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The Board acknowledges its responsibility for maintaining and reviewing the effectiveness of the Group’s internal control system. The internal control system is implemented to minimize the risks to which the Group is exposed and used as a management tool for the day-to-day operation of business. The system can only provide reasonable but not absolute assurance against misstatements or losses.
The Management is primarily responsible for the design, implementation and maintenance of the internal control system to safeguard the Shareholders’ investment and assets of the Group. Annual budget and quarterly forecast on all capital and revenue items are prepared and approved by the Management before being adopted. The Management monitors the business activities closely and reviews monthly financial results of operations against budgets/forecast.
Proper controls are in place for the recording of complete, accurate and timely accounting and management information. Regular reviews and audits are carried out to ensure that the preparation of financial statements are carried out in accordance with generally accepted accounting principles, the Group’s accounting policies and applicable laws, rules and regulations.
The internal audit department is assigned with the task to carry out risk assessment on selected audit areas and will report audit review findings and irregularities, if any, to the Management and advise on the implement of necessary steps for future control. The result of internal audit reviews and agreed action plans are reported to the Audit Committee and the Board.
During the Year, the Management had analyzed the control environment and risk assessment, identified the various control implemented. The approach of the review includes conducting interviews with relevant Management and staff members, reviewing relevant documentation of the internal control system and evaluating findings on any deficiencies in the design of the internal controls, developing recommendations for improvement and assessing the effectiveness of such implementation, where appropriate. The scope and findings of the review had been reported to and reviewed by the Audit Committee.
The following key control measures are also in place to monitor and control the effectiveness of the internal control system:
1. Safeguard assets under risk management: insurance coverage on inventory is periodically reviewed by the Management for sufficiency, and to ensure compliance with the terms and conditions of the insurance policies. To safeguard shops’ assets, security systems are installed in each shop, are daily tested and are properly maintained in good condition;
2. Quality control: Diamonds are either sent to authoritative(s) and reliable organizations for checking and certification or are tested internally with our own professional equipment to assure the quality fulfills good standard;
3. Proper authorization on sales discounts: Discount policies are properly maintained and compliance are continuously monitored. Discount authorities and pricing strategy are jointly reviewed from time to time;
4. Cash flow management: Daily available fund report is reviewed to monitor the cash flows against budgets/forecast;
5. Financial reporting management: Monthly updates on internal financial statements are provided to the Board which give a balanced and understandable assessment of the Company’s performance, position and prospects in sufficient detail and ensure the Board can review monthly financial results of operations against budgets/forecast;
6. the Systems and Procedures on Disclosure of Inside Information to ensure, with the assistance of an internal work team (if required), that any material information which comes to the knowledge of any one or more officers should be promptly identified, assessed and escalated for the attention of the Board;
7. the policies and practices on compliance with legal and regulatory requirements which shall be reviewed and monitored by the Corporate Governance Committee;
8. the establishment of a CCT Compliance Committee to monitor, control and review internally connected transactions and continuing connected transactions of the Company and ensure proper compliance with all relevant laws, rules and regulations and the Listing Rules; and
9. a whistle-blowing policy for employees of the Group to raise concerns, in confidence, about possible improprieties in financial reporting, internal control or other matters. Such arrangement will be reviewed by the Audit Committee which ensures that proper arrangement is in place for fair and independent investigation of such matters and for appropriate follow-up action(s).
The Board and the Audit Committee had conducted a review on the effectiveness of internal control system of the Group (including financial, operational, compliance controls, risk management functions) and the adequacy of resources, qualifications and experience of staff, training programmes and budget of the Company’s accounting and financial reporting function for the Year. The Board considered that its internal control system is effective and adequate and the Company had complied with the code provisions on internal control of the Code in this respect in general.