Lianchuang Electronics receives regulatory letter from the Shenzhen Stock Exchange due to irregular financial accounting and internal control deficiencies; Chairman and CFO held accountable

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Lianchuang Electronic Technology Co., Ltd. (hereinafter referred to as the “Company”) recently received a regulatory letter issued by the Shenzhen Stock Exchange. The letter cited issues including non-standard financial accounting and deficiencies in internal control management. As a result, the Company and its Chairman, Zeng Jiyong, and its Finance Director, Zhou Manzhen, were given regulatory warning.

The regulatory letter states that, according to facts ascertained by the Jiangxi Regulatory Bureau of the China Securities Regulatory Commission, the Company mainly has two categories of problems. In terms of financial accounting: first, the accounting for amounts collected on behalf of others for water and electricity fees is not standardized. In 2023 and 2024, the Company fully recorded the water and electricity fees collected and remitted on behalf of others as revenue and carried over corresponding costs to cost of sales, respectively leading to overstatement of revenue and costs of RMB 13.9048 million and RMB 15.0859 million for the respective year. Second, the bad debt provision is recognized across periods. In 2023, an account receivable of RMB 130 million related to customer sales proceeds was mistakenly recorded as prepayments. It was not corrected to accounts receivable until 2024, and no bad debt provision was made in 2023. Instead, the bad debt provision was added belatedly in 2024, resulting in overstatement of net profit for 2023 by RMB 3.9145 million, and correspondingly understatement of net profit for 2024 by RMB 3.9145 million.

With respect to internal control management, the Company had problems such as inadequate implementation of internal control systems and poor preservation of records and evidence materials for the collection of accounts receivable. In 2023 and 2024, the Company did not conduct internal accountability and reward-punishment evaluation work as required by the internal control system related to accounts receivable. Meanwhile, due to personnel changes in the handling team, lax receivables collection management, and insufficient internal controls, the Company’s records of accounts receivable collection preserved through multiple methods such as emails, meetings, and lawyer’s letters were incomplete. In addition, it failed to effectively retain related evidence materials such as analysis and judgments regarding whether amounts due from customers that had gone bankrupt were impossible to recover.

The above conduct violates the relevant provisions of the 《Rules Governing the Listing of Stocks (2024 Revised)》 and 《Self-Regulatory Guidance No. 1 for Listed Companies—Standardized Operation of Main Board Listed Companies (Revised December 2023)》. The Company’s Chairman, Zeng Jiyong, and its Finance Director, Zhou Manzhen, were unable to perform their duties with due diligence and bears primary responsibility for the above conduct, thereby violating the relevant provisions of the 《Rules Governing the Listing of Stocks (2024 Revised)》.

The SZSE stated that it hopes the Company and all directors and senior management will seriously learn from the lessons, strictly comply with relevant laws and regulations and the Exchange’s rules, truthfully, accurately, completely, timely, and fairly fulfill their information disclosure obligations, and put an end to the occurrence of such events.

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