ADAMA Ltd.
Assessment Report on Internal Control for 2018
All Shareholders of ADAMA Ltd.:
We evaluated the effectiveness of the internal control for the Company as of December
31, 2018 (the base date of the internal control assessment report) in accordance with the "Basic
Standards for Enterprise Internal Control", its supporting guidelines and other internal control
regulatory requirements (hereinafter referred as the internal control system of enterprises), while
taking into consideration the internal control mechanism and assessment methods of our
Company (hereinafter referred to as “ADAMA” or the “Company") and also on the basis of daily
and special supervision.
I. Important Statement
In accordance with the internal control system of enterprises, the board of directors of a
company holds the responsibility to establish and improve the internal control, evaluate its
effectiveness and truthfully disclose the corresponding assessment report. The board of
supervisors of a company supervises the establishment and implementation of the internal
control by the board of directors. The management team is responsible for initiating and
organizing daily activities of the enterprise internal control. The board of directors, board of
supervisors and all members thereof, including directors and supervisors, as well as the senior
management of the company, confirm that the report is true, accurate and complete, does not
contain any misleading statements or material omissions and assume joint and several legal
liability arising therefrom.
The goal of the internal control is to ensure that the business management of a company is
legitimate and compliant, the company’s assets are secured and that its financial reporting and
related reported information are true and complete. It is also aimed at improving operational
efficiency and effectiveness, and promoting the realization of development strategies. Due to the
inherent limitations of an internal control, it can only provide reasonable assurance to achieve
those objectives mentioned above. Moreover, changes in circumstances may cause the internal
control to be inappropriate, or reduce compliance with policies and procedures. Therefore, there
is a risk in speculating the effectiveness of future internal controls based on these assessment
results.
II. Conclusion of the Internal Control Assessment
1. Does the company have a material deficiency in the internal control of the financial
reporting on the base date of the internal control assessment report?
□ Yes √ No
2. Assessment conclusion of internal control over financial reporting
√ Valid □ Invalid
According to the internal control's criteria for identification of material deficiencies in the
internal control over financial reporting, there is no such deficiency as of the base date of
the internal control assessment report. The board of directors of the Company believes
that the Company has managed an effective internal control of its financial report in all
major aspects in accordance with the requirements of the internal control system and
related regulations.
3. Whether there is any material deficiency in the internal control over non-financial
reporting
□ Yes √ No
According to the internal control's criteria for identification of material deficiencies in the
internal control related to non-financial reporting of the Company, no such deficiency
was found on the base date of the assessment report.
4. Factors affecting the effectiveness of the assessment conclusion as of the base date until
the issuance date of the assessment report of the internal control
□ Applicable √ Not Applicable
There are no factors affecting the effectiveness of the assessment conclusion as of the
base date until the issuance date of the assessment report of the internal control.
5. Whether the audit opinion for the internal control is consistent with the effectiveness
assessment conclusion on the internal control over financial reporting
√ Yes □ No
6. Whether the disclosure regarding material deficiencies in the internal control audit report
is consistent with that of the assessment report of the company’s internal control
√ Yes □ No
III. Assessment of Internal Control
(I) Scope of Internal Control Assessment
The Company confirms the main units, businesses, items and highly risky areas to be
included in the assessment scope according to the risk-oriented principle.
1. Main Units within the Assessment Scope include:
Major subsidiaries for the manufacturing, formulation, R&D and marketing.
2. Proportion of units within the assessment scope
Index Proportion (%)
Total Assets of Units within the Assessment Scope Compared to Total Assets in 70.33
the Consolidated Statements of the Company
Total Operating Income of Units within the Assessment Scope Compared to Total 75.34
Operating Income in the Consolidated Statements of the Company
3. Major businesses and items within the assessment scope
Financial Reporting, ITGC, Sales, Assets, Payroll, Purchase, Inventory, Treasury, Entity-level
controls, Comprehensive Budget, Research and Development, Related Parties, Contract management.
4. Highly risky areas of major concern include:
Sales, Assets, Purchase, Treasury (including derivatives)
5. The above-mentioned units, businesses, items and highly risky areas within the
assessment scope cover the main aspects of the company's operation and
management. Is there any material omission?
□ Yes √ No
6. Is there a statutory waiver?
□ Yes √ No
7. Other Instructions
None
(II) Work Basis of the internal control assessment and the identification standards of deficiencies
The Company conducted the internal control evaluation based on the requirements of the
internal control system and relevant external supervision regulations..
1. Whether there is any adjustment of the specific criteria for defining the internal control
deficiency compared to previous years
□ Yes √ No
This is the first year for the Company to disclose the self-assessment report on internal
control, after acquiring ADAMA Agricultural Solutions Ltd. through the major assets
restructuring in 2017.
The board of directors of the Company distinguishes the internal control of financial
reporting from that of non-financial reporting based on factors such as company size,
industry characteristics, risk preference and tolerance according to the specific criteria of
the internal control system to identify material, significant and general deficiencies.
2. Identification criteria for a deficiency in the internal control of the financial report
The quantitative criteria for deficiency assessment in the internal control of the financial reports as
was determined by the Company are as follows:
Index Quantitative Criteria for Quantitative Criteria for a Quantitative Criteria
a Material Deficiency Significant Deficiency for a General
Deficiency
Misstatement The corresponding The corresponding Resulting in other
in Financial misstatement relates to misstatement relates to an misstatement related
Report an amount that is amount that is greater than or amounts.
(usually greater than or equal to equal to RMB 50 million, but
related to net RMB 100 million. less than RMB 100 million.
income)
The qualitative criteria for deficiency assessment in the internal control of the financial reports as was
determined by the Company are as follows:
Classification Qualitative Criteria
by Features
Material Resulting in an adverse opinion or disclaimer of opinion, by a CPA, on the
Deficiency Company’s financial statements; or resulting in a material correction of the
Company’s publicly announced financial statements.
Significant Resulting in a qualified opinion, by a CPA, on the Company’s financial
Deficiency statements; or resulting in an adverse opinion or disclaimer of opinion, by a
CPA, on the Company’s material subsidiaries’ (i.e. Solutions) financial
statements; or resulting in a significant correction of the Company’s material
subsidiaries’ (i.e. Solutions) publicly announced financial statements.
General Resulting in an unqualified opinion, with an explanatory paragraph, by a
Deficiency CPA, on the Company’s financial statements; or resulting in a qualified
opinion, or unqualified opinion with an explanatory paragraph, by a CPA, on
the Company’s subsidiaries’ financial statements.
3. Identification criteria for a deficiency in the internal control over non-financial reporting
The quantitative criteria for a deficiency assessment in the internal control over non-financial
reporting as was determined by the Company are as follows:
Index Quantitative Criteria of Quantitative Criteria of Quantitative Criteria of
Material Deficiency Significant Deficiency General Deficiency
Asset Loss Asset Loss ≥ RMB 150 RMB 80 million ≤ Asset Asset Loss < 80 million
million Loss ≤ 150 million RMB RMB
The qualitative criteria for a deficiency assessment in the internal control over non-financial
reporting as was determined by the Company are as follows:
Classification Qualitative Criteria
by Features
Material 1) Fraud committed in the Company by any of its directors, supervisors and
Deficiency senior management personnel;
2) The Company materially violates material laws and regulations, resulting
in a material effect on the Company's business;
3) Material design deficiencies in the Company's relevant management
system;
4) The Company materially violates the decision-making process thereby
causing a material negative impact on the Company's business (generally
related to matters that need to be approved by the shareholders meeting or
the board of directors).
5) Material impact to the Company’s reputation.
Significant 1) Significant fraud committed by any department head of the Company;
Deficiency 2) Significant fraud committed by a head of any of the Company’s material
subsidiaries;
3) The Company violates significant laws and regulations, resulting in
significant fines as well as a significant effect on the Company's business ;
4) Significant design deficiencies found in the Company's relevant
management system; Material design deficiencies are found in the relevant
management systems of subsidiaries;
5) The Company violates material decision-making procedures, resulting in a
significant effect on the Company's business (generally referred to matters
subject to senior management's decision);
6) Material Subsidiaries violate decision-making process, thereby causing a
material negative impact on the Company's business (generally referred to
matters that need to be decided by the shareholders’ meeting or the board
of directors).
7) Significant impact to the Company’s reputation.
General 1) Fraud committed by any other personnel in the Company;
Deficiency 2) Fraud committed by any other personnel in material subsidiaries;
3) The Company materially violates material internal regulations or non-
materially violates material laws and regulations, resulting in negative
feedback from regulatory authorities;
4) There are other violations of laws and regulations or internal regulations
found in material subsidiaries.
5) There are general design deficiencies in the relevant management system
of the Company; other design deficiencies exist in the relevant
management system of the material subsidiaries;
6) The Company violates the decision-making process, resulting in a negative
impact on the Company's business;
7) Material Subsidiaries violate decision-making process, resulting in a
negative impact on the Company's business.
(III) Identification and rectification of internal control deficiencies
1. Identification and remediation of deficiencies included in the internal control deficiencies on the
financial reporting
1.1. Material Deficiency
Whether the company has a material deficiency in the internal control of the financial reporting
during the reporting period
□ Yes √ No
1.2. Significant Deficiency
Whether the company has a significant deficiency in the internal control of the financial
reporting during the reporting period
□Yes √ No
1.3. General Deficiency
The general internal control deficiencies identified by the Company do not affect the realization of the control
objectives; the Company acknowledges with great importance the general deficiencies found during the
reporting period and has proposed remediation opinions and actively formulated corresponding plans for their
implementation.
1.4. After the remediation, as of the base date of the internal control assessment report, whether the
company has a material deficiency in the internal control over financial reporting that has not been
rectified
□Yes √ No
1.5. After the remediation, as of the base date of the internal control assessment report, whether the
company has a significant deficiency in the internal control over financial reporting that has not been
rectified
□Yes √No
2. Identification and Rectification of Internal Control Deficiencies over Non-Financial Reporting
2.1. Material Deficiency
Whether the company identified any material deficiency in the internal control over non-financial reporting
during the reporting period
□Yes √ No
2.2 Significant Deficiency
Whether the company identified any significant deficiency in the internal control over non-financial reporting
during the reporting period
□ Yes √ No
2.3. General Deficiency
The general deficiency identified by the company does not affect the realization of the control objectives; the
Company acknowledges with great importance the general deficiency found during the reporting period and
has proposed rectification opinions and actively formulated corresponding plans for implementation.
2.4. After the above rectification, as of the base date of the internal control assessment report, whether
the company has a material deficiency in the internal control not related to financial reporting that has
not been rectified
□ Yes √ No
2.5. After the rectification, as of the base date of the internal control assessment report, whether the
company has a significant deficiency in the internal control not related to financial reporting that has
not been rectified
□ Yes √ No
IV. Other important matters related to internal control
1. Rectification of internal control deficiencies in the previous year
□ Applicable √ Not Applicable
2. Internal Control Progress of the Current and the Next Years
□ Applicable √ Not Applicable
3. Other Major Items
□ Applicable √ Not Applicable
By order of the Board
ADAMA Ltd.
March 19, 2019
