Briefly describe the five elements of an effective enterprise internal control in accordance with the “Basic Standard for Enterprise Internal Control”《企业内部控制基本规范》.Based on the information provided in Materials 4 (资料四 ) in relation to Sobright Company, identify the major risks that the Company exposes to in its fund management activities.
参考答案：
Answers：
(1)In accordance with the“Basic Standard for Enterprise Internal Control”, the five elements of internal control are:
1.Internal environment: Internal environment lays the foundation for the application of internal control. This typically includes the following aspects: the corporate governance framework; organization structure and allocation of authorities and responsibilities; internal audit; human resource polices; corporate culture etc.
2. Risk assessment: Risk assessment is the timely identification and systematic analysis of risks that affect either business activities or the accomplishment of established internal control objectives together with the formulation of reasonable responses to identified risks.
3. Control activities: Control activities are the steps taken by an enterprise in response to its risk assessment, in order to manage identified risks within the respective risk tolerance level.
4. Information and communication: Information and communication refers to the timely; and accurate gathering and dissemination of internal control related information to enable the effective communication of such information within and outside the entity.
5.Internal monitoring: Internal monitoring relates to an enterprise’s monitoring of the internal control it has designed and put into operation, the assessment of the enterprise’s internal control effectiveness in design and operation, and the mitigation taken by the enterprise to rectify any identified control weaknesses in a timely manner.
(2) Major risks in the fund management activities:
Inappropriate financing decisions are made, which would result in ineffective financing or unbalanced capital structure. This could lead to overly high financing costs or debt crisis.
Inappropriate investment decisions are made, which would result in unplanned expansion or loss of development opportunities. This could lead to cash flow problems or inefficient use of funds.
Inappropriate flow and management of funds, which would lead to financial difficulties or surplus of funds on hand.
Controls over fund management are ineffective, which would lead to unauthorized use or misappropriation of funds, or even fraud.