Study Of Internal Control System In Public Companies Based On COSO Report

Since the ordination of Sarbanes-Oxley Act (hereinafter as"SOX"), main market economic countries have enhanced or improved the standard for internal control of enterprises, especially public companies, by enacting related laws, acts and establishing internal control regulations and rules. An internal control framework, as described in the report"Internal Control: Integrated Framework"by Committee of Sponsor's Organization (COSO Report) in 1992, has been applied by many enterprises world-widely. The traditional internal control, which pays less attention to risks, is becoming out of the time under the modern market environment. In order to play the role of internal control in enterprise management, improvements have been suggested to internal control framework from both theoretical and practical points of view, emphasizing the combination of internal control framework and enterprise risk management. There is a new trend to implement enterprise risk management (ERM) in 21st century globally. Under such circumstances, it is important to study successful practices in establishment of internal control and ERM systems according to SOX and based on COSO report, because of its theoretical and practical values.This article takes a Chinese public corporation (A Company), which is listed in American stock exchange market, as an example to describe its successful practices and newest development of internal control during the past three years, in order to analyze the legal supervision environment of internal control for companies listed in mature capital markets, to analyze COSO internal control and ERM framework as referenced by A company, and to find its practice procedure and efficacy. Based on the analysis, the article compares the current Chinese supervision environment of internal control, related laws and regulations, the newest standards, practice procedure and measures of internal control in public companies. It is also taken in consideration the latest"Fundamental and Practical Regulation of Internal Control (Draft)"issued by the State Ministry of Finance and the development history of COSO standards. The article suggests optimization and improvements regarding the positioning, the framework structure and elements of internal control in Chinese public companies. At last, the article describes reference procedures and strategies for Chinese public companies in terms of organization and practice of internal control and risk management.This article is mainly based on the study of laws and regulations related to internal control, and the differences between China and foreign countries regarding internal control supervision environments and standards are compared. Combining the theoretical analysis and practical cases, the article is trying to apply the theories into practice and to find the limitation of theories through practices. The article also proposes optimization and improvement suggestions for construction of internal control system in Chinese public companies.