TO THE MEMBERS OF

XINCHEN CHINA POWER HOLDINGS LIMITED

(incorporated in the Cayman Islands with limited liability)

# OPINION

We have audited the accompanying consolidated financial statements of Xinchen China Power Holdings Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 62 to 124, which comprise the consolidated statement of financial position as at 31 December 2017 and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2017, and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance (“CO”).

# BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

# KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

<table><tr><td>Key audit matter</td><td>How our audit addressed the key audit matter</td></tr><tr><td>Impairment of intanibltge asses</td><td></td></tr><tr><td>At 31 December 2017, the Group had significant intaniblge assets
amounted to Renminbi (“RMB”) 590,478,000 which arose from
caitalisation of development costs of technical kpnow-how of new
automotive enines and are amortised based on unit ofg production
by reference to the expected saleable units of respective automotive
enignes.
Recoverabilitly of these intanibbge assets is ased on the forecasting
saleable units, which are inherentlhy hilgy judgmental.
The key estimate made by the management included the expected
saleable units of respective automotive enignes.
Management’s disclosures with regard to the estimation are
contained in Note 4 to the consolidated financial statements, whilst
the disclosures in respect of the carriyng value of intaniblge assets
are set out in Note 17 to the consolidated financial statements.</td><td>Our procedures in relation to assessment of the carriyng value of
intaniblge assets with imiparment indicator included:
•   Discussing with the management and understanding the
management’s basis of estimation of saleable units;
•   Understanding the management process over the regular
assessment of saleable units;
•   Assessing the accuracy of the management’s estimate of the
likelihood of saleable units based on historical sales records
and, where alipcable indipcative units confirmed by customers;
and
•   Testing the subsequent sales units after the year-end, on a
samlpe basis, to source documents, including goods delivery
notes and invoices.</td></tr></table>

# KEY AUDIT MATTERS (Cont’d)

<table><tr><td>Key audit matter</td><td>How our audit addressed the key audit matter</td></tr><tr><td>Revenue recognition</td><td></td></tr><tr><td>Revenue of the Group mainly comprises sales of enignes and
parts. The Group enters into sulppy agreements with its major
customers every year. According to the terms of the agreements,
revenue is recognised when the goods are received and accepted
by the customers, which is considered to be the point in time when
the significant risks and rewards of ownership of the goods are
transferred to the customers.
We identified the recognition of revenue as a key audit matter
because revenue is one of the key performance indicators of the
Group and because there is an inherent risk of manipulation of
the timing of recognition of revenue to meet specific targets or
expectations. The disclosure in respect of revenue generated for the
year are set out in Note 5 to the consolidated financial statements.</td><td>Our procedures to address the recognition of revenue included:
•   Understanding the management process over the revenue
recognition;
•   Inspecting sales agreements signed in the current year, on
a samle basis, and considpering whether the agreements
contained terms allowing the customers to make any sales
returns;
•   Obtaining external confirmations of the value of sales
transactions for the year directly from customers, on a samlpe
basis;
•    Inspecting the sales invoices and related goods delivery notes
with th’e customers signed acceptance for sales transactions
for the year where the customers did not return the requested
confirmations; and
•   Comparing, for a samle of sales transaction just befpore and
just after the financial year end, details in the sales invoices to
the relevant goods delivery notes, which were signed by the
customers to indicate their acceptance of the goods, to assess
if the related revenue have been recognised in the appropriate
financial period on the basis of the terms of sales as set out in
the agreements.</td></tr></table>