The Internal Control System Research Based On Pareto Optimal

The occurrence of financial fraud events such as the Enron, WorldCom in the UnitedStates and Yin Guangsha and Hongguang in China that makes an significant impact oninternational capital markets raise awareness of the investors. They believe the truth thatfailure of internal control is the important cause of business failure which causes losses tomany investors. Internal control is a process-oriented enterprise system. The achievementof its goals is process, in which it require all employees to participate, including corporateboard of directors, supervisors, managers and staff. The referred goal is to reasonablyassure legal compliance of business, safety of corporate assets, true and complete corporateof financial reporting, improvement of operational efficiency and effectiveness, promotingenterprise development strategy. The ultimate goal of internal control is to achieve strategicvalue of the business, the basis of enterprise value creation is resource, however, resourceis scarce and limited. Scarcity and limited of resource decides the necessity of rationalallocation of resource when it is needed. The strengthening of internal controls is in favorof the allocation of corporate resources and improvement of efficiency of resource andenhancing business value. Therefore, it is imperative to strengthen the establishment andimprovement of the internal control of listed companies. However, the internal controlmaterial defect in listed company has become increasingly prominent. Therefore,enhancing the establishment and improvement of internal control, and improvement ofefficiency of resource allocation is in favor of creating more value.it is also the primarygoal at this stage.The article studies literature about domestic and foreign enterprise internal controltheory, resource allocation theory and Pareto optimal theory, The article usesquestionnaires and empirical research. In empirical research, the article set a model oflinear regression in which the efficiency of resource allocation as the dependent variable,quantify the evaluation of internal controls, corporate development capacity, the level ofbusiness development, management compensation and corporate assets as the independentvariable by EVIEWS software. In the questionnaires research, it bases on COSO InternalControl Integrated Framework, to analyze the reasons for the survey flawed internalcontrol of listed companies in Hebei province. The last, it put forward to proposal to buildand improve internal controls in accordance with the principle of Pareto optimality.Sowhen listed companies build and perfect the internal control system, they should complywith the principle of legal compliance and efficiency principle-the principle of Paretooptimal allocation of resources and so on. The effective implementation of external security measures of the internal control include promoting and improving the legal system,the establishment of the Internal Control Committee, and other measures to strengthenexternal oversight mechanisms.In China, the internal control system and referred guidelines has been built inaccordance with the basic norms and guidelines as well as other relevant laws andregulations, but the current build it was not based on Pareto optimal angle. the paper Paretobuild the Internal Control System standing on optimality theory. It reflects the function ofinternal controls that it is in favor of assuring reasonably efficiency and effectiveness ofoperations and achieving value creation. it is also the major innovation of this article. Wefind the problems of internal controls through questionnaires and analyze the internalcontrol deficiencies which lead to inefficient resource allocation reasons, so this is aninnovation in the design of the questionnaire and analysis of the results of thequestionnaire.