| It is very important to set up the internal control system for both the companies and the government agency as well as non-profit organization. It is proved by the practice that the comprehensive and effective internal control system not only benefits the development of market economy and democracy, but also does great good to protect the interest of public investors. In my opinion, accelerating the path of establishing internal control system in China is urgent to accomplish the great goal that our country will be more developed, more open, more democratic and more harmonious by 2020 under the guidance of scientific concepts of development.The title of my study is"reseach on how to establish the internal control framework system in China based on international compare and scientific concepts of development". Through comparing the history and the present situation of internal control with the main developed countries and regions, I think we should found this kind of internal control framework system that focus on financial reporting aim and giving attention to other aims appropriately. In my view, the internal control system in China should consist of standards system and implementation system. The standards system should be composed of different internal control system from companies, government agency and non-profit organization. At present, we should design the internal control system according to public companies and large companies, after that, we may consider how to conduct this job in smaller companies, government agency and non-profit organization step by step. Regarding the implementation system, I think we should establish the evaluating mechanism which including the CPA evaluation, management assessment and regulatory inspection, at the same time, we should strengthen the related lawmaking, study, training, research and human resource construction. In addition, we must consider the impact of IT and insist the concept of international convergence in internal control area. We can't copy the internal control framework in other countries, but we should study the logic framework and adopt the soul.This paper is comprised of six chapters. The following is the main points of every chapter.Chapter One: I found there is no more essential difference on the definition of internal control through international compare, which is helpful to consider the internal control framework with a same or similar basis. I believe the framework of COSO is becoming the main reference in the world. After four different developing stage that can be divided into internal diversion, internal accounting and administrative control, internal control structure, and integrated framework, I think the modern internal control is stepping into a new era that try to keep balance between the entity's internal demands and the regulator's external requirements. I did some research on the developing process of internal control in different countries, and I found some same character:__Serving the development of economy and society is the most basic character of internal control.__The internal control system also should benefit the entity itself first.__The public responsibility of the entity decides its internal control system has to face and serve the public demands.__The basic concepts and technique of internal control is becoming similar around the world, but the detailed requirements and implementation mechanism must suit to the circumstance and culture of the different countries.__The internal control system is more and more interlaced with risk management and corporate governance, which makes the internal control turn more open and complicated.__How to implement the internal control system is a very complex project.__The accounting and auditing profession has close relationship with internal control, but we should keep more cautious about internal control in the new situation.__The design and operation of internal control system depends on the social environment rather than in a vacuum.Chapter Two: We have got great improvement in internal control area since mid 1990. We must insist all the successful experiences developed in the past decades, especially continue all the following principles: __The internal control system must fit for the situation of our country and push our economy go ahead.__The internal control system in China must comply with the developing trend in the world.__It's better and more reasonable that we set up the internal control system in the companies first, the next step, we can consider to proceed the similar job in other fields.__We must aggregate all the resource and strength from different sides especially government agency to implement the internal control system.__We must take use of the principle-based rather than rule-based concept to think of our internal control system.__When we develop our internal control system, in the meanwhile, we must improve our external environment, including the integrity and competence of all the people.Based on all the above-mentioned principles, we will try our best to constitute unique Chinese internal control system that combines standards system and implementation system, integrated education, training and inspection, align with CPA evaluation and management assessment, accommodate with the demands of market economy and the trend of international convergence. I believe the Chinese internal control system will be an important part in the world through our tireless efforts.Chapter Three: The present situation of internal control in different companies in China is definitely different. Only a few public companies have more comprehensive internal control while most of the other companies have very poor internal control. So, when we consider the internal control system construction, we should not self-assess too optimistically. This is the reason why I stick to my view that we must begin from internal control over financial reporting. The internal control standards system in our companies should consist of basic standard, business standards and implementation guidance. The basic standards will define the goal, components and other basic concepts of internal control. I understand it is as same as the executive guidance of COSO framework. The business standards aim to teach the companies how to develop the effective internal control according to all kinds of important business and incidents, such as purchase, investment, cash management, and commitments. The implementation guidance is made to follow up the demands that how the different size and complex companies to implement the internal control and how to apply the different components of internal control, such as monitoring program. I stress here we must strengthen the board of directors, the internal audits, and we must keep thoughtful consideration about smaller companies.Chapter Four: The internal control system has entered the government and non-profit organization field in the United States. Based on my study, I found the internal control in the government mainly focus on the financial reporting except the compliance with the law. I also found that the government's internal control system is affected by the companies'internal control, and they improve each other. Additionally, the government accounting standards and the internal auditing function play a very important role in the process to develop the internal control system in the government agency. Considering the practice and experience of U.S., I think our internal control system in the government should address the main risk and challenge that our government agency face now, such as the reality, completeness and transparency of financial reporting. At the same time, we should seek other ways to confirm the responsibility system in government agency, for example, we may require the leader of government agency report his of her responsibility for internal control and submit related reports to the congress. Further more, we may require the government auditing office to evaluate the effectiveness of design and operation of the internal control over financial reporting.Chapter Five: The effective operating is the soul of internal control system. In order to boost the internal control operates effectively and efficiently, I think we must set up this kind of system which"Run by Two Wheels". On one hand, we should develop the evaluating mechanism, including the CPA evaluation, the management assessment and the regulatory inspection. What we must recognize clear-headedly is that we can only require the CPA to evaluate the effectiveness of internal control over financial reporting while the management can disclose boarder internal control even the entire risk management. We have to keep the balance between the cost and benefits, or we will fail to implement the internal control favorably. I noticed the State Council of China filed the draft about beginning the internal control evaluation in the public companies just as Section 404 of SOX. I really think we are walking into the correct way to protect the interest of investors better, but we must consider the implementation rule thoughtfully. The practice in U.S. imply that the good will is not always the good results. I suggest we can conduct evaluation of internal control over financial reporting in large public companies first. After three to five years'transition, we can require the smaller public companies to do the same thing. What's more important, the different government agency should play respective role in the process. The composition of force is bigger, the result is better.Chapter Six: In the whole process of constructing internal control system, we must consider the impact of IT and insist on the concept of international convergence. I strongly believe IT is both a method and a control object. In 2006, we finished our accounting standards construction in all of industries, and the new accounting standards are convergent with international financial reporting standards. IASB as well as many other accounting organization think highly of the performance. The experience of accounting international convergence inspires us we must work better at least in four aspects: First of all, we must comply with the trend of international convergence, affected by the other countries and leave our impact on other countries. Second, we must enhance the construction of Chinese Internal Control Standards Committee ( CICSC) which was built by the Ministry of Finance and other important government agency in 2006. I think we should make it become the strong base to develop the internal control system and become the bridge to connect with the foreign counterparts, such as COSO, CoCo, and Turnbull. Third, we must tighten the international communication and cooperation through bilateral or multilateral talks. Finally, we must educate and train more personnel who are knowledgeable and experienced in internal control area and speak English very well, so they can involve in international arena deeper and express our opinion better.
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