In July 2002, the U.S. Congress passed the Sarbanes-Oxley Act which stipulated the internal control and disclosure of listed companies in the United States. In June 2008, the Ministry of Finance, the China Securities Regulatory Commission, the National Audit Office, the China Banking Regulatory Commission and the China Insurance Regulatory Commission jointly issued Basic Norms of Enterprise Internal Control which came into force and applied to listed companies since July 1, 2009. In April 2010, the aforementioned five ministries and commissions jointly issued Guidelines for Enterprise Internal Control (including Guidelines for Application of Enterprise Internal Control, Guidelines for Evaluation of Enterprise Internal Control and Guidelines for Audit of Enterprise Internal Control), which came into force and applied to companies listed both at home and abroad since January 1, 2011. The Shanghai Stock Exchange, the Stock Exchange of Hong Kong and the London Stock Exchange also specified requirements for listed companies to strengthen internal control. Sinopec is a company listed in four places, namely Shanghai, Hong Kong, New York and London. The Board of Directors of Sinopec is responsible for establishing and improving the Company’s internal control system and ensuring its effective implementation. The Audit and Risk Committee was established under the Board of Directors to exercise supervision and evaluation of internal control. The Company also established an executive leading group for comprehensive risk management to strengthen its internal control system. The headquarters of Sinopec Group have set up specialized departments to facilitate and coordinate the implementation and improvement of internal control, and each branch and subsidiary of Sinopec Group have also set up corresponding departments to undertake daily management of internal control.
In accordance with relevant laws, regulations and the practicalities of the Company’s operations and management, Sinopec comprehensively analyzed its business lines and major matters and drew up the Internal Control Manual. The Manual includes sections such as internal environment, risk assessment, internal control activities, information and communication, internal supervision, with the emphasis placed on development strategy, legal compliance, asset safety, financial reports and effect and efficiency of operations. Therefore, internal control of all factors has been achieved at both corporate and operational levels. Sinopec’s branches and subsidiaries, based on the Internal Control Manual and their own practicalities, put in place rules of implementation, thus shaping a two-tier internal control system with Sinopec’s characteristics. According to the regulatory requirements at home and abroad as well as the needs of the Company’s operations and management, Sinopec has been continuously improving its internal control system and regularly updating the Internal Control Manual, which shall be officially issued for implementation after being approved by the Board of Directors.
Sinopec has also formulated inspection, evaluation and assessment methods of internal control and established a two-tier inspection and evaluation system consisting of the headquarters and the branches and subsidiaries. The headquarters organize annual comprehensive inspection and evaluation and special inspection, and incorporate the results into the performance indicator system. Each branch and subsidiary shall regularly conduct self-inspection and address the problems immediately when they are identified during the self-inspection. According to the regulatory requirements at home and abroad, the Company prepares an Internal Control Evaluation Report every year, which is disclosed to the public after being approved by the Board of Directors. The external auditor of Sinopec also issues annual evaluation report on the effectiveness of the Company’s internal control over the financial reports. As of the date of latest disclosure, Sinopec’s internal control system is sound and effective, which can ensure the realization of various internal control objectives. The prepared financial reports comply with the local accounting standards of all countries in which Sinopec was listed, and the disclosure meets the regulatory requirements.