GUIDELINES OF SHANGHAI STOCK EXCHANGE FOR THE INTERNAL CONTROL OF LISTED COMPANIES
Circular of Shanghai Stock Exchange concerning Issuing the Guidelines of Shanghai Stock Exchange for the Internal Control of Listed Companies All listed companies, In order to push forward and direct the listed companies to set up a sound internal control system, enhance the risk management level Shanghai Stock Exchange June 5, 2006 Guidelines of Shanghai Stock Exchange for the Internal Control of Listed Companies Article 1 In order to push forward and direct the listed companies to set up a sound internal control system, enhance the security management Article 2 The term “internal control” refers to the related rules and arrangements which are made for the management of the risks underlying Article 3 According to the laws, administrative regulations, departmental rules and regulations, and the provisions of this Stock Exchange Article 4 The establishment, the effective implementation, and the inspection and supervision of a sound internal control system of the company Chapter II Framework of Internal Control Article 5 A company shall try best to make the internal control system comprehensive and complete, and make arrangements at least in the aspects (1) The aspect of the company; (2) The aspect of the departments and the affiliated companies of the company; and (3) The aspect of the business links of the company. Article 6 When setting up and carrying out the internal control system, a company shall take into consideration of the basic elements as follows: (1) The expression “to set a goal” means that the board of directors and the management level set a strategic aim in the light of the (2) The term “internal environment” refers to the organizational culture and other comprehensive factors affecting the staffs awareness (3) The term “confirmation of securities” means that the board of directors and the management level makes confirmation on the internal (4) The term “security evaluation” means that the board of directors and the management level make sure the security management methods (5) The expression “selection of security management strategies” means that the board of directors and the management level make choices (6) The term “control activities” refers to the system and procedures to ensure the effective implementation of the security management (7) The term “information communication” refers to the course during which the information resulting from the planning, implementation, (8) The term “inspection and supervision” refers to the course during which the company exams itself and supervise the running of internal Article 7 Based on satisfying the overall strategic aims, a company shall set up related internal control systems for its subordinate departments Article 8 In general, the internal control of a company shall cover all business links in the business operation activities, which shall include (1) The link of sale of goods and receipt of payments for goods, consisting of the conducting of orders, credit management, transport (2) The link of purchase and payment, consisting of the procurement application, conducting of procurement orders, check and acceptance (3) The link of production, consisting of the production plan to be made, issuance of checklist of materials to be used, storage of raw (4) The link of management on fixed assets, consisting of the self-construction, purchase, disposal, maintenance, preservation and record (5) The link of management on monetary fund, consisting of the entries, transfer out, recording, reporting of the monetary fund, authorization (6) The link of relevant transactions, consisting of the definition of the related parties, the pricing, authorization, implementation, (7) The link of guaranty and financing, consisting of the authorization, enforcement ,recording ,etc concerning the borrowing, guaranty, (8) The link of investment, consisting of the resolutions, enforcement preservation ,recording ,etc concerning the investments in the (9) The link of research and development, consisting of the basic research, design of products, development of technology, test of products, (10) The link of personnel management, consisting of the employment and conclusion of employment contracts, training, leave, overtime work, When formulating internal control system, a company may modulate the business links in accordance with the sector in which the company Article 9 The internal control system of a company shall not only consist of the control of all links of the business activities, but also Article 10 If using the computer-aided information system, a company shall also institute internal control rules concerning the information (1) The division of functions between the information processing department and information using departments; (2) The division of the functions and duties of information processing department; (3) The control of development of the system and modification of procedures; (4) The control of procedures, access of materials, and data processing; (5) The safety control of archives, equipment and information; and (6) The control of the public information disclosure activities to be implemented through the website of this Stock Exchange or through Article 11 In the light of the relevant provisions of the finance administrative department of the state, a company shall set up internal accounting Article 12 A company in the finance sector or in any other special sector shall set up an internal control system, but also be governed by the Article 13 According to its own business features, a company shall set up an internal control system. This Stock Exchange encourages it to employ Chapter III Internal Control of Special Risks Section 1 Management and Control of Affiliated Companies Article 14 A company shall manage and control its controlling subsidiaries mainly in the aspects as follows: (1) To set up a control structure for its controlling subsidiaries according to the law, to determine the main clauses of the articles (2) To coordinate the business strategies and security management strategies of its controlling subsidiaries and security management strategies (3) To institute rules concerning the evaluation, incentives and restraints of the business performances of its controlling subsidiaries; (4) To institute policies and procedures concerning the business competition and relevant transactions among the parent company and the (5) To institute an internal reporting system of the important matters of its controlling subsidiaries. The important matters shall consist (6) To regularly get monthly financial reports and management reports of its controlling subsidiaries, and entrust an accounting firm Article 15 A company shall make evaluation on implementing, and inspecting and supervising the internal control system of its controlling subsidiaries. Article 16 With reference to the above-mentioned requirements, a company shall arrange the internal control system of its branch companies, Section 2 Internal Control of Transactions of Financial Derivatives Article 17 A company which takes part in transactions of financial derivatives shall first make evaluation on its own security control capability Article 18 The board of directors of a company shall have the full realization about the nature and security of the transactions of financial Article 19 According to the requirements as follows, a company shall carry out internal control over the transactions of financial derivatives: (1) To reasonably set up an aim for transactions of financial derivatives, and hedging strategies; (2) To set up rules concerning the implementation of transactions of financial derivatives, consisting of policies and procedures for (3) To set up a security reporting system for the transactions of financial derivatives, consisting of the authorization, implementation, (4) To set up a security management system for transactions of financial derivatives, consisting of the policies and procedures for the Section 3 Internal Control of Other Risks Article 20 According to the industrial characteristics, strategic aims and different security management strategies, a company shall make related Article 21 A company shall set up a crisis management and control system. Chapter IV Inspection and Supervision of Internal Control Article 22 A company shall inspect the implementation of its internal control system regularly or irregularly. Upon the inspection and supervision Article 23 A company shall make a determination about a special functional department to take charge of the routine inspection and supervision The “special functional department” mentioned in the preceding paragraph (hereinafter referred to as the “inspection and supervision Article 24 A company shall set up measures to inspect and supervise the internal control, which shall at least cover: (1) The authorization granted by the board of directors or related institution concerning the inspection and supervision of internal control; (2) The cooperative obligations of the departments and subordinate institutions of the company in the inspection and supervision of internal (3) The items, time, procedures and methods for the inspection and supervision of internal control; (4) The means of reporting of the work of inspection and supervision of internal control; (5) The division of the responsibilities concerning the work of inspection and supervision of internal control; and (6) The incentive system for the inspection and supervision of internal control. Article 25 In accordance with its own business operation features, a company shall set up an annual plan concerning the inspection and supervision The important matters, such as the purchase and sale of assets, relevant transactions, transactions of derivatives, financial aids Article 26 A report on the work of inspection and supervision of internal control shall be handed in to the board of directors by an inspection In accordance with the business operation features of the company, the board of directors of a company shall make requirements for Article 27 The board of directors of a company shall guide the work of inspection and supervision of internal control, and review the report Article 28 In the report concerning the work of inspection and supervision of internal control, the inspection and supervision personnel shall The defects of internal control and the problems occurring in the exercise thereof referred to in the preceding paragraph shall be Article 29 The working materials of inspection and supervision department, consisting of the reports concerning the work of inspection and supervision Chapter V Information Disclosure of Internal Control Article 30 During the inspection and supervision of internal control, if a company finds that there is any serious defect or severe security In the public announcement the company shall explain the links wherein defects may appear in the internal control, the aftermaths Article 31 According to the report on the work of inspection and supervision of internal control and related information, the board of directors There is an audit committee under the board of directors of a company, the audit committee may make a draft report concerning the Article 32 When disclosing the annual report, the board of directors of a company shall, at the same time, disclose the annual report concerning Article 33 The report concerning the self-evaluation of internal control of a company shall at least cover the following contents: (1) Whether or not a internal control system has been set up and perfect; (2) Whether or not the internal control system is carried out effectively; (3) The circumstances concerning the work of inspection and supervision of internal control; (4) the serious securities occurred in the internal control system and during the period of implementation thereof, and how to conduct (5) The evaluation of completion of the plan concerning the work of inspection and supervision of internal control for this year; (6) Related measures on improving internal control system; and (7) The plan concerning the internal control of the related work for the next year. An accounting firm shall make verification and evaluation on the reports concerning the self-evaluation of internal control of companies Chapter VI Supplementary Provisions Article 34 This Stock Exchange shall be responsible for the interpretation of these Guidelines. Article 35 These Guidelines shall go into effect as of July 1, 2006. |
Shanghai Stock Exchange
2006-06-05