Tonghua Dongbao Accounting Firm Selection and Recruitment System (October 2025)
Tonghua Dongbao Pharmaceutical Co., Ltd.
Accounting firm selection system
Chapter 1 General Provisions
Article 1 In order to regulate the behavior related to the selection (including renewal and re-appointment of accounting firms, the same below) of Tonghua Dongbao Pharmaceutical Co., Ltd. (hereinafter referred to as the "Company"), effectively safeguard the interests of the company and shareholders, and improve the quality of financial information and audit work, this system is formulated in accordance with the Company Law, the Securities Law, the Stock Listing Rules of the Shanghai Stock Exchange, the Administrative Measures for the Selection of Accounting Firms by State-owned Enterprises and Listed Companies, and the company's articles of association, and in light of the actual situation.
Article 2 The term “selection of accounting firms” as used in this system refers to the act of a company appointing an accounting firm to issue audit opinions and issue audit reports on the company’s financial statements in accordance with the requirements of relevant laws and regulations. If a company selects an accounting firm to engage in other statutory auditing services other than financial accounting report auditing, the company may refer to this system.
Article 3 The company's selection or dismissal of an accounting firm shall be submitted to the board of directors for review and approval by the audit committee, and shall be decided by the shareholders' meeting. The company shall not hire an accounting firm to carry out auditing business before the board of directors or shareholders meeting approves the decision.
Article 4 The company's controlling shareholders and actual controllers may not designate an accounting firm to the company before the company's board of directors or shareholders' meeting deliberation, nor may they interfere with the audit committee's independent performance of selection duties.
Chapter 2 Requirements for the Practice Quality of Accounting Firms
Article 5 The accounting firm selected by the company shall meet the following basic conditions:
(1) Have independent legal personality and possess the professional qualifications and conditions required to carry out securities and futures-related businesses as stipulated by the national industry authorities and the China Securities Regulatory Commission (hereinafter referred to as the “China Securities Regulatory Commission”);
(2) Have a fixed workplace, a sound organizational structure, and complete internal management and control systems;
(3) Be familiar with national laws, regulations, rules and policies related to financial accounting;
(4) Certified public accountants who have the ability to complete audit tasks and ensure audit quality;
(5) Earnestly implement laws, regulations, rules and policies related to financial auditing, have a good social reputation and practice quality record, and have not been criminally punished for illegal securities and futures practice in the past three years;
(6) Ability to keep company information and business secrets known to them confidential;
(7) Other conditions stipulated by the China Securities Regulatory Commission or relevant laws and regulations.
Chapter 3 Procedures for Selection of Accounting Firms
Article 6 The Audit Committee is responsible for selecting an accounting firm and supervising the performance of its audit work. The audit committee shall effectively perform the following responsibilities:
(1) Formulate policies, procedures and related internal control systems for the selection of accounting firms in accordance with the authorization of the board of directors;
(2) Propose to start the work related to selecting an accounting firm;
(3) Review the selection documents, determine the evaluation elements and specific scoring standards, and supervise the selection process;
(4) Put forward suggestions on the selection of accounting firms and audit fees, and submit them to the decision-making body for decision;
(5) Supervise and evaluate the audit work of accounting firms;
(6) Regularly (at least annually) submit to the board of directors an evaluation report on the performance of the hired accounting firm’s duties and a report on the performance of the audit committee’s supervisory responsibilities;
(7) Responsible for laws and regulations, the Articles of Association and other matters authorized by the board of directors regarding the selection of accounting firms.
Article 7 The Company's Finance Department is responsible for assisting the Audit Committee in the selection of accounting firms, assessment of the quality of external audit work, and handling other external audit-related work; arranging the signing and execution of audit engagement letters, cooperating with the accounting firm to complete the agreed work, collecting and organizing relevant information for the quality assessment of the accounting firm's work, daily communication with the accounting firm, and assisting in providing other information related to the accounting firm required by internal and external management agencies. The Company's Securities Department is responsible for the external disclosure of accounting firm selection and other related information.
Article 8 When selecting an accounting firm, a company shall use competitive negotiation, public bidding, invitational bidding, and other selection methods that can fully understand the accounting firm's competency to ensure that the selection work is conducted fairly and impartially.
Article 9 If public selection methods such as competitive negotiation, open bidding, invitational bidding, etc. are adopted, the selection documents shall be released through public channels such as the company's official website. The selection documents shall include basic selection information, evaluation factors, specific scoring standards, etc.
The company shall determine the response time for the accounting firm to submit application documents after the selection documents are released in accordance with the law, and ensure that the accounting firm has sufficient time to obtain selection information and prepare application materials. Companies may not restrict or exclude potential accounting firms with unreasonable conditions, and may not tailor selection conditions for individual accounting firms. The selection results shall be announced in a timely manner, and the disclosure content shall include the accounting firm to be selected and the audit fees.
Article 10 A company shall specify the evaluation criteria for selecting an accounting firm, and evaluate the accounting firm's application documents by itself or by entrusting a third-party professional agency to do so. The evaluation opinions of participants in the evaluation shall be recorded and preserved. The evaluation factors for selecting an accounting firm should at least include the audit fee quotation, the accounting firm's qualifications, practice records, quality management level, work plan, human and other resource allocation, information security management, risk-taking ability level, etc. The selecting party shall evaluate and score each valid application document individually and summarize the scores of each evaluation factor. Among them, the score weight of quality management level should not be less than 40%, and the score weight of audit fee quotation should not be higher than 15%.
Article 11 When a company evaluates the quality management level of an accounting firm, it shall focus on evaluating the quality management system and implementation, including policies and procedures in project consultation, resolution of disagreements, project quality review, project quality inspection, identification and rectification of quality management defects, etc.
Article 12 When a company uses a public selection method to evaluate the audit fee quotations of accounting firms, it shall use the average of the audit fee quotations of all accounting firms that meet the requirements of the selection documents as the selection benchmark price, and calculate the audit fee quotation score according to the following formula:
Audit fee quotation score = (1-∣selection benchmark price-audit fee quotation∣/selection benchmark price)×weight score of audit fee quotation elements
Article 13 In principle, the company shall not set a maximum price limit when selecting an accounting firm. If it is indeed necessary to set a maximum price limit, the basis and rationality of the determination of the maximum price limit shall be explained in the selection document.
Article 14 The general procedures for selecting an accounting firm are as follows:
(1) The Audit Committee proposes the qualifications and requirements for selecting an accounting firm, and notifies the relevant departments of the company to carry out preliminary preparation, investigation, data collection and other work;
(2) The accounting firms participating in the selection should submit relevant materials to the audit committee for preliminary review and sorting within the specified time;
(3) The audit committee shall evaluate the accounting firm’s application documents or review the evaluation opinions. After passing the review, it will be submitted to the board of directors for review;
(4) The board of directors shall review the proposal on the selection of an accounting firm approved by the audit committee. If the board of directors considers and approves the proposal to select an accounting firm, it shall be submitted to the shareholders' meeting for review, and relevant information disclosure obligations shall be performed in a timely manner after review and approval;
(5) According to the resolution of the shareholders' meeting, the company signs an auditing engagement letter (contract) with an accounting firm and hires an accounting firm to perform the auditing business for a period of one year and can be renewed.
Article 15 The hired accounting firm shall perform its obligations in accordance with the provisions of the "Audit Engagement Letter", complete the audit work within the specified time, issue an audit report, and shall not subcontract or subcontract to other accounting firms.
Article 16 During the appointment period, the company and the accounting firm may reasonably adjust audit fees based on factors such as changes in the consumer price index, social average wage levels, changes in business scale and business complexity. If the audit fees fall by more than 20% (inclusive) compared with the previous year, the company shall explain the amount, pricing principles, changes and reasons for the changes in the current period's audit fees in the information disclosure document as required.
Article 17 If an audit project partner or signing certified public accountant has actually undertaken the company's audit business for five consecutive years, he or she shall not participate in the company's audit business for five consecutive years thereafter. Due to changes in work of the audit project partners and signing certified public accountants, the periods for providing audit services to the company in different accounting firms shall be calculated together. If a company undergoes a major asset reorganization or a subsidiary is spun off and listed, and the audit project partners and signing certified public accountants who provide audit services remain unchanged, the periods for which the relevant audit project partners and signing certified public accountants provided audit services before and after the major asset reorganization or subsidiary was spun off and listed shall be calculated together. The audit service years of the audit project partners and the signing certified public accountants before and after the company is listed shall be calculated together.
If an audit project partner or a signing certified public accountant undertakes the initial public offering of stocks or the public issuance of stocks to unspecified objects and the listing of audit services, the period of continuous audit service after listing shall not exceed two years.
Article 18 Companies should raise awareness of information security, strictly abide by national laws and regulations on information security, conscientiously implement regulatory requirements for information security, and effectively assume the main responsibility and confidentiality responsibility for information security. Companies should strengthen the review of accounting firms' information security management capabilities when selecting and hiring, and should set up separate clauses in the selection contract to clarify information security protection responsibilities and requirements. When providing documents and materials to accounting firms, companies should strengthen the management and control of confidential and sensitive information to effectively prevent the risk of information leakage.
Article 19 The company shall properly archive and preserve the accounting firm selection, application, review, employment documents and relevant decision-making materials, and shall not forge, alter, conceal or destroy them. Documents will be kept for at least 10 years from the date of recruitment.
Article 20 The company shall disclose the service years, audit fees and other information of the accounting firm, audit project partners, and signing certified public accountants in the annual final financial report or annual report.
Chapter 4 Special Agreement on Re-employment of Accounting Firms
Article 21 When one of the following circumstances occurs, the company shall hire a new accounting firm:
(1) There are major deficiencies in the quality of the accounting firm’s practice;
(2) The accounting firm’s auditors and time schedule are difficult to ensure that the company discloses annual report information on schedule;
(3) Subcontract or subcontract the audit projects undertaken to other institutions;
(4) Failure to perform obligations of integrity and confidentiality in serious circumstances;
(5) Buying and selling the company’s stocks in violation of regulations, or using the company’s inside information to facilitate others;
(6) Failure to timely file and report audit-related information to the company’s audit committee within the prescribed time, resulting in serious consequences;
(7) The accounting firm's situation changes and it no longer has the qualifications or ability to undertake relevant business, resulting in its inability to continue to perform its obligations according to the business agreement;
(8) The accounting firm requests to terminate the audit business of the company;
(9) Other violations of laws, regulations, provisions of this system or business agreements.
Article 22 When reviewing the proposal for changing the appointment of an accounting firm, the audit committee shall meet with the predecessor and the accounting firm to be hired, carefully investigate the practice quality and integrity of the accounting firm to be hired, make a reasonable evaluation of the practice quality of both parties, and based on judgment on the adequacy of the reasons for the change, issue review opinions and submit them to the company's board of directors and shareholders' meeting for review.
Article 23 If a company plans to re-appoint an accounting firm, it shall disclose the information about the predecessor accounting firm and the audit opinions of the previous year, the reasons for the change of accounting firm, the communication status with the predecessor accounting firm, etc.
Article 24 If an accounting firm voluntarily requests to terminate the audit business of the company, the audit committee shall learn the reasons in detail from the relevant accounting firm and make a written report to the board of directors. The company implements the re-employment procedures in accordance with the provisions of this system.
Article 25 If a company changes its accounting firm, it shall complete the selection and appointment before the end of the fourth quarter of the year being audited.
Chapter 5 Supervision and Punishment
Article 26 The audit committee shall be highly cautious and pay attention to the following situations:
(1) Change the accounting firm between the balance sheet date and before the issuance of the annual report, change the accounting firm for two consecutive years, or change the accounting firm multiple times in the same year;
(2) The accounting firm to be hired has been subject to multiple administrative penalties due to quality of practice in the past three years or multiple audit projects are under investigation;
(3) The original audit team is planned to be transferred to another accounting firm;
(4) The audit fees during the appointment period have changed significantly compared with the previous year, or the transaction price of the appointment is significantly lower than the benchmark price;
(5) The accounting firm failed to substantially rotate audit project partners and signing certified public accountants as required.
Article 27 If an accounting firm undertaking auditing services commits any of the following acts and the circumstances are serious, upon resolution of the shareholders' meeting, the company will no longer select it to undertake auditing work:
(1) Failure to complete the audit work on time and issue an audit report in accordance with the requirements of the "Audit Engagement Letter";
(2) Colluding with other audit units and falsely applying for jobs;
(3) Subcontract or subcontract the audit projects undertaken to other institutions;
(4) The audit report does not meet the requirements of audit work and there are obvious audit quality problems;
(5) Failure to perform obligations of integrity and confidentiality in serious circumstances;
(6) Buying and selling the company’s stocks in violation of regulations, or using the company’s inside information to facilitate others;
(7) No longer meet the employment conditions;
(8) Other serious circumstances.
Article 28 If the audit committee discovers that the accounting firm has violated this system and relevant regulations and has caused serious consequences, it should report it to the board of directors in a timely manner, and the board of directors will punish the relevant responsible persons according to the seriousness of the case and the seriousness of the consequences; if losses are caused to the company, the relevant responsible persons shall bear the liability for compensation.
Chapter 6 Supplementary Provisions
Article 29 This system will be officially implemented from the date of review and approval by the company's board of directors.
Article 30 If there are any matters not covered in this system, they shall be implemented in accordance with relevant national laws and regulations, normative documents and the company's articles of association. If this system conflicts with laws, regulations, supervisory rules or the revised Articles of Association promulgated by the state in the future, the provisions of the relevant laws, regulations, supervisory rules and Articles of Association of the Company shall be followed.
Article 31 The right to interpret this system belongs to the company's board of directors.
Tonghua Dongbao Pharmaceutical Co., Ltd.
October 2025