The Research On The Interactive Relation Between Internal Control And Internal Governance

Along with the development of the reform of the market economy system, the internal control becomes more important in the economical management in our country, and a perfect internal governance structure is an important foundation for us to build the internal control system. Internal control and internal governance are two of the most important topics in the theoretical fields and practical fields. Currently, there are mainly two kinds of views on the relations between internal control and internal governance: one of the views is "the system-environment theory"; another states that the relationship should be interactive. This thesis approves the latter one.The firm is a nexus of contracts. As two kinds of systematic arrangements inside the contractual entity, internal control and internal governance influence each other and be a condition for the other to realize its purpose although there are certain differences between them. The theoretical foundation of their interactivity mainly embodies in four aspects: consistency of the originating, the same theories foundation, the same carrier, crossed control main body and contents. The unceasing perfection of internal control can strengthen the completeness of the contracts, improve the external governance mechanisms and make the internal incentive and restraint mechanisms more effective. On the other hand, the corporate internal governance mechanisms' unceasing completeness can externalize the internal control; settle a balance of the supply and demand of internal control. But different internal governance model influence the internal control differently, and the internal governance structure in our country has its own characteristics, therefore, to realize the benign interaction between internal control and internal governance we should settle this problem from two aspects: on one hand we should perfect the laws and regulation, strengthen the function of the body of directors and the body of supervisors to set a solid foundation for the internal control; on the other hand we must reinforce the control system and implement the appraisal system in order to balance the internal governance structure and improve the incentive mechanism.