Research On Major Elements Of Internal Control In Trust Companies Based On Cybernetics

In recent years, internal control has been discussed as an issue many times between Management and Financial theory and Practical theory. No matter the government departments, the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC), the China Insurance Regulatory Commission (CIRC), the Ministry of Finance etc., or the certified public accountant (CPA) and auditor industry association or business managers turn their hope to the Internal Control, which has not been further studied. All of them endeavor to regulate Internal Control for our companies. But so far there would be less systematicresearch on the Internal Control in Chinese trust companies, especially the research from quantitative analysis.In the world, especially in the United States as a representative of Western developed countries, after the long-term management practice of internal control in companies, they have concluded a set of complete and systematic Internal Control theory and practical methods. Based on accepting the COSO report, International large-scale commercial banks, investment banks, fund companies and non-bank financial institutions, according to the industrial characteristics, have formed risk management systems in business operation, with the development of measure economics, the application of risk management models and techniques has becoming more mature that brought the theoretical and practical basis for my research on Internal Control System in trust companies.The trust company, on basis of confidence on the beneficiary and the trustor, is classified as financial institution in asset management by stead of customs. In order to realize its business objectives, the trust company must be running the internal control system effectively. Due to the difference from the non-bank financial institutions of general business enterprises, the trust company’s internal control system has its own characteristics, whose facilities are more complete, efficient and larger than the general business enterprises.In the capital market and currency market, the role and effect the trust company played and had in trust business decide that the subject of the research on trust companies has strong point and real value. The ascension of internal control in trust companies’ practice should rely on the result of theoretical research. As the internal control has always been the bottleneck problem in the development of China’s trust business for a long time, generally the domestic study has neither realized the importance of trust company’s internal control, nor directly specialized in developing the research on internal control system. Meanwhile, the domestic study is decentralized, manifesting the characteristic of focusing on part, neglecting the entirety. It is not enough to keep away the systematic partial qualitative research on the internal control system, referred to financial engineering system. It also requires quantitative research on system as a whole. We think that the internal control system in trust companies shall consist of six elements including control environment, control objective, risk recognition and assessment, control activities, information and communication, and monitoring. In the control perspective, whether the internal control in trust companies is successful depends on interaction effect among these elements in each sub-system. This paper based on existing research results in the perspective of systemic analysis by using systematic, control, information, finance and some other correlation theories focus on the topic of the internal control in trust companies deeply discus form the following aspects:Through the above research, this paper realized the following innovation:(1)Try to apply cybernetics to internal control in trust companies. According to the control perspective, this paper argues that internal control system is an open self-organization system far from equilibrium, the interaction effect among each elements of internal control in each sub-system was the result of internal control system from disordered state to orderly state evolution. When the feedback control theory is introduced to internal control system in trust companies, we can use the deviation between input values and expectation of the trust company system to control the behavior of the system. This paper proposed a new perspective and introduced a new theory path for internal control study, compared with the previous domestic research, based on the control perspective, which did preliminary comprehensive research on trust companies’ internal control.(2) Try to set up a comprehensive control model of internal control system in trust companies. Studied on the six elements of internal control system in trust companies including control environment, control objective, risk recognition and assessment, control activities, information and communication, and monitoring, this paper set up a comprehensive system control model of internal control based on the nature of internal control system. How to improve the level of internal control system in China’s trust companies that is to be solved by Chinese internal control research. But the recent research often neglects the systematic of internal control, or reflects comprehensively little factors of internal control, or hardly controls the overall effect. This paper tries to set up a comprehensive control model of internal control system in trust companies, providing a new tool for comprehensive reference.(3) Try to reveal the nature of the elements of internal control in trust companies. Based on internal control’s system control basis and control perspective, this paper argues six essential elements of internal control, verifies the exact nature of system control of the elements of internal control, and makes the first attempt to build an evolution model of internal control under the fuzzy evaluation and fuzzy control of the system. This paper provides a new analysis framework for study on internal control.