The Measures to Settle the Internal Control System of Korean Listed Companies: Focusing on the case of Introduction and Operation of Internal Control System in D-Company
In-Chil Yoo, Jae-Choon Lee · 2019
In this study, we introduced ‘D’ company’s internal control system accept and operation case to suggest how to establish it to South Korean listed company. Although Internal control system was first introduced 14 years ago in South Korea, only a few listed companies effectively adopt and operate the system combining with their management process. Therefore, this study is drawn the characteristics which is top management’s commitment, cost-benefits principle, on-going monitoring secondary system, multi-language application, etc. And then this study is observed the inefficient causes which settlement of the excessive control activities, passing over materiality, inappropriate assessment period, side effects of coercive disciplinary action, design error of the control, etc based on D-company actual experience. This study suggests how to establish the internal control system effectively for companies who need, based on ‘D’ ‘company’s characteristics and issues. To establish the right system to South Korea, followed should be considered. First, board and top management should notice the importance of the system, to actual commit to operate the system. Also, the organization needs to be operated independently. Second, functional jobs should be defined and separated appropriately to set clearer roles and responsibility. In addition, it has to be written as an official document. Third, the organization’s goal should be focused on problem solving and risk prevention, to be operated efficiently. Also, ‘on going monitoring system’ should be operated together with the internal control system. Implication through this study is as follows. First, this study can be referred for many organizations who need internal control system settlement cases, such as listed companies, public companies and institution. Second, data analysis of the ‘D’ Company’s system operation can be used as valuable material for listed companies to establish new system Third, this study will contribute to the companies who need to establish risk prevention policy and sound cooperate culture, through enhancing internal control system. After IMF financial crisis, listed companies in South Korea tends to emphasize performance outcome rather than establishing stable management system. It is the one of the reasons why internal fraud and embezzlement continuously happens. Fourth, it can define internal audit and internal control’s function and scope much clearer, in the present situation that there is confusion between two of them. Fifth, training program and employment for internal control experts should be increased, who execute independent and objective assessment if the system operates according to the original intend. In a way, present practice in major companies that employing non-specialist as a member of audit committee should be changed, to enhance CPI(corruption perception index). Despite of above implications, this study has a few limitations as below. First, due to limited materials, research using quantitative indicators such as mistakes, judgement abuse and human errors is not reflected in the study. Second, due to limited materials, results from strict disciplinary action is not reflected in this study, such as decreasing system efficiency and replacing abstracted sample. Third, Internal control system normally monitors regular and repetitive tasks. Therefore, this study has not covered how to adapt the system to accidental non-regular situation. This study’s scope of research is limited to suggest effective ways to establish internal control system. Therefore, later study should cover empirical cases. If the internal control system is established and operated well combined with former working process, it will contribute company’s outcome improvement through risk deduction and gaining global competitiveness.