Internal Control Evaluation And Analysis

The promulgation of "Sarbanes - Oxley Act" in 2002 trigger a global upsurge of internal control and corporate governance. In June,2008, China's Ministry of Finance, Securities and Futures Commission, the Audit Commission, China Banking Regulatory Commission, China Insurance Regulatory Commission jointly issued the "Basic Norms of Internal Control." In April,2010, five ministries issued the supporting guidelines to standardize and intensify internal controls. In addition, several relevant regulatory authorities such as the Shanghai Stock Exchange, Shenzhen Stock Exchange and China Insurance Regulatory Commission have issued a series of internal control regulatory documents. So far, the construction and improvement of the internal control system are thriving; researches on related issues about internal control are flourishing in both theory and practice. However, how is the current situation about the current quality of listed companies and information disclosure of internal control? It remains to be seen how the listed companies should construct and mature their internal control system.Under this background, based on the five elements identified in "basic standards of internal control", the paper attaches great importance to the major problems in the progress of internal control construction of listed companies in financial industry, which are defined as understandable, measurable and verifiable evaluation criteria. A set of internal control index of listed companies in the financial sector is hence established in this paper, consisting of 52 indicators at three levels and covering 5 elements, namely, the internal environment, risk appraisal, control activities, information & communication and supervision, together with major concerns of significant risks and key points.On this basis, the text analyzes the current situation of internal control of the financial industry from the following three aspects:overall analysis, categorical data analysis and disclosure of internal control. In the first aspect, emphasis is put on the overall level and major problems of internal control of listed companies in the financial industry, as well as the internal control condition in financial sub-sectors such as banking, securities, insurance and trust through descriptive statistics. As for the second aspect, a thorough study is undertaken on the current situation of internal control in listed companies, respectively from cross-listing, the internal control department setting, internal control personnel, performance control, index constituents, information systems and social responsibility and their mutual influences among these factors. As to the last aspect, the situation of internal control self-appraisal is explored, respectively from the following respects--whether the form of internal control self-appraisal complies with the requirements, whether the content is complete, and whether it reveals relative defects. Besides, independent verification of internal control carried out by external auditors is examined from several aspects--whether the subjects of independent verification are reasonable, whether the form of internal control self-assessment complies with the requirements and whether the content is complete.The following conclusions are drawn through the above analysis. First, the quality of internal control of listed companies in China's financial industry is not optimistic with its weak control activities; comparatively speaking, the insurance companies rank first in terms of quality of internal control. Second, unreasonable structure as well as lack of talent in the internal control system of listed companies in financial industry brings about insufficient stamina of development and implementation. Third, the listed companies which select cross-listing, possess sophisticated information system of internal control, take internal control into account when undertaking performance appraisal, actively disclose reports on social responsibility and set up an independent department of Internal Control and Risk Management, tend to have higher quality of internal control. Fourth, there exist some defects in self-appraisal reports on internal control in nearly 60% listed companies in the financial industry; nearly 90% carry out independent verification on internal control, but significant differences exist in the objects, bases and report forms of independent forensic work.Finally, the paper puts forward several proposals concerning the establishment and maturity of internal control system of listed companies in the financial sector; it also illustrates highlights of possible innovation and defects of research and raises issues for further research and future research directions.