Analysis Of The Internal Control System Of Sichuan Telecom Enterprise

Since 2001, accounting scandals were exposed successively in large companies such as Enron, WorldCom, Xerox etc. Both USA and international society are shocked by credit crisis. The Sarbanes-Oxley Act (hereinafter referred as"the Act") was signed by US president Bush in July 30, 2002, which is to improve accounting supervision, information disclosure and corporate governance, and prohibit insider dealing. In the Act, it is stimulated that the director who is against the Act, derelict duty and make false account will be seriously punished, and more serious supervision will be adopted olisted companies. The signification of internal control has been realized by international society, so supervision is being improved on listed companies. Internal control with the COSO internal control framework has been implemented in many companies.Corporate internal control has been paid attention to by the State in recent years. Accounting Law of the People's Republic of China is the first law that requires internal accounting control, which put forward in the 27 provision that each unit should improve the internal accounting supervision system. To implement this provision, a series of Internal Accounting Control Rule have been enacted successively by the Finance Ministry since June,2001, which ask for the CPA to check company's internal control.The Overall Risk Management Implementation Outline is going to be enacted by the State-owned Assets Supervision and Administration Commission of the State (referred as SASAC). SASAC will ask for all the central enterprises to set up special departments to prevent and control risks. Such departments will be leaded directly by the chief enterprise officer of each central enterprise.By the end of 2000, China Telecom finished the separation between main business and auxiliary business, and Sichuan Telecom Industry Company was founded, which is engaged in the planning and designing, construction, supervision of communication engineering, maintenance of communication lines and machine room, agent of telecom business, and telecom business distributing, materials supply, realty management, science and technology developing and tail-end telecom. Through several-years'development, Sichuan Telecom Industry Company is much eager for the improvement of the standardizing management and benefit increase, and plans to list on Hong Kong.Code on Corporate Governance Practices(the Code) and Corporate Governance Report were enacted in Dec, 2004 by the Stock Exchange of Hong Kong Ltd. (SEHK), and were adopted separately by the Main Board Listing Rules as appendix 14 and Listing Rules of the Growth Enterprise Market as appendix 15 an 16. The C2 provision that is related to internal control in the Rule and the provision that suggests disclosure of internal supervision materials of listing company will take effect on and after July 1, 2005.It is listed in C2 of the Rule that the board of administration shall ensure the stability and effectiveness of the internal supervision system of the issuers, to safeguard the shareholders'investment and issuers'asset.It is listed in C21 of the Rule that the board of administration shall check the effectiveness of the internal control system of the issuer and its subsidiaries and branches at least once a year. The check shall cover all the important control points, including finance control, operating control, standardizing control and risk management.Building and improving internal control system in company is under urgent demand. Only by building and improving internal control system, can Sichuan Telecom Industry Company meet the requirement by related supervision department including SASAC and the Finance Ministry and meet the requirement by Hong Kong capital market. The paper analyses the developing trend of internal control, and by applying the internal control framework of COSO report and combing the existing problems in internal control of Sichuan Telecom Industry Company, puts forward the idea of building internal control system in Sichuan Telecom Industry Company, which can be referred by Sichuan Telecom Industry Company and service business of telecommunication operating including planning and designing, construction, supervision of communication engineering, maintenance of communication lines and machine room, agent of telecom business, and telecom business distributing, materials supply, realty management, science and technology developing and tail-end telecom.