ADAMA Ltd.
Assessment Report on Internal Control for 2022
All Shareholders of ADAMA Ltd.:
We evaluated the effectiveness of the internal control for the Company as of December 31,
2022 (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
74.4
in the Consolidated Statements of the Company
Total Operating Income of Units within the Assessment Scope Compared to
74.0
Total 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 Matters
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
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 misstatement in The misstatement in financial Resulting in other
in Financial financial report relates report relates to an amount that misstatement related
Report to an amount that is is greater than or equal to amounts.
greater than or equal to RMB 50 million, but less than
RMB 100 million. RMB 100 million.
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. In
addition, where no internal control or no relevant compensation control is
established or implemented for the accounting treatment for unusual or
special transactions.
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
During 2022, one significant deficiency was found, due to two events occurred in subsidiaries level that have
not been reported by the subsidiaries to the group’s management in a timely manner according to the entity level
control designed. The deficiency does not have any significant impact on the financial results of the Group.
The management is in a process of internal investigation in order to design and implement a rectification plan.
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
During 2021, a significant deficiency was identified in a marketing subsidiary of the Group which was
related to the design and operational controls over the accuracy and completeness of the rebate
calculations. During 2022, the deficiency was rectified that the management of the subsidiary
redesigned the controls regarding the rebate process including segregation of duties and building reports
in the system to ensure completeness and accuracy of the rebate provision. Additionally, the
management has improved the estimation based on past experience and approved rebate plans.
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, 2023
