Research On The Evaluation And Optimization Of LJ Enterprise’s Internal Control System

With the rapid social and economic development and intensification of competition, Chinese enterprises are increasingly compelled to establish comprehensive internal control systems. The implementation of Basic Standards and Accompanying Guidelines for Enterprise Internal Control among main-board companies from2012marked the brand new stage of risk-oriented internal control in the development of internal control theories and practices. However, China has lagged behind in its internal control and internal control evaluation theories, focusing more on theorizing and utilizing listed companies in case studies. This thesis purposely chose an enterprise which can be classified as non-listed large and medium enterprise. It is of great practical significance to study how non-listed large and medium enterprises establish comprehensive internal control system on the basis of the Basic Standards for Enterprise Internal Control and how they conduct evaluation of internal control system according to the Evaluation guidelines for Enterprise Internal Control. Chinese hard liquor is a traditional kind of merchantable product which is mainly used to communicate emotions. The industry of Chinese hard liquor is very special in China. After the explosive development in the Golden Decade between2001and2011, this industry turned into its winter from2012. It is unlikely that the Chinese hard liquor industry will be able to escape its predicament in the near future, and hard liquor enterprises have to face huge challenges in order to survive and thrive. In the Golden Decade, the administrators of the hard liquor enterprises pay more attention to external expansionism than internal control. However, under the new situation, the significance of internal control for the hard liquor enterprises has risen to an all time high. LJ is representative of the Chinese hard liquor industry. This thesis aims to offer valuable suggestions on the betterment of internal control system in hard liquor companies in general by examining the specific case of LJ.Apart from the introduction The main content of this thesis covers as follows: Part1Theoretical analysis of internal control evaluation:This contains the internal control evaluation literature, partial analysis of the theoretical foundations of internal control which includes the behavioral science and the basics of control method and theoretical framework for internal control evaluation. Part2A close look at the current state of LJ’s internal control:This part begins by introducing the background of both the enterprise and the industry under study, then discusses the findings from investigating LJ’s current internal control in terms of overall functioning and business processes. Investigating LJ’s current internal control is a crucial prerequisite for establishing an internal control evaluation procedure that is particularly suited to LJ. Part3Analysis of LJ’s internal control evaluation:First introducing the evaluation index system of LJ’s internal control, then presenting a comprehensive picture of evaluating LJ’s internal control with FAHP(Fuzzy Analytic Hierarchy Process) using the case of internal supervision as an example, lastly illustrating the evaluation results of LJ’s internal control using FAHP, this part reports the core findings of this study. Part4Strategies and recommendations: This part offers pinpointed advice regarding LJ’s internal control system based on the factors contributing to the current state of LJ’s internal control through analysis of the evaluation results presented in part3and the information that the author gained during the investigation period at LJ. Part5Conclusion and future directions:This part summarizes study results, offers concluding remarks and proposes future research directions.The main contributions of this thesis includes as follows:Fist, this thesis uses the method of FAHP to evaluate the internal control in LJ, which has significance to the study of the application of FAHP in enterprises. Second, Based on the author’s on-site, in-depth investigation of LJ’s internal control as well as the Basic Standards and Evaluation guidelines for Enterprise Internal Control, this thesis has put forward an internal control evaluation index system specifically tailored to LJ’s needs. This system can offer valuable references for the management of the company in terms of internal control. Third, This thesis has analyzed the evaluation results for indexes on all levels in LJ’s internal control evaluation index system, and it has revealed several weak links in LJ’s internal control, such as: poor organizational structure, inappropriate development strategy, lack of risk evaluation system, inefficient execution of budget control, incomplete anti-fraud mechanism, and absence of internal control evaluation and defect report. Regarding the above-mentioned weak links, this thesis has offered pinpointed suggestions for improvement, which can assist LJ in bettering its internal management and thereby increasing its production and business efficiency.