The Strategic-oriented Internal Control System Of The Parent Company And Subsidiaries In Group Company

With the development of socio-economic and the increasingly fierce of market competition, enterprises need to integrate and make use of resources in a larger economic context to enhance competitiveness, while the group company as a special form of organization emerges. Because of a large scale and economic strength, group company has obvious advantages in the market competition, it is an important pillar of modern economic development. However, in recent years, some international and domestic group companies were defeated in internal control issues. Such as Enron and WorldCom's financial scandal, Sanlu Group Company's toxic milk powder incident, China Aviation Oil's huge loss events, and so on. Although there are many reasons in the occurrence of these events, but the failure of internal control is the main factor.Internal control is the internal mechanism of self-regulation and self-restraint for group company, and plays an important role in the healthy development of group company. In recent years, our government and academics play careful attention to enterprise internal control, but these studies almost concern the internal control of general single enterprise. There is little research in the group company internal control. Even though some scholars have studied the group company internal control, the research is fragmented, superficial, and lack of comprehensive and systematic study. Therefore, the research on group company internal control has important theoretical value and practical significance.This paper adopts normative analysis method for research. First of all, this paper expounds the internal control theory and describes the characteristics of group company internal control. Compared with the general single enterprise, the group company internal control has its own specificity: formed of a certain amount of single enterprise, group company internal control has many corporation objects, and has the hierarchy; the parent company and subsidiaries are connected by capital. As the owner of the subsidiaries, the parent company is generally not directly involved in the subsidiary's operation and management, but it gives the right to operate to the manager of the subsidiaries, and capital control is the core of the group company internal control. Based on principal-agent relationship, the interest objectives are different between parent and subsidiary companies. Considering self-interest, subsidiary often tends to do some decision that deviate from the parent company goal. Then, this paper combines with the five elements of internal control framework, focuses on the specificity of the group company, and builds a strategic-oriented internal control system of the group company. The system includes governance structures and responsibilities, the control of risk management, the control of appoint officers, the construction of information system and oversight mechanisms. However, the group company internal control system is only a framework, to make it work, a series of control mechanisms are necessary. In the final, this paper proposes effective countermeasures and suggestions of the system implementation to perfect the internal control, improve the efficiency and effectiveness of the internal control.