2003-09-09 09:50:04
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2003-09-09 09:50:04
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Corporate system needs IT shot
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| Author: ZI MU,China Business Weekly staff | ||
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Calls are growing for wider adoption of information technology (IT) in Chinese listed companies in a bid to improve good business practices. "Information technology should become an effective supplementary tool used to improve corporate governance," said Li Zhaoxi, deputy director of the Enterprise Research Institute under the State Council Development and Research Centre. Li's call comes at a time when irregularities are plaguing China's fledgling stock market. "For historical reasons, most of the listed companies in China were restructured from State-owned enterprises (SOEs) or entities controlled by the government," Li said. "In many cases, companies have yet to establish a real corporate system." Asian corporate culture, where families or governments hold controlling shares, was seen as the biggest hindrance to improving good business practices, indicated a survey last year by the Association of Chartered Certified Accountants. In China, where the stock market is far from mature, the problem might be severe, experts suggested. Opacity concerning corporate information disclosure remains a major problem in China, Li said. "Some listed companies even fabricate information or provide incomplete information to mislead investors, while some intermediaries are also involved in cooking books, which has greatly disrupted the order of the capital market," he said. The research fellow said IT applications, such as an electronics platform, can offer a way to significantly improve corporate governance, though it is not a "panacea." Li was echoed by Andrew Hu, managing director of Oracle (China). "Information technology will make unique contributions to sound corporate governance, and compliance with laws and rules," Hu said. The Sarbanes-Oxley Act in the United States is an example of how IT can be adopted in corporate governance, he added. The legislation was introduced last year after a series of shocking corporate accounting scandals involving large firms such as Enron and WorldCom. The law took effect earlier this year. Section 409 of the law calls for companies to report material financial events as they occur, rather than at the end of the financial quarter. Thus, the legislation requires companies to update their information technology (IT) and application infrastructure to report real-time information to ensure better reporting compliance. US companies are expected to spend billions of dollars to comply with new accounting rules, with a significant chunk going to IT projects. Software vendors - including Oracle, SAP, PeopleSoft and IBM - have been developing applications and tools to help firms comply with Sarbanes-Oxley. Oracle contends its Oracle E-Business Suite is one of the most effective IT tools for improving corporate governance. The Oracle Internal Controls Manager, part of the E-business Suite, provides the infrastructure needed to establish a certifiable auditing process, along with special controls to alert users to potential risks of fraudulent reporting or misinterpretation. The control manager was specifically mentioned in Section 404 of the Sarbanes-Oxley Act. That section requires executives and auditors to document and certify the internal controls and procedures behind financial reports submitted to the Securities and Exchange Commission (SEC). Although such a law has not been introduced in China, there is a heightened need for transparency in reporting, which will eventually require similar legislation, experts suggest. A high-level meeting in July, chaired by Premier Wen Jiabao, called for wider promotion and adoption of IT applications in China. "I think adoption of IT systems aimed at corporate governance among Chinese listed companies and large SOEs should meet that meeting's requirements," Li said. "As an important supplementary tool, IT systems will help improve corporate governance in China." The research fellow urged IT companies to develop applications, based on rules and laws concerning corporate governance, that meet business requirements for improving transparency. Such a system should help users realize information disclosure at various levels, and should help shareholders and directors supervise their companies' performances, Li said. Such a system, he added, should also help companies establish internal control systems, performance-assessment systems, and risk-management and risk-assessment systems. (Business Weekly 09/09/2003 page1) |
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