The Research Of Internal Control Systems Based On Risk Management

As Chinese old saying goes,”There are always big dangers behind small abnormal phenomenon”.This saying perfectly describes the environment the enterprise faces now. Nowadays, information andtechnology have permeated into the public’s life and the economic globalization is an inevitable trend,which provide many chances to the enterprises and make them face more risks at the same time. As we areall familiar with the subprime crisis which leaded to many companies’ bankrupt, there’s no need to saymore about it. If we turn our sight inside, where the years have witnessed many failure cases, such as theChina Aviation Oil lost much in the trade of share option, the giant of milk industry “SanLu” disappearedbecause of using harmful chemicals and “ShuangHui” were also found harmful chemicals in its rawmaterials. The rise of interest rate triggered finance turbulence and a drop of harmful chemicals buried astrong company. We can conclude that any enterprise that hopes to grasp the chance should learn how tosurvive in the complex environment. So not only should a company build its internal control system, butalso pay attention to external and internal risk t, avoid the loss caused by the risk and grasp the chancebrought by the risk. In one word, they should hold the idea of risk management during the process ofbuilding internal control system.The capitalist countries, such as America, issued the Sarbanes-Oxley Act in2002and put into usesince then. This act says that the operators’ are responsible of building the internal control system and everystaffs of the organization has the responsibility to build, sustain and value the it. On June28,2008, theMinistry of finance, the Audit administration, the CSRC, the CBRC and the CIRC issued the BasicStandard for Enterprise Internal Control together and announced that the Standard would be in power fromJuly1,2009for the list companies. Later they issued other four relevant act. We can see that the rulessystem of internal control has been almost completed. This system provides references for companies in theprocess of distinguishing, analyzing and assessing the uncertain factors,building companies’ firefight walland elevating the value of the company.But because of lacking of experience, managers don’t understand the internal control an riskmanagement well. Many companies build the internal control without considering the environment of the company only to obey the standard which lead to the situation that what they do dose not correspond withwhat they have written. The article is talking about question like that. The purpose of this article is to buildinternal control system in the base of risk management.The second part of this article describe the history of internal control theory and risk managementtheory. Our description is based on the American theory line because of its maturity. The article alsointroduces the theory of Chinese scholars and many other foreign scholars. In the third part, the articlediscuss the internal control framework in the base of COSO1992report and the risk managementframework based on COSO2004report. Then,the article discuss the relationship between the twoframeworks and conclude that the internal control theory will focus on risk management in the future. TheChinese internal control framework is different from the COSO1992, our framework take the riskmanagement into consideration. This article tries to build the internal control system based on riskmanagement in the foundation of our internal control framework and discuss the relationship of the fiveinternal control factors. The forth part of this article analyses the leak of “ShuangHui” internal controlsystem which appeared in its recent accident of harmful chemicals. In the fifth part of this article,we talkabout how to build internal control system based on risk management in a company and we also take“ShuangHui” as an example.The study of this article can help the companies have a further understanding of internal controland risk management and provide some practical references for the companies that intend to build theinternal control system based on risk management.