Study On Internal Control Mechanisms' Optimization Based On Section 404 Of SOX Act By Companies Listed Overseas

The section 404 of SOX Act brings forward strict norm on the internal control of enterprises, that is, the listed companies should establish the perfect internal control system according to COSO framework recommended by section 404. The Act puts forward stricter requirements for listed companies' corporation governance, IT governance and IT control. The section 404 is the most important and difficult one of the Act. The listed companies will spend considerable resources in order to be compliant with SOX, including massive time, manpower and financial resources. There exists a big gap between the internal control of Chinese companies listed on US stock exchanges and the requests of section 404. It is the important problem that Chinese companies need to confront to how to establish internal control system which conforms to section 404 in short time.Establishing perfect internal control mechanisms is of vital significance for Chinese overseas listed companies. Besides satisfying the request of section 404, its more important goal lies in that through the implementation of the section 404, it can promote Chinese enterprises to strengthen their internal management, enhance the ability of enterprises to keep away the risk as well as accelerating Chinese enterprises to adapt to the international competition to become greater and stronger in the wave of the globalization.In this thesis, I mainly employ the theories of COSO Internal Control Integrated Framework, IT control and PDCA circulation. Taking China Mobile Company as an example, this thesis anaylize Chinese companies' present situation of internal control and discuss the method of establishing and optimizing internal control mechanisms based on section 404 of the Act by companies listed on US stock exchanges.Chinese overseas listed companies should select COSO framework as their guidelines to compile their 'internal control manual', and on this basis, carry on the control points testing and flaw patching. Through construction of the control environment, the companies should establish the long-term mechanism which guarantees the effective operation of the internal control.It mainy include following items.The companies should pay attention to the construction of control environment. According to modern enterprise system, the companies should perfect the organizations of board of directors, audit committee and advisory committee and make them play the due role effectively. Our companies should establish effective internal audit mechanism to make the independent evaluation of internal audit become an important force in internal surveillance mechanisms of the companies. Our companies should strengthen its culture construction, establish operational moral standard and behavior criterion to nurture the ability and connotation of internal control.