Research On Internal Control Evaluation System For Disclosure Purposes

With the development of the enterprise system, financial fraud cases caused by internal controldeficiencies or failures occurred frequently. Being a reasonable assurance mechanism of the reliabilityof financial information, the disclosure of internal control evaluation information is significant to theinvestment decision and market supervision, and caused increasingly concerns of the regulatoryauthorities and investors.Countries are enacting bills to regulate the internal control disclosure ofinformation in the capital markets. Although China’s Ministry of Finance and other five ministriesjointly released the “internal control evaluation guidelines “in April2010, there are still differentviews among our scholars on the main part of disclosing internal control evaluation, contents ofevaluation, evaluation methods, and evaluation reports. Therefore, further discussion is necessary.By collecting and comparing domestic and foreign research data, this paper which is disclosurepurposes oriented, comprehensively analyzes the main body, contents, methods, and reports of thedisclosure purpose of internal control evaluation and gets the following conclusions: based on thedifference of purposes,internal control evaluation can be divided into four types: internal controlevaluation for the audit purposes, internal control evaluation for consultation purposes, internalcontrol evaluation for perfection purposes, and internal control evaluation for disclosure purposes.Different internal control evaluations have different subjects, contents, methods and reports. The mainbody of internal control evaluation for disclosure purpose should be targeted at the management layer,since internal control evaluation are management layer’s responsibilities. They are most familiar withthe validity, which will be helpful to improve the evaluation efficiency and strengthen the supervisionof the governance layer. The evaluation contents should be internal control over financial reports, forfinancial reporting internal control is the basic guarantee system of the reliability of financialinformation. It has externalities and its effectiveness needs to be disclosed. The evaluation methodshould be defect recognition method, which focuses on identifying significant flaws of financialreporting internal control. Since whether there are significant flaws is the fundamental criterion tojudge the effectiveness of internal control. If there is a major flaw, internal control would beineffective; The evaluation report should be separated, simple standard reports, which focuses ondisclosing significant flaws of internal control over financial reporting. Because such internal controlevaluation report needs to be disclosed, whether it has major flaws is the main basis to determine theeffectiveness of internal control and for external information users to make their decisions.