ࡱ> OQNq` R!bjbjqPqPBP::%82",L@($HhD,,4p C,Ey07jth"Yhhhdhhh$   Shandong Xinhua Pharmaceutical Co., Ltd.Terms of Reference of the Audit Committee under the Board of Directors(This terms of reference has been prepared in both Chinese and English. In the event of any discrepancy between the two versions, the Chinese version shall prevail.)Establishment 1. In accordance with Code on Corporate Governance Practices set forth in appendix 14 to the Listing Rules issued by The Stock Exchange of Hong Kong Limited, the Board of Directors of Shandong Xinhua Pharmaceutical Co., Ltd. (the Company) hereby decides to establish the Audit Committee (the Committee) under the Board of Directors. The responsibility of the Committee is to examine and supervise the financial reporting procedures and interior control of the Company. Members 2. The members of the Committee consist of three independent non-executive directors of the Board of Directors. There shall be at least two members to be present in each meeting of the Committee. 3. Chairman of the Committee shall be appointed by the Companys Board of Directors. Attendance 4. Financial Controller, Chairman of Board of Supervisors and Director of the Audit Department of the Company and representatives of domestic and international auditors shall generally be present in the meetings of the Committee, and other members of the Companys Board of Directors shall also be entitled to be present. However, there shall be at least one meeting every year between the Committee and domestic and international auditors of the Company not attended by Executive Director(s) of the Companys Board of Directors. 5. Secretary of the Board of Directors shall act as Secretary of the Committee. Number of Meetings6. The Committee shall hold at least two meetings every year. Functions and Powers7. The Committee may be authorized by the Companys Board of Directors to investigate activities within its terms of reference; it may be authorized to ask for any materials it needs from any employee of the Company, and all employees of the Company shall render cooperation to any request of the Committee as instructed. 8. The Committee may be authorized by the Companys Board of Directors to exterior legal or other independent professional opinions. If necessary, it may invite exterior personnel with relevant experience and expertise to attend its meetings. Duties 9. The major duty of the Committee is to review the half-year and annual financial statements of the Company. It shall mainly focus on the completeness, correctness and openness of such statements, and consider whether the accounting policies of the Company conform to the generally accepted accounting principles in Hong Kong and the demands of domestic accounting standards. Especially, it shall consider the scope of inconformity between the Companys policies and the practical accounting standards of Hong Kong and the Mainland and the reasons for any deviation. Besides, the Committee shall consider the appropriateness of the accounting policies adopted by the Company and whether there are other accounting policies that are more appropriate. In the review, it shall judge the quality of earnings, the completeness and openness of disclosed materials and the appropriateness of the directors statements in the report of the Board of Directors. The specific duties of the Committee are as follows:(a) To consider the appointment of international and domestic auditors of the Company, the audit cost and any matter related to resignation or removal; (b) To discuss the nature and scope of audit with international and domestic auditors before the start of auditing procedure, and ensure the coordination between their work;(c) To review the materials on the disclosure of extraordinary items occurred in the year, so as to ensure that the materials disclosed in the accounts are just and not misleading and that such extraordinary items are given proper attention in the financial statements. Any important and rare item may be deemed as an extraordinary item, such as assets transaction, contingent liability or lawsuit; (d) To review the half-year and annual financial statements of the Company before they are submitted to the Companys Board of Directors for discussion, especially the following aspects:(i) any change to the accounting policies and accounting practice; (ii) all major categories where judgment is needed; (iii) major adjustments must be made after the accounts are audited; (iv) assumption of continuing operation; (v) conformity with professional accounting standards; and(vi) conformity with the rules of stock exchanges and relevant laws. (e) To discuss the questions raised in the audit of midterm and term-end accounts and the points causing doubts and the matters that the auditors want to discuss (if necessary, the discussion may be made with the absence of the management staff); (f) All major audit adjustments must be reviewed by the Committee. The Committee shall also examine the errors leading to such adjustments and whether further adjustment is needed; (g) To make an overall review of the financial statements, so as to consider whether there is any inconformity. The Committee shall specially review whether the directors reports and the Chairmans correspondence justly reflect the performance of the Company and conform to the situation reflected in all accounts. Besides, the Committee shall consider whether the presented financial statements conform to the reports submitted to the tax authorities or other regulatory organs; (h) To review the fact sheets of checking produced by international and domestic auditors and the response of the Companys management staff;(i) To review the statement of the Company on its interior control system (if such a statement is included in the annual report) before it is submitted to the Companys Board of Directors for signing;(j) To consider the major findings of the interior investigation and the response of the Companys management staff, and (k) To consider other matters decided by the Board of Directors. Reporting Procedure10. The Committee shall report twice to the Board of Directors every year. 11. The Committee shall submit its work report to the Board of Directors at least once a year. 12. Secretary of the Committee must circulate the minutes of Committees meetings to all members of the Board of Directors. Remuneration 13. The Board of Directors may give proper remuneration to members of the Committee based on the time of their work and their responsibilities. 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