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Enterprise Group's overseas subsidiaries fund operational risk management

Author: YangShuE From: www.yourpaper.net Posted: 2009-04-20 04:07:05 Read:
[Abstract] article is based on corporate governance and internal control perspective, discusses the risk management and control of enterprise groups overseas subsidiaries in the operation of the funds, sound corporate governance mechanism is to improve the parent company commissioned a proxy chain basis points. From China Aviation Oil Singapore suffered huge losses case analysis to strengthen the timely communication of information, transmission and disclosure is to respond to emergencies and emergency issues must move.
[Key words] overseas subsidiaries; capital operation; risk management; 2D perspective


In the 1990s, the history of London is the oldest, reputation, known for the development of sound, reputable and well-known merchant bank Barings Bank Group Singapore Bahrain futures manager Nick Leeson misjudged the direction of the Japanese stock market entire Bank Group collapse of the company. On the surface, this seems to be an accident caused by a small staff mistakes, in fact, it is a centralized outbreak management ineffective internal control hazards. This event shocked the world just long past, people have not completely faded from memory, CAO overseas subsidiaries - Singapore company engaged in oil speculation loss of $ 550 million event again no matter whom staggering. Stunned, people can not help but speculation behind the huge loss of detail and process, and some even say that it is in the transaction in the hands of the Western predators. However, one thing is certain, and all the huge losses on the derivatives market, the root cause of the event of the loss of China Aviation Oil Singapore is also its internal control mechanism failure.
Coincidentally, in 2008 by the U.S. subprime mortgage crisis triggered by the global economic crisis, a number such as Lehman Brothers and other old bank and a giant enterprise group came crashing down in an instant; financial turmoil also spread to China: information, CITIC Pacific Australia iron ore projects in leveraged foreign exchange contracts, has led to a loss of HK $ 808 million; leveraged foreign exchange contracts are still in force, the loss of the fair price setting as much as HK $ 14.7 billion. Information Second, China Ping An shares of Fortis 121,000,000 shares investment of 28.3 billion yuan provision for huge loss reserves of 157 billion rescue plan for Fortis market investment in China's Ping An concerns, rumors China Ping An H-shares fell 9.7% in one day (2008.9.26 Friday). (1) in these events occur at the same time, there is also frequently heard the news of the resignation of the chairman of a number of large enterprise groups or monitoring survey.
The waves of the financial turmoil, people need more than just calm; in the face of unexpected risks and crisis, people learn from their mistakes, and need to find and summarize the underlying causes behind these problems. It is said that all derivative financial instruments to blame; also been said that this is the wrong corporate governance; also said that this is the consequences of that delay the transmission of information.
In the end what is the reason? Of course, each have their own background, each have their own specific circumstances, but for multinational corporations alone overseas subsidiary, complex external environment, the political environment of the host country, the legal environment, financial environment, tax policy and industry competitive environment are subject to change to company operational and financial crisis lurking create a burst of soil, combined with away from the parent company, governance chain stretched, if the communication is not timely, internal controls are not in place, the sudden occurrence of risk and crisis is inevitable. Therefore, corporate governance and internal control is based on two basis points and visual study overseas subsidiaries that may occur in the capital operation risk and crisis of great significance.

Second, the overseas subsidiaries fund operational risk management theory and perspectives

If people need to learn some lessons from the aforementioned case, the mechanism for the improvement of corporate governance and internal control is the first and necessary, followed by information timely communication, transmission and disclosure.
(A) improve the corporate governance mechanism is to improve the parent company commissioned a proxy chain basis points, and also strengthen the supervision of the parent company's primary
On multinational governance structure study of history is not long, a large number of scholars from different angles and theoretical framework of multinational governance concepts, objectives and content were discussed. These studies involved a contract economics, finance, organizational behavior, and information economics and other fields and disciplines. In these studies, the most striking is the "principal - agent theory. For a long time, as a delegate of the classical theory of the firm - agency theory is regarded as the mainstream theory of the multinational governance theory, introduced by multinational governance research field, is widely used to explain the separation of ownership and control in case of parent and subsidiary companies balanced generation and changes in behavior, and on this basis, a series of mechanisms designed to solve the problem of asymmetric information as the parent company of the principal-agent subsidiaries (Shengying Min, Liu Zhiyong, 2008).
Multinational companies, the relationship between the parent company and the subsidiary can be seen as a principal-agent structure. Parent company by the shareholders authorize the Board to overseas investment and build an independent legal institutions, sent important subsidiary of senior candidates to the formation of the new company's board of directors and the management team, the board of directors of the subsidiary independent exercise of the terms of reference of the funders, in accordance with funders equity theory, accounting for a larger proportion of the controlling shareholder still holds control over a subsidiary, through direct or indirect control layers commissioned relations, significant investment and financing decisions still have to go through the Board of Directors of the parent company or the shareholders' meeting or by the mother the authority of the company. But this way, this various agents appointed by the chain is too long, if the monitor is ineffective communication or information is not timely, prone to "adverse selection or moral hazard. Therefore, the establishment of a sound governance structure of the parent company, the establishment of a number of counterparts Committee, Audit Committee, Strategic Committee, the Remuneration Committee the corresponding check subsidiaries is to solve this agency chain is too long, monitoring difficult too small drawbacks forceful measures. By the Audit Committee is responsible for reviewing the internal control of the overseas subsidiaries to oversee the effective implementation of its internal controls and internal control self-assessment, in order to coordinate the parent company internal control audit and other related issues is one of the important initiatives.
Specially formulated to strengthen the management of its subsidiaries in order to guide the parent to ensure that the parent company investment security, integrity, and to ensure that the Enterprise Group's consolidated financial statements give a true and reliable, the Ministry of Finance in accordance with the relevant laws and regulations and internal control basic norms " the internal control the specification - control of a subsidiary. " The parent company is in the process of control of the subsidiary, at least on the following key aspects of the key aspects of risk control should be intensified, and take appropriate control measures: First, the organization and personnel of the subsidiaries controlled by the appointment of the directors, managers, chief accountant (or chief financial officer, in charge of financial accounting person in charge) contribution, exercise power; subsidiaries operational level control, through the establishment of performance goals, budget control, significant investment, financing and control of the distribution of profits, external security control, external donor control, related party transactions, control, evaluation and audit supervision policies and procedures, effective control over its subsidiaries on financial matters and business activities; Third, the consolidated financial statements and its control, clear the consolidated financial statements and submitted to the process and approval system to ensure that the parent company's consolidated financial statements give a true and reliable. From the corporate governance system level to protect the control of the parent company for overseas subsidiaries.
(B) strengthening internal control is the parent company to exercise regulatory functions to prevent subsidiary risks and eventualities must wear the sword
The so-called regulatory functions, first, management, supervision. For an independent subsidiary, oversight functions should be more important, because the subsidiaries abroad as a separate legal entity, management is the move of their day-to-day must be carried out, the parent company generally neither interfere too much in the specific business, in fact, beyond the reach of . Therefore, strengthen supervision and its main responsibilities. By COSO internal control framework "and" enterprise risk management framework, or China's development of "enterprise internal control basic norms", "supervision" placed in an important position as an important factor in the internal control world.
Accounting Regulatory Department of the Ministry of Finance Li Yuhuan the supervision of the internal control framework summarized as three points (2): First, ongoing oversight activities, individual evaluation, the bug report. Combination of one, two oversight activities to be implemented and the concrete implementation must move, and the internal control framework "defect is defined as a state of the internal control system is noteworthy that the defect report is timely discovery and evaluation of The escalation of issues, including both direct normal channels, you can also leapfrog reporting. In the "Basic Standards for Enterprise Internal Control" the required internal oversight, emphasized the internal oversight system, a system which guarantees the continued implementation of the supervision; Second is to carry out day-to-day supervision and special supervision, the former is similar to the internal control framework " in the ongoing supervision, which is similar to the individual evaluation. However, the starting point of the special supervision higher, it may depart from the company's development strategy, organizational structure, business activities, business processes, key staff positions, adjust or change some of the internal control or certain aspects of the supervision and inspection. In addition, China's internal control standards for internal control deficiencies identified provisions in the basic specification further distinction between design defects and operational defects, general defects, defects and material defects. And requirements found in the monitoring process internal control deficiencies should analyze the nature of the defect and the cause of reform proposals put forward, and take the appropriate form of timely report to the board of directors, board of supervisors or managers.
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