Research On Identifieding Defect Of Enterprise Internal Control

In recent years, the deficiencies of the internal control system in enterprises have been hot issuesand were discussed a lot. The bankruptcy and huge failure that foreign enterprises such as Enron,WorldCom, and domestic enterprises such as CAO are suffering show that the internal controlling ofenterprises is extremely needed to be improved. To rebuild listed companies’ confidence and to better theirsupervision and management upon internal control of enterprises, governments of all nations havegradually declared relevant laws and regulations on this problem, which mainly contains “the SOX act”,"financial instruments and exchange act" and “the enterprise internal control basic norms and guidance”.To enterprises, the internal control helps to improve the reliability of the financial report form. There are afew domestic laws and regulations on internal control system and danger supervision up to now. What hashad is not so perfect too. This has contributed to the continuous happening of finance fraud causes.Therefore, knowing the types of a company’s internal control system deficiencies and the standard thatmanagers uses to define them is first priority.This article first refers to the research results on internal control defects from both the domesticand foreign scholars. The theoretical study to the identification of internal control defects is helpful toachieve better research mentality. From COSO act and the five elements of internal control, we canunderstand the company internal control defects and the five elements are closely linked. The five elementsmainly include control environment, risk assessment, control activities, information&communication andmonitoring; with the five elements and the principal-agent theory as the basic starting point to research onthe cognizance of the internal control defects. This paper first introduces the concept of internal control andinternal control defects as well as its limitations and theoretical basis, which aims at making the researchershave a theoretical support in the following research. Then the paper deeply analyzed the current situation ofenterprise internal control defects in our country, and it also identified and classified the cases according todifferent situations, finding out the reasons why our country’s enterprise internal control defects areidentified as nonstandard. Through the creative improvement to the results of other researchers, and alsobased on the defects of internal control in our country, this paper has formulated a set of financial reporting and financial reporting process for recognition of the internal control defects. Firstly recognize every singledefect of internal control, then summarize the combinational recognition, finally the cognizance of accurateresults are obtained. In the case-analysis, the paper is based on a brief introduction to the general situationof listed companies, analyzes the reasons influencing companies’ receivable accounts and financial report,and finally finds out that the accounts receivable are not in strict accordance with the provisions in theprocess of running. That increases credit lines and long credit condition. Accrued payroll failed toaccurately check enterprise current accrued payroll calculation table and statement of changes in thenumber of employees and other necessary procedures. Through the recognition process to the enterpriseinternal control defects, the paper analyses to what degree the influence on the enterprise internal controldefects and the financial statements is. First of all, the paper analyzes the influential degree to the accountsreceivable and accrued wages, as well as the financial statements of the current period of the enterprisefrom the perspective of a single defect. And it finds ways to streamline and standardization, in order tomake the identified result more accurate. And then assess the combination of a variety of defects and incombination with other possible influentially involved factors to finally category its defects. Such ways ofrecognition can be more intuitively and accurately reflect the type of problems shown up, and can also bemore clearly to find out those sections that are easily overlooked in the process of recognition.In this paper, the research provides the perfection of identified internal control defects in Chinawith a reference value. Finally according to the ideas and methods used in this article, it can be concludedthat the internal control system is to ensure that the internal control of listed companies are reliable andorderly operational. Once the defects exits in the internal control in the process of operation, they should betimely and effectively corrected, so that we can ensure the good running of the enterprise internal controland minimize the losses, as well as to make the design and operation of enterprise internal control systemmore perfect through taking compensatory measures. At the same time, our supervision and managementdepartments should also formulate relevant laws to force the cognizance of the internal control defects,making the recognition, reliability and accuracy of enterprise internal control defects greatly improved. Inthis way, this will help information users better understand the operation of enterprises.