Study On Financial Control Methods Of Parent-Subsidiary Corporation

One of the key strategic tasks of our country's economic development is to develop enterprises groups. The enterprise group's competitive power depends on its internal management level. With the establishment of the system of parent-subsidiary corporation, how to play the parent companies' core roles in the groups and how to control the financial motions of the enterprise groups effectively become a messy problem. Financial control is an important means for a group to control its members. Therefore, financial control becomes the most important controlling means.Parent company is the controlling share holder of its subsidiary companies, which causes a principal-agent relationship between them, such as shortsighted activities and laziness phenomena. These problems are common administrator problems. If the parent company fails to solve them, its development will be restricted or its existence be threatened. Internal controls can solve the above problems effectively. Of all the internal control methods, financial control is the most important component. So the principal-agent theory and the internal control theory are the basis of the financial control for parent-subsidiary corporations.Most scholars' research centered on the financial control mode but only a few of them referred to the group financial control method. The parent-subsidiary corporation's financial method should include cash centralized management, comprehensive budget management, centralized accounting, internal audit control and chief financial officer assignment.The above five financial control methods can not be directly applied to all parent-subsidiary corporations. There are three cash management modes, which are respectively centralized revenue and expenditure mode, cash settlement center mode and financial company mode. Cash settlement center mode is used most widely. Comprehensive budget management can be divided into three types: centralized budget management, decentralized budget management and the third type between them. The last one is an ideal mode existing only in theory. In the accounting process, formulating unified accounting systems and information management are critical steps. Internal audit control can be divided into three types: auditing committee led by board of directors, auditing department led by the CEO, auditing department led by financial department. Auditors have the greatest independence in the auditing committee led by board of directors. Assigning CFOs to control the subsidiary company, explicating their responsibilities and strengthening the supervision over them are the three important measures to guarantee their roles.