Research Of Internal Control Practises That Were Applying To Chinese State Owned Enterprises Listed On NY Stock Exchange And HK Stock Exchange

For State-owned-enterprises which are both NYSE and HKEX listed companies, the enactment of Sarbanes-Oxley Act of 2002(herein after as SOX) and Code on Corporate Governance Practices (herein after as the Code) are a big challenge in terms of corporate governance and management control. As it's near to the disclosure date, SOX and the Act already became the most pressing thing nowadays.The purpose of SOX is to make investors have confidence in the result of the company by disclosing the accurate financial statements in time. Compared with other acts, the requirements by SOX are more rigid. According to SOX, CEO and CFO are responsible for the disclosed financial statements of the company. Once something happens like Enron Incident, the management of the company will be punished, or even be sent into prison. Therefore, many CEOs and CFOs attach great importance to SOX, and try their best to comply with all the provisions of it.Section 404 is the most important chapter among all the provisions of SOX. It specified requirements on internal control practices in order to maintain to ensure accurate financial reporting and control of assets. According to the compliance results announced, 40% of non-U.S. issuers can not comply with Section 404. Hence it will be pressing for Chinese companies. So the compliance to Section 404 is the most primary task for many companies.No matter COSO framework or the investigation of PCAOB, it is clear that we should establish a basic internal control framework, which will be the basis for the management to certify the financial statement. It is naturally required by the company when it developed. The basic internal control framework will be affected by corporate governance, value creation, risk and opportunities, corporate culture, technology development and so on.Analyzing the Sarbanes-Oxley Act of 2002 and the Combined Code, this article focuses on discussing how to establish the internal control system complying with the regulatory requirements of the listing places, so that it could make companies' operations more efficient and systematic. The article researches the right solution to establish and implement the internal control systems. And it also reveals the importance of internal controls to the corporate governance: the main purpose of internal control is to reduce the uncertainties and manage the risk during the company is achieving the goal, to improve management and risk avoidance, in order to make the manager enhance their effective control. As global economies that are becoming an organic whole is an irresistible general trend, Chinese companies requirements for internal controls will be more and more enhanced. We could predict that through the enhancement of self management and the adoption of new technologies, more and more companies will comply to the rules. And the compliance of SOX 404 will be easy. It will not hold back the development of the company.