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Internal Control

 

 

It has been a common knowledge that good internal control is one of the most effective deterrent tools of fraud, a key factor in preventing financial misstatements, and overall, a means for improving decision making and driving competitive advantage. This point has been enhanced and focused by the Sarbanes-Oxley legislation in the U.S. in 2002, the resulting focus on internal controls is raising the bar for acceptable practices world-wide. Having effective and adequate internal controls is becoming a series of practices from something of urgency and top priority regarded by the CEO and the Board of Directors to the day to day tasks performed by employees company-wide. Similar to the U.S. situation, there ia s clear trend toward requiring greater transparency in financial reporting and more accountability to investors in other parts of the world. The European Union's Company Law Directives and the Chinese Norms for Internal Accounting Control in Enterprises all clearly reflect the trend.

Internal control: the basic

Under the COSO Internal Control-Integrated Framework, internal control is broadly defined as a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories at the organizational level: a) Effectiveness and efficiency of operations; b) Reliability of financial reporting; and c) Compliance with laws and regulations. At the specific transaction level, internal control refers to the actions taken to achieve a specific objective (e.g., how to ensure the organization's payments to third parties are for valid services rendered.). Internal control procedures reduce process variation, leading to more predictable outcomes. [see more about internal control]

How we can be of assistance

It is important to understand that internal control is not just a requirement of the Sarbanes-Oxley legislation applies only to public companies in the US, it is a foundation for management in an organization of any size and any nature. Strengthening internal controls is an area that a business at any stage can benefit from. In fact, even in a small business with simple management structure, there exist certain controls in place, a simple example is expenses approval procedure, which can be seen nearly in every organization.

It is quite often, however, controls within an organization would have been designed and implemented in an unstructured manner, as the need arises, upon identifying a particular risk that needs to be addressed. In such cases, both duplication of tasks and the performance of superfluous controls and control gap in overlapping or overlooked areas may exist, resulting in unnecessarily high control cost or/and problems in effectiveness and efficiency of controls.

Our Russell Bedford Hua-Ander professionals have an in-depth understanding of companies' situation, problems, and needs with respect to internal control and have accumulated valuable related experiences from a dozen of major internal controls assignments and regular audit practice. In undertaking internal control assignments, our practical, proactive but joint-force approach has resulted in cost-effective and practical internal control systems or procedures for our clients. Nabisco China (Kraft), Pillsbury (General Mills), Novatis, and Apotex China are among our satisfied clients.

To address different needs from clients, we offer a variety of services that are flexible to client requirements and specific situation.

  • Systematical design/restructuring of internal control system: to new companies and those existing companies that need a new/restructured system. Our final delivery is a set of control documentation containing policies, procedures (including flowcharts), instructions, and if desirable, forms.

  • Review /diagnosis of internal control: review of the key processes and controls of the main cycles of the client’s business, or otherwise limited to only one or two specific areas of business. Our final delivery is a report containing issues and recommendations for improvement.

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  • Internal audit assistance: full/partial responsibilities of the internal audit function, advisory and technical assistance to the internal audit department or team of the client.

  • Drafting of procedures: working together with people of the client to setup specific working process and procedures for a certain function(s) or business cycle(s).

  • Assistance with Sarbanes-Oxley compliance: preparing/review of related documentation for those companies that are required to be audited in conformity with the Sarbanes-Oxley regulations.

  • Management letter: as a result of our value-added audit service, a management letter is normally issued after a statutory or IFRS audit, addressing the major internal control weaknesses we find during the audit and our recommendations for improvement.

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