The Internal Control Evaluation Of China’s State-owned Enterprise Groups

At present, China’s state-owned enterprises have gained rapid development and expansion, and it has formed a consensus to establish a sound internal control system to guard the state-owned enterprises. Internal audit department has a great advantage in monitoring and evaluating the effectiveness of the internal control system of the organizations, and can play an important role in establishing a sound internal control system. Internal control has developed greatly in the Western countries, but for China’s state-owned enterprises, it is still in a relatively infancy stage.The objectives of this paper are to enrich China’s theoretical system of internal control evaluation, serve for the internal control evaluation practice, and contribute to China’s internal control development on the base of foreign experience and research achievements. This paper uses normative research method mainly to study the internal control evaluation of the state-owned enterprises, i.e. deduction, induction, comparison and other methods. This paper analyzes the background, evolution, basic theory, and evaluation framework of internal control evaluation by internal audit department, and proposes how to improve the internal control evaluation of China’s state-owned enterprises in accordance with the characteristics of China’s state-owned enterprises.The main points of this paper are as follows:ⅰ) Internal control evaluation not only is an important part of the internal control system, but also can promote the operations of the state-owned enterprises by assessing the effectiveness and objectiveness of the internal control system, so as to establish and implement a sustainable internal control system. The establishment and improvement of internal control system must be a long, complicated, continuous feedback loop process for China’s state-owned enterprises; internal control evaluation would be a fabulous tool to speed up the process.ⅱ) Internal audit department roots in the enterprise and has a comparative advantage on the confirmation and consultation of the effectiveness of the internal control of China’s state-owned enterprises. Internal control is always based on organization-specific objectives, the internal audit department has a better understanding of the firm-specific target and the enterprise’s own actual situation instead of copying the framework and rules. Therefore, the internal audit department carrying out the internal control evaluation can ensure the sustainable management of the enterprise.iii) Confirming the effectiveness of internal control, analyzing the internal control failure and proposing recommendations for improvements of the internal control are three progressive levels of the internal control evaluation of the state-owned enterprises. Internal audit department not just find the failures of the internal control system, but also reveal the internal control system and put forward the recommendations to improve internal control system continuously.iv) The internal control evaluation is still developing in China and lacking sufficient practical experience and theoretical basis. Therefore, China’s state-owned enterprises must learn the research achievements and experience from western developed countries. This paper compares China’s internal control evaluation with international advanced level, analyzes the gaps and weaknesses and proposes recommendations for improvements of China’s internal control evaluation. This paper proposes developing strategy for China’s internal control evaluation, and hopes to make some contribution to promote the internal control evaluation work taken by the internal audit department.