Research On Firm Internal Control And Financial Risks

To strengthen the interior control is an important measure of modern enterprises'management, and to some extent, the absence of the interior control leads to the failure of the enterprise operation, distortion of accounting information and the transgress actions. As a result, to intensify the enterprises interior control is of great significance for the following aspects like: guarantee the accounting information quality, consummate the corporation management structure and information exposal systems, protect the legal rights and interests of the investors, prevent and control the enterprises financial risks and financial crisis, etc. To strengthen the interior control has been playing an important role in developed countries enterprises management, and the international research on this subject is gradually becoming mature. In China,"the No. 9 Specific Guide Line of Independent audit—Interior Control and Audit Risks"was promulgated in 1996,"Accounting Law"was emended in 2000, and more documents about interior control were issued in succession after the year of 2001. All of the above shows that interior control has been drawing more and more attention in China. At the beginning of 2007, the Financial Department issued the draft on basic rules and 17 specific rules of interior control, which clearly shows the emergency and the necessity to establish the interior control. In the mean time, due to changes in our social and economic circumstances, competition among enterprises are getting tougher and tougher, enterprises risks especially financial risks keeps increasing. As far as the current enterprises status is concerned, the understanding of risks are far from enough realized, and consequently, this leads to the indifference of enterprises risk , the insufficiency of interior pressure and the lack of effective risk management systems. Starting from the current institution of interior control and financial risks in state-owned enterprises, together with the actual demands of the enterprises, this article focuses on the prevention and control functions of interior control to enterprises financial risks, through statistic analysis and investigation analysis, approving that interior control and financial risks have great relativity to each other. According to the conclusion and the actual problems existing in enterprises, from the aspects of interior accounting control and interior management control respectively, the author suggests to establish financial risks alarm system and financial risks control model, so as to consolidate enterprise financial risks prevention and control, facilitating enterprises sustain exist and development. To further extent, it can also prevent and decrease financial risks, banking risks and national risks, promoting the sustainable development of economy.1. Comprehensive theoretical statements on enterprises interior control and financial risks. Aiming at the theoretical research on interior control and the theoretical framework of enterprises interior control in China, this article indicates that the development of interior control in our country has been moving forward gradually, and is now basically consistent with the international framework of enterprises interior control. It also affirm that interior control may prevent all risks of management and operation. As a result, although enterprises interior control in our country is theoretically consistent with the international criterion, further consolidation is needed in practice and system establishment. As for the nature of enterprise financial risks, this thesis defines it as micro economy risks. It is the inspissation of enterprise operation risk and and finally exhibit as the format of currency. To be specific, it is the possibility of negative effect and results caused by unpredictable and uncontrollable enterprise exterior operation circumstances and interior operation conditions, under certain objective instance and in certain periods. To prevent and decrease the occurring of negative results, the author suggests to control financial risks by strengthening the enterprises interior control and interior management.2.To strengthen interior control, prevent and control financial risks need theoretical basis. This article chooses the following as research basis, entrust deputizing theory, enterprise management structure theory, limited sense theory and risk averseness theory. On the basis of these theories, the research assumption of the article is produced, that is enterprises interior control is relative to financial risks, and the relative relationship differs at different time and under different policy background. The motivation of interior control and the mechanism that engenders financial risks are clarified. The motivation of interior control consists of decreasing the deputizing cost, clarifying the entrusted responsibilities of the management authority, promoting the value of enterprises and benefit-relative aspects. The mechanism that engenders financial risks are discussed from economic policies, market circumstances, technology factors and financial management decision-making, etc. According to the rule that exterior factors work through interior factors, this article put forward that intensifying interior control and interior management should be done so as to weaken and solve the exterior influence. Upon the comprehensive consideration of the above two aspects, financial risks finally can be prevented and controled.3.Relative analysis on enterprises interior control and financial risks. Through statistic analysis and investigation analysis, the research hypothesis brings forward by this article is proven to be true, that is, enterprises interior control has to do with financial risks, and the relativity differs in different time and under different policy background. According to the statistic analysis, if enterprises interior control is consolidated, the financial alert indices and the financial institution turns better obviously, and the possibility of happening of financial risks is small. According to the investigation analysis, informants reflect that enterprises interior control attaches great importance to risk prevention, and the further development of enterprises mainly rely on strengthening interior control, preventing various risks especially financial risks. Because among the enterprise development strategies, interior control and risks prevention plays very important roles. If enterprises don't strengthen enterprises interior control and risks prevention, they will be eliminated by the competitive market. This article brings forward a series of suggestions to promote the development of enterprises like improving interior control circumstances, establishing perfect corporation management structures, setting up interior control criterion systems, strengthening risks alert and risks control, etc. .4.Interior accounting control and financial risks alert. In order to prevent the enterprise financial risks actively, referring to economic alert theory and relative principles, this thesis defines the effects on enterprises financial risks of elements and their change of structure of interior accounting control, indicates the superficial factors that may lead to enterprises financial risks. On the basis of the above, the author expatiates the functions of the financial risks alert systems and the analyzing methods of financial risks alert, including ratio alert analysis and nature alert analysis. The indices of financial risks alert is confirmed, that is form the aspect of cash flow, choosing operation capability, profit-gaining capability and debt-repay capability as three series of indices, find alert origin from both quantity and benefit aspects. Combining actual institutions of enterprises, the critical is confirmed and the financial risks alert systems are established. It tries to inform in advance the dangerous situation that enterprises are facing through analyzing on enterprise financial and accounting data and relative operation documents. And on the basis of analyzing the causations, the hidden problems may be found in enterprise production, operation and its financial operation systems, then proper measures are taken to resolve the issues and risks preventions are done as early as possible.5.Interior management control and financial risks control. According to system balance principles of economy control theory, it is clarified that changes of different factors of interior management will affect enterprises financial risks. And frameworks of enterprise financial risks control strategy systems are brought forward from three levels: risks diversion, risks mechanism improving and enterprise nature optimizing. Based on this, the composing factors of financial risks control systems are fixed, and the analyzing model of financial risks control is established. The basic operation process of state-owned enterprise financial risks control systems is consisted of three steps: establish control standard, evaluate risks condition and correct system warp. The basic operation mode of financial risks control systems is composed of control beforehand, control in course and control afterwards. The basic process and the basic mode of the system operation constitute the operation mechanism of the enterprise financial risks control systems, upon which, enterprise special nature is optimizing analyzed, so as to further control the occurring of enterprise financial risks from each aspect of management.