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No.12 of 2016 (General Serial No. 243):The Audit Results of the Financial Revenues and Expenditures of the Aviation Industry Corporation of China for
2017-06-08日   Soure : 【www.9455.com:International Cooperation Department】 :

No.12 of 2016 (General Serial No. 243):

The Audit Results of the Financial Revenues and Expenditures of the Aviation Industry Corporation of China for the Year 2014

In accordance with the stipulations of The Audit Law of the People’s Republic of China, the National Audit Office of China (CNAO) conducted auditing in 2015 on the situation of financial revenues and expenditures of the year 2014 of the Aviation Industry Corporation of China (AVIC). The audit focused on three secondary units including the Headquarters of AVIC and AVIC International ( AVIC INTL) and made follow-on and retroactive efforts on relevant items.

I. Overview

AVIC was founded in November 2008.Its main business includes aeronautical facilities, transport planes, engines, helicopters, airborne equipments and systems, trades and logistics, non-banking finance and so on. As reflected in the consolidated financial statement by the end of 2014, AVIC had possessed 1,937 wholly-owned or holding subsidiaries  213 joint- stock companies and has a registered capital of RMB64 billion. The total assets amounted to RMB799.616 billion, the total liabilities reached RMB523.07 billion, and there was RMB276.546 billion worth of owners’ equity. The asset-liability ratio was 65.42%. The realized operating revenue of the same year was RMB386.383 billion and a net profit of RMB14.327 billion was earned. The return on equity was 3.75%, and the rate of the value maintenance and value increase of state-owned capital was 106.25%.

Zhong Huan Hai Hua Accounting Firm, entrusted by AVIC, audited the consolidated financial statement of 2014 of the Corporation and issued a standard and unqualified auditing report. The report was published on China Money.com.cn.

The audit results conducted by CNAO indicated that AVIC, with a developing strategy of speeding up the overall business arrangement and the construction of aviation industry base, actively promoted the industry integration, built modern enterprise system and management system, improved the corporate governance structure, promoted overall risk management and internal control system. The audit results also demonstrated that some problems have still existed in fields such as financial management, accounting, important corporate decision making and management, professional ethics, reform and rectification of problems found in previous years of AVIC.

II. Main Problems Found in the Audit

(I) On financial management and accounting

uIn the combined financial statement of 2014, because the combined items were not complete and the relevant trading statistics were not accurate, AVIC overstated RMB1.415 billion assets and RMB1.415 billion liabilities, and overstated RMB1.059 billion revenues and RMB1.059 billion costs.

uFrom 2008 to May 2015, two companies including the sub-unit AVIC Xi’an Aircraft Industry (Group) Company LTD. (hereinafter referred to as Xi’an Aircraft Group) made a payment of RMB911 million housing fund for staffs in excess of the state stipulations, in which the amount of RMB168 million was in 2014.

uIn 2014, seven companies including the sub-unit AVIC Guizhou Aircraft Limited Corporation, due to affirming the sales revenue ahead of schedule, overstated RMB716 million of revenues and RMB643 million of cost expenses respectively.

u By the end of 2014, the sub-unit AVIC Special Metal (Xi’an) Corporation, under the situation that the debtor had already run into trouble and their capital chain had broken and the court had already started to conduct restructuring of the company, only accrued RMB34.2651 million for bad-debt provision and an under-accrual of RMB391 million.

uIn 2005, the old sub-unit AVIC Second Group Corporation did not record RMB300 million removal subsidy in accordance with the rules, while used the money to build new office building, being used as planned in April 2010, was still not reckoned in as fixed assets by the end of 2014.

u In 2014, the AVIC sub-unit Xi'an Aeronautical Computing Technology Research Institution offset RMB178 million of exchange gains for the costs of the same year, while it should be used to offset the costs of 2012 and 2013. As a result, the company overstated RMB178 million costs in 2012 and 2013, and understated RMB178 million costs in 2014.

u From 2009 to 2014, six units including the Headquarters of AVIC and the sub-unit AVIC International had illegally disbursed RMB120 million salary subsidies from expenses in excess of the total salary, in which the amount of RMB27 million was 2014.

u In 2014, the sub-unit Xi’an Aircraft Group irregularly used assets from the research expenditure to offset the liabilities, resulting in an understatement of RMB111 million assets and RMB111 million liabilities respectively.

uIn 2014, the sub-unit AVIC Xi’an Flight Automatic Control Research Institution failed to offset the purchasing money paid in advance in time, resulting in an overstatement of RMB78.2081 million assets and RMB78.2081 million liabilities respectively.

uIn 2014, the sub-unit AVIC Huiteng Wind Power Equipment Co., Ltd. changed RMB11.34 million land subsidies acquired from 2011 to 2012 into non-business income, which affected the authenticity of the operating performances in 2014.

(II) On important corporate decision- making and management

uIn June 2008, AVIC , without any approval, agreed its affiliated company to purchase the iron ore stock rights at the price of RMB336 million and added more investment in construction. By 2014, the accumulated investment had reached RMB1.067 billion. The project’s construction progress lagged badly and has not gone into operation till today, facing the risk of loss.

u In July 2008, AVIC did not strictly comply with the procedure of the internal collective decision- making and approved its affiliated company to invest RMB961 million to build a glass production line. Since the project was built, the accumulated loss had amounted to RMB195 million, of which the amount of RMB154 million was in 2014.

u In November 2011, AVIC did not strictly comply with the procedure of the internal collective decision- making and approved its affiliated company to purchase stock rights with RMB50 million. From 2012 to 2014, the acquired company had accumulated a loss of RMB631 million, in which the loss of  RMB259 million was in 2014 .

u From 2010 to 2014, five companies including the sub-unit China National Civil Aircraft Development Co., Ltd. had conducted financing trade business of RMB18.182 billion. The unrecovered fund of RMB4.188 billion was facing the risk of loss.

u From 2010 to April 2015, six companies including the sub-unit AVIC International had purchased company stock rights without evaluating or being approved by the Group, involving a capital of RMB15.079 billion, in which the amount of RMB5.478 billion was in 2014.

u From 2008 to 2014, six companies including the sub-unit AVIC International (Shanghai) Company had irregularly provided guarantee, lent out money and made entrusted loan to outside units, involving RMB11.623 billion, in which the amount of RMB6.887 billion was in 2014. And among the above-bussiness RMB1.292 billion was facing the risk of loss by the end of 2014.

u In October 2009, the sub-unit AVIC Huiteng Wind Power Equipment Co., Ltd. bought 70% stock rights of an overseas company at the price of RMB101 million without conducting evaluation. As the acquired company went into liquidation in September 2014, there was a possibility for the risk of loss.

u From 2010 to June 2015, projects of the sub-unit AVIC Guiyang Aero Engine Industry Base had been irregularly bidden through invitation bidding instead of public bidding, involving RMB 2.91 billion, in which the amount of  RMB1.542 billion was in 2014.

u From 2010 to December 2012, three companies including the sub-unit AVIC International (Shanghai) Company had not given full consideration to the risks prompted by intermediary organs before investing RMB504 million to purchase stock rights of other companies, incurring serious losses.

u From July 2011 to June 2015, the sub-unit AVIC Trust Co., Ltd. had invested RMB807 million to purchase risky trust beneficiary right and the trust plans that had difficulty in capital turnover, of which RMB670 million were at the risk of loss.

u In 2010, the sub-unit AVIC International and the project company it set up, without obtaining operational right of the golf course in accordance with the contract, paid financial compensations in advance to the other company and completed the renovation of the golf course. Because the other company refused to transfer the right of operation, RMB151 million of compensation and renovation expenses paid in advance were facing the risk of loss.

u By June 2015, the sub-unit AVIC International Leasing Company Limited had failed to list 2 financing leasing projects unable to pay the rent due to operational difficulties as risky assets for management, and also failed to take effective measures to lower the risk of the unrecovered RMB396 million.

(III) On professional Ethics

u From 2011 to 2014, some executives at the Headquarters of AVIC had received more salary subsidies and claimed reimbursement for taking trips abroad and meeting in excess of the standard, involving RMB 4.0984 million, in which the amount of RMB2.0163 million was in 2014.

u In 2014, the expense of temporary going abroad for the sub-unit AVIC International Aero- Development Corporation exceeded RMB2.3551 million.

u From 2012 to September 2014, two units including the sub-unit AVIC International had used public funds for golf consumption and purchased cars in excess of the standard, involving RMB 2.1974 million, in which the amount of  RMB31.9 thousand was in 2014 .

u In 2014, a senior executive at the sub-unit AVIC International (Beijing) Company broke the rules and made the company bear the expense of RMB21.6 thousand for his study of MBA.

(IV) Rectification of issues found in audits of previous years

As reflected in the auditing of 2009, AVIC's Shaanxi Huayan Aviation Instrument Company had irregularly lent out RMB61.20 million to external bodies. By June 2015, RMB3.2 million had not yet been recovered.

III. Audit Measures and Rectification

Regarding the issues discovered through auditing, CNAO has submitted audit reports and released letters of audit decisions in accordance with laws. AVIC will notify the general public of the details of the straightening and rectification situation.

Clues related to issues in violation of laws and disciplines discovered through the audit this time have been legally transferred to departments concerned to be further investigated and dealt with.

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