First Tractor : IMPLEMENTATION RULES FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS (in PDF)

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(a joint stock company incorporated in The People's Republic of China with limited liability)

IMPLEMENTATION RULES FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

(Reviewed and approved at the First Meeting of the Fifth Board of Directors held on 26 June 2009 and amended on 24 February 2012 and 18 January 2016)

CHAPTER 1 GENERAL PROVISIONS

Article 1. To further improve the corporate governance structure of the First Tractor Company Limited (hereinafter referred to as the Company), enhance the policy-making functions of the Board of Directors, ensure the Board's effective supervision on the management and external auditors, and protect the legitimate rights and interests of investors, the Board of Directors shall set up an Audit Committee. This Implementation Rules shall be developed according to the Company Law of the People's Republic of China, Rules Governing The Listing Of Securities on The Stock Exchange of Hong Kong Limited (hereinafter referred to as the Listing Rules), the Articles of Association of the Company (hereinafter referred to as the Articles of Association), and other relevant regulations.

Article 2. The Audit Committee of the Board of Directors is a specialized working committee under the Board of Directors, primarily responsible for reviewing the Company's internal control system and significant connected transactions, auditing the Company's financial information and its disclosure, and managing the communication, supervision and verification efforts in internal and external audits. CHAPTER 2 COMPOSITION

Article 3. The number of members of the Audit Committee shall not be less than three. All members shall be the existing non-executive Directors of the Company, with a majority of independent non-executive Directors. At least one of them shall be an independent non-executive Director with appropriate accounting or relevant financial management expertise specified in Rule 3.10(2) of the Listing Rules.

Article 4. The members of the Audit Committee shall be nominated by the Chairman of the Board of Directors, half of the independent non-executive Directors or more than one-third of Directors, and appointed by the Board of Directors.

Article 5. The Audit Committee shall have a chairman, who is responsible for presiding over the Committee's work. The chairman shall be an independent non-executive Director with accounting or financial management related expertise.

Article 6. The term of office of the Audit Committee shall be the same as the Directors. Upon expiry of his term of office, a member of the Audit Committee may be re-elected and re-appointed. If any Director no longer holds the position of Director of the Company during such period, he will automatically lose his qualification of the Audit Committee. The Board of Directors shall determine the new candidates in accordance with Articles 3 to 5 hereof.

Article 7. A member of the Audit Committee may submit a written resignation to the Board of Directors prior to the expiry of his term of office. Any situations relevant to the resignation or deemed necessary to be brought to the attention of the Company's Board of Directors and shareholders by such member shall be stated in the written resignation. CHAPTER 3 TERMS OF REFERENCE

Article 8. The main duty of the Audit Committee is to use its professional judgment to act in the best interests of the Company and its shareholders. The specific duties shall include, but not limit to, the following:

1. To be responsible for making recommendations to the Board of Directors on the appointment, reappointment and removal of external auditor (i.e. external audit institution), approving the remuneration and terms of engagement of the external auditor, and any questions of its resignation or dismissal.

   
   

2. To review and monitor the independence, objectivity and diligence of the external auditor and the effectiveness of the audit process in accordance with applicable standards; to discuss with the auditor the nature of the audit, scope of the audit, audit plan, audit method and reporting obligations before the audit commences.

   
   

3. To develop and implement policies on engaging an external auditor to supply non-audit services. The Audit Committee shall report to the Board of Directors, identifying and making recommendations on any matters where action or improvement is needed.

   
   

4. To review the management proposal provided by external auditor to the management, any material queries raised to the management by the auditors about accounting records, financial accounts or systems of control and the management's response; to ensure that the Board of Directors makes timely response to the issues raised in the management proposal provided by external auditor to the management.

   
   

5. To monitor the integrity of the Company's financial statements and annual report and accounts, half-year report and quarterly reports, through the external auditor's audit reports, and to review the significant financial reporting judgments and accounting and audit issues contained in them, to understand the progress of handling such issues and make recommendations or reports to the Board of Directors. In reviewing these statements, reports and accounts before submitting them to the Board of Directors, the committee should focus particularly on:

   
   

6. Any changes in accounting policies and practices;

7. Major judgmental areas;

   
   

8. Significant adjustments resulting from audit;

   
   

9. The going concern assumptions and any qualifications;

   
   

10. Compliance with accounting standards; and

    
    

11. Compliance with the Listing Rules and other legal requirements relating to financial reporting.

    
    

12. For the purpose of item (5) above: (a) members of the Audit Committee should liaise with the Board of Directors and senior management of the Company; and (b) the Audit Committee should consider any significant or unusual items that are, or may need to be, reflected in such reports and accounts, and it should give due consideration to any matters that have been raised by any accounting and financial reporting staff members of the Company, compliance officer or the auditors.

    
    

13. To hear the internal audit department's working report and review the Company's financial and accounting policies and practices; to supervise the Company's internal audit system and its implementation; and to review the Company's financial controls, risk management and internal control systems.

    
    

14. To discuss with management the risk management and internal control systems to ensure that the management has performed its duty to have effective systems. This discussion should include the adequacy of resources, staff qualifications and experience, training programs and budget of the Company's accounting and financial reporting function.

    
    

15. To review the internal control self-evaluation report of the Company and the internal control audit report issued by external auditor to assess the evaluation on internal control and audit result, and encourage improvement on internal control deficiency.

    
    

16. To consider major investigations findings on risk management and internal control matters as delegated by the Board of Directors or on its own initiative and the management's response to the findings.