Case-study On The Internal Control System Of A Food And Beverage Manufacturer In Hong Kong

Since the pronouncement of the American Sarbanes-Oxley Act, enterprise internal control is becoming more and more prominent in enterprise management. Hong Kong, as one of the world's major financial centers, also changed its Listing Rules and Securities Ordinance to catch up the trend. For this reason, Hong Kong enterprises have to improve their internal control infrastructures. This essay tries to probe into the internal control issues through the analysis of the operation flows and control points of a food and beverage manufacturing ("F&B") company in Hong Kong,The first part of the essay outlines the details of the "Internal Control Framework" and the "Enterprise Risk Management Framework" issued by COSO, then followed by a comparison analysis of the "Internal Control and Risk Management" issued by the then Hong Kong Society Accountants [now called: Hong Kong Institute of Certified Public Accountants]. This essay considers that the "Enterprise Risk Management Framework" issued by COSO in 2004 has a more comprehensive coverage in terms of scopes and subject matters. For this reason, this essay uses the COSO's "Enterprise Risk Management Framework" as the basis of the case study.On the part of the case study, this essay is based on the four objectives of enterprise risk management (i.e. strategic objective, operation risk, financial reporting and regulatory compliance) and on the eight components of COSO (i.e. internal environment, objective setting, activities identification, risk assessment, reaction to the identified risk, controlling activities, communications and monitoring). Through the case study, this essay points out the company's successful setup of the internal control infrastructures and at the same time also points out the fundamental problems that the company is confronting. These problems are: non-alignment of the operation and strategy (2) strategy and policy lagging behind due to changes (3) inability of the strategy to cope with the ever changing incidents (4) poor ability in incident identification (5) inadequate management information generated by various departments (particularly IT) (6) human integrity issues. This essay offers some recommendations for the improvement of these problems. This essay has four chapters. The first chapter is the introduction covering mainly the objective and concept of the case study. The second chapter is the body of the case study covering a brief description of the case company as well as the operation flows and control points solely applicable to F&B industry, the major coverage of which comprises product development, purchasing and quality control, fixed assets, sales and promotion as well as account receivable. The third chapter is an analysis of the case study on the basis of COSO's "Enterprise Risk Management Framework." The fourth chapter is the conclusion.