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January 2009:
BASIC STANDARD FOR ENTERPRISES’ INTERNAL CONTROL PROMULGATED IN CHINA
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By the joint efforts of the Chinese Ministry of Finance, the National Audit Office, the China Securities Regulatory Commission, the China Banking Regulatory Commission, China Insurance Regulatory Commission, the Basic Standard for Enterprises’ Internal Control was promulgated on 28 June 2008. The Standard requires Chinese enterprises to establish, evaluate and assess the effectiveness of their internal control, and qualified accounting firms to examine and report on such effectiveness.
Five control elements are covered in the Standard. They are internal environment, risk measurement, control activities, information and communication and internal monitoring. These elements are broadly consistent with the core principles of the COSO publications.
Three supporting guidelines have been issued for public consultation. They are:-
- Internal Control Assessment Guidelines for enterprises, drafted by the Ministry of Finance
- Internal Control Practical Guidelines for enterprises, drafted by the Ministry of Finance.
- Guidelines for Performing Assurance Engagements relating to assessment of the effectiveness of internal control, drafted by the Chinese Institute of Certified Public Accountants.
These guidelines are intended to provide directions for implementation of the Standard.
The Standard will take effect on 1 July 2009, and initially be applicable to listed companies in China. Early adoption by large and medium size unlisted companies are encouraged. It is expected that the Standard will improve Corporate Governance in China to align with international practice.
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