On The Application Of Internal Control Standards In SMEs (Small And Medium Enterprises)

Although the theoretical study and practical exploration of internal controlstarted late in China, recently, unprecedented world attention has been paid to it. Atpresent, China’s new Internal Control Standards, referencing to foreign internalcontrol’s theoretical results and experience, has carried out a number of innovationsand breakthroughs, so our Internal Control Standards can coordinate with theinternational development. However, Internal Control Standards are promulgatedaccording to the development of LMEs (large and medium enterprises) in China.Although it stipulates that the small businesses and other institutions can establish andimplement their internal control according to it, its application in SMEs stillencounters some difficulties because of the diverse situations of SMEs. As InternalControl Standards is newly-issued and its application in LMEs has just started, thestudy of its application in SMEs presently hasn’t been widely spread. Besides, SMEsare acknowledged to play an important role in the national economy, but the currentinternal Control issues are becoming a bottleneck in the development of SMEs.Therefore, this paper, by studying the application of Internal Control Standards inSMEs, on the one hand, is to expand the application scope of Internal ControlStandards to realize its greater value; on the other hand, aims to construct internalcontrol for SMEs and provide highly practical operating instructions.This paper combines many research methods, such as normative analysis,induction, documents analysis and case study, and so on. At first, it overviews thetheory of Internal Control Standards at home and abroad, and its application inpractical industry as well, then states the domestic relevant theory of Internal ControlStandards with milestone features. According to the promulgation background ofInternal Control Standards and its application scope, the paper proposes that the studyof Internal Control Standards in SMEs is of great significance. Then, this paperdefines the term of SMEs in China, analyzes the characteristics of SMEs and thestatus quo together with the current problems of internal control of SMEs, andprovides an in-depth analysis of its causes.Based on the study of its feasibility when applied in SMEs, and considering thestatus and problems of internal control of SMEs, this paper, combining thecharacteristics of SMEs, puts forward the right remedy. It holds that Internal Control Standards applied in SMEs should put more emphasis on the cost control principlesand should adhere to the internal control concepts, which are, taking accountingcontrol as the main means and management control as the supplement. The paper alsopoints out that Internal Control Standards should be improved from the internalcontrol objectives, principles and the five elements of internal control in order to bewell applied in SMEs. Finally, to enhance the practicality of this paper, a fresh case isintroduced and analyzed in detail, with solutions being proposed according to thepreviously-proposed strategy of Internal Control Standards’ application in SMEsaiming to improve the internal control.The main conclusion and achievements are as follows: Our current internalcontrol standards are mainly concerned with LMEs. Currently, the situation of theinternal control of SMEs, are not optimistic, in additions, imperfect internal controlshas become a major obstacle to the development of SMEs. Thus, on the basis ofInternal Control Practices’ applicability in LMEs, this paper studies how to adjustInternal Control Standards to resolve the crux of the internal control in SMEs,enabling the standards to be better applied in SMEs.The innovations of this paper lies in: Firstly, it gives a deep analysis of the statusquo and problems of internal control of SMEs from two perspectives: the objectiveenvironment and the limitations of internal control itself respectively; Secondly, itexplores the application feasibility of Internal Control Practices in SMEs; Thirdly, itmakes a comprehensive research on Internal Control Standards’ application in SMEsfrom the internal control objectives, principles and the five elements, thus increasingthe internal control practices’ operability in SMEs.