and the KMPG Huazhen General Business Terms attached to the Engagement Letter.
 
1.2 The KMPG Huazhen General Business Terms attached to the Engagement Letter are applicable to the engagement and shall be deemed part of the Service Contract. This Engagement Letter is the engagement letter referred to in the KMPG Huazhen General Business Terms. In case of any discrepancy between the Engagement Letter and the KMPG Huazhen General Business Terms, the Engagement Letter shall prevail.
 
1.3 The following term used in the Engagement Letter has the same meaning as in the KMPG Huazhen General Business Terms:
Party A or you (and similar references) refers to xxHigh-tech Development Co., Ltd.
 
2. Audit Objectives and Scope of Audit
2.1 Party B accepts Party A’s engagement to audit financial statements of Party A for 2009  which are used as internal documents and prepared in accordance with the Accounting Standards for Business Enterprises (2006) issued by the Ministry of Finance of the People’s Republic of China (the “Ministry of Finance”). These financial statements include balance sheet as of December 31, 2009 and income statement, statement of changes in owners’ equities and cash flow statement for 2009 and accompanying notes to the financial statements.
 
2.2 Party B will conduct audit based on the Auditing Standards of China Certified Accountants (the “Audit Standards of China”) issued by the Ministry of Finance, express opinions on the aforesaid financial statements of Party A and report to Party A’s board of directors:
   i. whether the financial statements are prepared in accordance with the Accounting Standards for Business Enterprises issued by the Ministry of Finance; and
   ii. whether the financial statements give a fair view of Party A’s financial conditions as of the end of the year and operating results and cash flow for the year in all material aspects.
 
3. Responsibilities and Obligations of Party A
3.1 Responsibilities of Party A:
   i. Party A shall ensure the authenticity and completeness of financial information in accordance with the Accounting Law of the People’s Republic of China and the Regulations on Financial Reporting of Business Enterprises. Therefore, Party A has the responsibility to properly keep and provide accounting records (including but not limited to accounting vouchers, accounting books and other accounting data) which shall give a truthful and complete view of Party A’s financial conditions, operating results and cash flow; and
 
  ii. Party A shall prepare these financial statements in accordance with the Accounting Standards for Business Enterprises issued by the Ministry of Finance. Party A shall assume all accounting works and responsibilities including the preparation of draft and final financial statements and relevant schedules and the following work:
    ● Designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error;
    ● Selecting and applying appropriate accounting policies; and
● Making accounting estimates that are reasonable in the circumstances. 
 
3.2 Obligations of Party A
   i. Party A shall ensure that Party B has unrestricted access to any record, document and other necessary information related to the audit, and promptly provide originals of all accounting information and other relevant information required by Party B for the audit, including the minutes of all investor meetings, meetings of the board of directors, and other management and governance meetings, and ensure the authenticity and completeness of these information.
     
     As far as Party B’s audit responsibilities are concerned, where Party A provides Party B’s personnel not involved in the audit (such as tax advisory or financial advisory service staff) or other KMPG members with information (such as information related to taxation service or other services), it shall not be deemed that Party A has provided Party B with information necessary for its audit;
    
  ii. Party A shall ensure that its operating activities comply with provisions of laws and regulations, and prevent and identify possible violation of laws in its operating activities;
 
 iii. As part of usual audit procedures, Party B will require that Party A’s management make a written statement of issues that may have material impact on the financial statements. The written statement issued by Party A’s management shall be signed by Party A’s chairman and chief financial officer (or chief accountant). If the written statement is signed an authorized representative, then he/she shall have the power of attorney issued by the foregoing persons;
 
iv. Party A shall timely notify Party B of post-balance sheet issues which may have impact on the financial statement. Post-balance sheet issues refer to issues that occur during the period from the balance sheet date to the Auditor’s Report date and may have impact on Party A’s financial statements. In addition, before Party A presents the audited financial statements to the board of directors, Party A has the responsibility to inform Party B of any material issue which occurs during the period from the Auditor’s Report date to the date on which Party A presents the audited financial statements and may have impact on Party A’s financial statements;
 
v.  Party A shall provide auditors assigned by Party B with necessary work conditions and assistance, including providing relevant information required by Party B and procuring Party A’s employees to cooperate with Party B in the audit and other conditions and assistance as specified in Article 16 of the KMPG Huazhen General Business Terms. Party B’s auditors shall provide the list of needed information prior to the commencement of field work and Party A shall provide needed information no later than when Party B’s auditors start field work; and
 
vi. Party A shall make timely payment of all audit fees and traffic and accommodation expenses for Party B’s auditors during the audit period as agreed between the parties.
 
3.3 If any document, information or other articles provided by Party A involves state secrets or contains any file involving national security or material interests of the state, Party A shall notify Party B of the same in writing, so as to enable Party B to abide by provisions of the Regulations on the Reinforcement of Confidentiality and File Management related to Overseas Securities Offering and Listing, the Archives Law of the People’s Republic of China and the Law of the People’s Republic of China on Guiding State Secrets. Where Party A fails to give the above written notification when providing Party B with documents, information or other articles, Party B is entitled to believe that the documents, information and other articles provided by Party A do not involve any state secrete, national security or material interests of the state.
 
3.4 Despite the negligible possibility of occurrence of the following circumstances, where Party A provides false, untruthful or incomplete accounting information or other information or improperly uses the Auditor’s Report issued by Party B, Party A shall indemnify Party B for its direct or indirect loss or damage arising therefrom. Such loss or damage includes any third party claim against Party B, punishment imposed by government authorities (or judicial organ) on Party B or other legal liabilities assumed by Party B as a result thereof.
 
4. Responsibilities and Obligations of Party B
4.1 Responsibilities of Party B
  Party B’s responsibility is to express an opinion on these financial statements based on its audit. Party B shall conduct the audit in accordance with the Auditing Standards of China. These standards require that the auditors comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement; and
 
 Party B’s audit responsibility shall not lessen responsibilities of Party A’s management and governance (including accounting responsibility of establishing sound internal control system).
 
4.2 Obligations of Party B
i. Party B shall complete the audit within the time agreed between the parties and issue the Auditor’s Report;
 
ii. Party B shall keep secret Party A’s confidential information which Party B becomes aware of in conducting the audit, unless otherwise required by relevant laws and regulations of China at any time. Unless otherwise specified by the practicing standards for China CPAs, or otherwise required by Chinese laws and regulations or requirements of competent Chinese authorities (including but not limited to courts, procuratorates, arbitration institutions and regulatory authorities), or with written consent of Party A, or Party B, as a party to any legal proceeding related to the engagement, makes or is required to make disclosure, Party B shall not disclose to any third party other than KMPG member firms any confidential information known to Party B;
 
 This provision is not applicable to any confidential information that has come into public domain through proper channels and any confidential information obtained through any other source not under disclosure restriction. The provision does not preclude Party B from disclosing confidential information to Party B’s professional insurer, legal counsels or other professional advisors in respect of litigation or potential litigation caused by the engagement or the service rendered in connection therewith, provided that Party B makes disclosure on a confidential basis;
 
iii. Party B shall reasonably plan and perform procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected by Party B depend on its judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, Party B shall considers internal control relevant to the preparation of the financial statements  in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing  an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
 
In the audit, Party B may find material misstatements in the financial statements caused by fraud or error. Due to the testing nature and other intrinsic limitations of audit and intrinsic limitations of internal control, there inevitably exists the risk that some misstatements and even material misstatements are not identified. As preventing and identifying fraud and error is the responsibility of Party A’s governance and management, Party A shall not rely on Party B’s audit to identify all possible frauds or errors; and
iv. When deemed appropriate, Party B shall communicate with Party A about the following issues noticed by Party B in the audit:
 ● Any material defect in Party A’s accounting system or internal control;
 ● Any defect in Party A’s internal control in connection with the prevention or identification of fraud and error;
● Other matters related to corporate governance Party B deems deserving attention.
 
Party B will determine the importance of matters requiring communication and select suitable communication means based on its judgment. However, Party B will not design and perform relevant procedures particularly for identifying these matters. Unless otherwise specified by relevant laws, written correspondence from Party A (including the management letter) is for use solely by Party A’s management and governance, and Party B shall not be liable to any third party in respect thereof. Without prior written consent of Party B, all or part of contents of the correspondence shall not be cited, referred or disclosed to any other person.
 
5. Use of Work Products of Other Experts
Where Party B, based on the Auditing Standards of China, believes that it necessary to engage other experts to complete certain professional job for the audit, Party A shall assume expenses for engaging other experts and provide these experts and Party B with necessary assistance and arrangement, and Party B is entitled to decide on whether or not to use work products of these experts based on its judgments. Prior to the engagement of other experts, Party B will communicate with Party A about whether it is necessary to do so and other relevant information, and obtain Party A’s consent.
 
 6. Auditor’s Report and Use of the Report
  The Auditor’s Report issued by Party B (the “Auditor’s Report”) is solely for use by Party A as internal document. Significant accounting policies adopted by the financial statements attached to the Auditor’s Report are prepared in accordance with the Accounting Standards for Business Enterprises issued by the Ministry of Finance. The basis of expression and value determination of these accounting policies may not comply with requirements of accounting standards and practices generally accepted in countries and regions outside the People’s Republic of China. In providing the Auditor’s Report and the financial statements attached thereto, Party A shall not revise or delete any contents of the Auditor’s Report issued by Party B. In addition, if Party A believes that it’s necessary to revise or delete the financial statements and other relevant information attached thereto, Party A shall give notification to Party B and Party B will consider the impact of the revision or deletion on the Auditor’s Report and when necessary, issue a new Auditor’s Report.
 
  The Auditor’s Report can be used solely for the above purposes and shall not be relied on any other person for any other purpose. Party B disclaims any liability or obligation to any other person for all consequences arising from the use of the Auditor’s Report. Without written consent of Party B, Party A shall not in any form, publicly disclose, refer to or incite or make available for public consultation (including publication on any website or webpage) all or part of contents of the Auditor’s Report.
 
7. Audit Fee
 7.1 Article 11 of the KMPG Huazhen General Business Terms attached to the Engagement Letter sets forth provisions on audit fee. Party B will issue bills for installments during the audit period. Party A shall make full payment of fees upon its receipt of the bill.
 
7.2 As agreed between the parties through consultation, the audit fee is RMB 410,000 Yuan. Party A shall assume reimbursed expenses and other expenses related to the audit (including taxes, telephone, fax, postage, printing financial statements, document reproduction, and accommodation expenses and travel expense to/from Party A’s premise for Party B’s staff).
 
7.3 When Party B encounters any material problem in the audit, as a result of which Party B spends much more time on the audit than scheduled, Party A shall increase the audit fee as appropriate.
 
7.4 Where any large amount of reimbursed expense is missing on the last bill issued by Party B or any large amount of reimbursed expense is incurred after Party B issues the last bill, Party B hereby reserves the right to separately issue bill therefor.
 
7.5 Even if performance of the Engagement Letter is terminated or suspended, Party A shall pay reimbursed expense incurred by Party B and fee for work completed up to the termination date or suspension date. Article 13 of the KMPG Huazhen General Business Terms set forth the method for calculating fee for completed work.
 
7.6 The above professional service fee shall be paid in three installments as follows:
 
● First installment (RMB 123,000 Yuan or 30% of the professional service fee) shall be paid after the execution of the Engagement Letter and prior to Party B’s commencement of field work (Party B is scheduled to start field work in middle December 2010);
 
● Second installment (RMB 246,000 Yuan or 60% of the professional service fee, and relevant reimbursed expenses) shall be paid when Party B issues the draft Auditor’s Report (scheduled to be in middle January 2011);
 
● Third installment (RMB 41,000 Yuan or 10% of the professional service fee, and the remaining reimbursed expenses) shall be paid when Party B provides the final Auditor’s Report;
 
8. Effectiveness and Term of the Engagement Letter
 
8.1 Article 30 of the KMPG Huazhen General Business Terms attached to the Engagement Letter sets forth the effectiveness of the Engagement Letter. The Engagement Letter is made out in duplicate with identical legal effect and Party A and Party B each hold one copy.
 
8.2 The Engagement Letter shall come into effect on the date when Party A’s and Party B’s representatives sign and affix the official seal to the Engagement Letter (namely, on the date when the last party signs and stamps the Engagement Letter).
 
9. Change in Agreed Matters
  The specific time for issuing the Auditor’s Report shall be separately agreed between the parties. Where the audit cannot be completed as scheduled in case of any unforeseeable circumstance or where Party A needs to issued the Auditor’s Report ahead of schedule, either Party A or Party B may request for change in agreed maters by giving prompt notice to the other party, and the parties shall resolve the problem through consultation. Article 30 of the KMPG Huazhen General Business Terms attached to the Engagement Letter sets for the effectiveness of changes in agreed matters.
 
10. Termination
  Article 43 of the KMPG Huazhen General Business Terms attached to the Engagement Letter sets forth provisions concerning termination or suspension of performance of the Engagement Letter.
 
11. Party B’s Liability Exemption and Restriction
11.1 As far as the Engagement Letter is concerned, Party A agrees that Articles 37-40 of the KMPG Huazhen General Business Terms attached to the Engagement Letter shall be applicable to the engagement, shall be deemed part of the Engagement Letter, and shall be applicable together with restriction provisions on the following Article 11.2.
 
11.2 The parties agree that, Party B’s liability for the engagement as specified in Article 38 of the KMPG Huazhen General Business Terms attached to the Engagement Letter is subject to five times the audit fee for the engagement.
 
12. Applicable Law and Dispute Resolution
Article 49 of the KMPG Huazhen General Business Terms attached to the Engagement Letter sets forth provisions on applicable laws and dispute resolution of the Engagement Letter.
 
13. Ownership of Audit Work Papers
   Audit work papers shall be owned by Party B. Where Party A or any other third party requests for consulting the audit work papers, subject to Article 4.2ii (Confidentiality) of the Engagement Letter, Party B is entitled to decided on whether or not to permit Party A or any other third party to consult the audit work paper. If possible, all such consultations shall be under supervision by Party B’s staff. Party B disclaims any liabilities for all consequences caused by any misuse of the audit work papers.
 
14. Draft Report
   Article 6 of the KMPG Huazhen General Business Terms attached to the Engagement Letter sets forth provisions concerning the draft report.
 
15. Information Transmission through Internet Electronic Mails (“E-mail”)
 
   Articles 20-21 of the KMPG Huazhen General Business Terms attached to the Engagement Letter set forth provisions on information transmission through e-mails. In addition, as e-mail is not secured, Party A shall not rely on any content contained in e-mail unless confirmed by Party B in writing.
 
Party A: xxHigh-Tech Development Co., Ltd. (Official Seal)
Party B: KMPG Huazhen Certified Public Accountants (Official Seal)
Authorized representative: Ren Fuqiu (Signature)    
Authorized representative: Su Yonghai (Signature)
December 17, 2010
December 17, 2010
Attached: KMPG Huazhen General Business Terms