The Identification And Management Of Financial Fraud:Internal Control System Construction

In recent years, domestic and overseas companies, including world-famous ones involved in financial fraud scandal. Financial fraud act cause damages to the interest of the investors, destroy Chinese capital market operation mechanism, influence the enthusiasm of investors, decrease the efficiency of capital allocation and ultimately reduce the speed and efficiency of State Development.Internal control is the control mechanism to achieve business goals. According to experts and business practices, effective internal control is an effective means to repress financial fraud, so the authors proposed a method of building the internal control framework to solve the problem of companies’ financial fraud.This article first introduces the research background, purpose and significance of research, innovation in this article; second, review the literature of the internal control, financial fraud and the relationship of the two; third, explore the relationship between financial fraud and internal control in a logical angle and then detailed analyze the relationship between internal control five elements and financial fraud; forth, associate with financial fraud and internal controls in the perspective of empirical analysis:Selecting financial fraud cases from CSMAR database, finding a group non-financial fraud companies of the same size assets in the same industry, comparing two groups by internal control relevant variables, looking for which internal control variables are characteristic ones for financial fraud; fifth, based on empirical results and the actual situation, the study pointed out the problems and solutions of internal control framework system; sixth, summarize the achievements of this study.