A Case Study On Internal Control Defects Of Huaze Cobalt & Nickel Listed Company

Internal control plays an irreplaceable role in the normal operation of Chinese enterprises.Effective internal control can provide guarantee for the sustainable operation of enterprises,and avoid the potential risks enterprises face in the market simultaneously.If an adverse opinion is issued to the audit report of an enterprise’s internal control,then there must be a larger internal control defect in the enterprise.In general,if some defects exist in the internal control of an enterprise,there may be some performance,for instance,enterprises correct the annual report information they have announced;or certified public accountants find material misstatements in the current financial statements,but which have not been found in the operation process of the internal control;or the frequency of that the enterprise is given attention by Shenzhen Stock Exchange and is punished by the CSRC is higher.Defect in internal controls is an important reason for the enterprises are failed in their operations and finally make a reckless move to deceive investors and the public.Based on the comparison of the internal control defects of the 11 listed companies that issued adverse opinion opinions in the 2015 and 2016 internal control audit reports of the Shenzhen Stock Exchange,it was concluded that the listed companies had the most various types of internal control defects and further discovered that Chengdu Huaze Cobalt & Nickel Material Co.,Ltd was issued an adverse opinion on the internal control audit report for two consecutive years.At the same time,there were several defects mentioned above.Therefore,the company was selected as the research object.Shenzhen Stock Exchange paid attention to Chengdu Huaze Cobalt & Nickel Material Co.,Ltd on the April 1 of 2016,found that the phenomenon of accounts inconsistent existed in the company’s accounts receivable,bills receivable,prepayment and other receivables.April 30 th,2016,the internal control audit report of the year 2015 in the company was issued with an adverse opinion,and then Huaze Cobalt & Nickel corrected the annual report of 2015 and proposed rectification measures on its internal control defects.However,the situation has not been improved.In 2017,accounting firm issued an adverse opinion to its internal control audit report of 2016.The paper uses literature analysis method and case study,starts with internal control audit reports of Huaze Cobalt & Nickel those were issued with adverse opinions for two years,combines the relevant announcements and annual report information of the company,analyzes the company’s internal control defects,studies deeply the root causes of the existence of defects and gives relevant advice.The paper elaborates the research background and significance of the topic,shows its main content and train of thought,uses the related literatures about the internal control information disclosure at home and abroad and researches on internal control defects for reference,explains in detail the related concepts of internal control defects,and internal control theory,analyzes the typicality of choosing this case by comparing the internal control defects of some listed companies.The fourth part and the fifth part are the key analysis.The fourth chapter is the analysis of the internal control defects in Huaze Cobalt & Nickel,according to its basic situation of internal control audit report and internal control self-evaluation report,combines the company’s relevant information,and analyzes the specific problems of the internal control defects in Huaze Cobalt & Nickel.They include mainly the affiliated party non-business capital occupying,undisclosed connected transactions,correction of financial reports,failure to approve major issues,and the company has repeatedly been concerned with by the regulatory authorities.The fifth chapter is the root analysis of the internal control defect in Huaze Cobalt & Nickel.It mainly analyzes from four aspects: the internal environment,information and communication,and internal supervision of internal control.The last chapter comes to a conclusion: The reason why Huaze Cobalt & Nickel’s internal control has major defects is due to the internal control of the company’s the internal environment,information and communication and internal supervision are failed.Although the company disclosed the rectification measures in the Internal Control Self-evaluation Report,these measures have a formalized tendency,and the company did not make substantial rectification of the existing problems.Finally,it makes suggestions on relevant aspects of the company’s internal control failure.