The Present Situation And Improvement On Self-assessment Reports Of Internal Control Of Chinese Listed Companies

After experiencing a series of financial scandals like the “Enron” and the“WorldCom” accounting fraud, the U.S. government launched the “Sarbanes-OxleyAct”(the “Sarbanes Act “in short) in July2002, which marks the beginning ofcompelling disclosure of information about the internal control of American listedcompanies. According to the “Sarbanes-Oxley Act”, all public companies should carryout an evaluation of their internal control system, and provide the audit report issuedby the CPA (certified public accountant). Having experienced several similarcases—the China Aviation Oil Affair, the Changhong Affair, and Yili Affair in2004,and the Aucma affair in2006, in which one of the major stockholders converts fundsto his own use—two major Chinese stock exchanges, the Shanghai and ShenzhenStock Exchange issued two “Guidelines on Strengthening Internal Controls” in theyear of2006. In2008, the Ministry of Finance, China Securities RegulatoryCommission, together with three other committees jointly released an act:“Fundamental Norms for Entreprise Internal Control”(also known as “the China’sversion of Sarbanes-Oxley Act”) and related exposure draft; in2010, another act “ASet of Guidelines on Entreprise Internal Control” was enacted. These regulationsstipulated in details the disclosure of the self-evaluation reports on Chinese entrepriseinternal control system and indicted that China’s disclosure system has upgraded ontoa standardized path.Here is the current situation in China: norms for the disclosure of internal controlwere issued relatively late; the Chinese securities market is still in its infancy; mostlisted companies do not give due attention internal controls and lack experience inexposing the Self-assessment reports on internal control. Therefore, even if we have adopted some relevant regulations, there are still many problems in the disclosure ofself-assessment reports on internal control. For example, early in2011, severalincidents occurred in China: the Qilu Bank uses bank notes to defraud investors; thetwo giant retailers Wal-mart store and Carrefour store induce customers to buy theirgoods by using misleading prices. Currently, the theoretical researches on theself-assessment of internal control are small in number, so in this thesis, the authorattempts to, by analyzing the current situations of internal control in recent years, findthe existing problems and the underlying reasons, so as to give some suggestions onour work. Hopefully this paper can contribute to the implementation of the act “A Setof Guidelines on Entreprise Internal Control”.This paper consists of six chapters. The first chapter is an introduction to theresearch background, previous studies both in China and other countries, and researchideas. The second chapter is a detailed description of theories concerning theself-assessment report on internal control, including the disclosure patterns ofinformation about internal control, the basic concepts of self-evaluation report, itssignificance, content and related standards. The third chapter to the fifth part composethe main body of this article. In this part,26banks, securities companies and300listed companies are selected and studied. Firstly, the author will do a statisticalanalysis of the disclosure of self-assessment report on internal control: when andwhere did they get listed, which field do they belong to. Then further analysis is done:the content and format of reports; wthether the reports expose the defects in internalcontrol and audit opinions given by CPA; the corelation between the report and theaudit opinion of the current year. Then, the problems found in the statistical analysiswere summarized, reasons were analyzed from the perspective of company managers,external investors and regulators and suggestions were given. In the conclusion part,findings of this study are presented, and limitations of the current study and futureresearch ideas are pointed out.