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论文研究 - 论内部审计在公司治理中的作用.pdf
On the Role of Internal Audit in Corporate Governance
Abstract
Keywords
1. Introduction
2. Overview of Internal Audit and Corporate Governance
3. The Analysis of the Relationship between Internal Audit and Corporate Governance
4. The Problems in the Process of Modern Corporate Governance
5. Explore Ways to Strengthen Internal Audit and Improve Corporate Governance
6. Conclusions
Conflicts of Interest
References
American Journal of Industrial and Business Management, 2019, 9, 63-71
http://www.scirp.org/journal/ajibm
ISSN Online: 2164-5175
ISSN Print: 2164-5167
On the Role of Internal Audit in Corporate
Governance
Jianjun Zou
Guangdong Polytechnic of Industry and Commerce, Guangzhou, China
How to cite this paper: Zou, J.J. (2019) On
the Role of Internal Audit in Corporate
Governance. American Journal of Industri-
al and Business Management, 9, 63-71.
https://doi.org/10.4236/ajibm.2019.91005
Received: December 14, 2018
Accepted: January 7, 2019
Published: January 10, 2019
Copyright © 2019 by author(s) and
Scientific Research Publishing Inc.
This work is licensed under the Creative
Commons Attribution International
License (CC BY 4.0).
http://creativecommons.org/licenses/by/4.0/
Open Access
Abstract
As the economy develops faster and faster, the role of internal audit in the
company becomes more and more important, especially for corporate gover-
nance. The trend of globalization has intensified, and trade between countries
is dense. It brings economic benefits to enterprises while increasing risks. In
order to survive and develop, companies must face more challenges. On the
one hand, the company must increase investment in internal governance
management, and establish institutions such as shareholder meeting, board of
directors, managerial level and board of supervisors, and the corporate go-
vernance structure is gradually standardized. On the other hand, the compa-
ny’s strengthening of internal audit can not only improve the company’s op-
erating conditions, but also timely discover problems within the company
and effectively control them. However, compared with other advanced coun-
tries in China, the internal audit system was established late, so the units have
different experiences in learning from foreign countries, which leads to many
problems in the establishment of internal audit institutions in China, and
many companies do not pay attention to internal audit. Therefore, it is ne-
cessary for us to conduct in-depth research on this.
Keywords
Internal Audit, Corporate Governance
1. Introduction
Under the trend of global economic convergence and changing market envi-
ronment, there are inevitably large changes in the practice of corporate gover-
nance in various countries, which makes more and more company owners and
leaders realize that corporate governance is Strengthening core competitiveness
and increasing the company’s performance plays an important role in realizing
DOI: 10.4236/ajibm.2019.91005 Jan. 10, 2019
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J. J. Zou
DOI: 10.4236/ajibm.2019.91005
that good governance can protect investors and stakeholders from all walks of
life and ensure that the modern market economy system can operate healthily
and steadily. At present, internal auditing abroad has successfully participated in
corporate governance as an indispensable part of corporate governance structure
and plays a pivotal role. In China, internal auditing is gradually practiced in the
corporate governance structure and its status and role are not short. However, in
recent years, China’s market economy has frequently disclosed cases of ineffec-
tive internal control, unsatisfactory business performance, unreliable financial
information disclosure, and even high-level personnel collaborating in fraud
cases. One of the reasons is that internal audit has not been effectively imple-
mented its role in corporate governance. How to improve the internal audit of
Chinese companies, which can better help corporate governance, has attracted
the collective attention of experts in the auditing and practical circles in China.
Therefore, it is of great practical significance to explore the specific role of in-
ternal audit in corporate governance in China and to continuously promote the
effective play of these roles.
2. Overview of Internal Audit and Corporate Governance
In recent years, fraud cases of companies from all over the world have been ex-
posed. The traditional auditing and board of directors have failed to play their
supervisory role. People began to shift their focus to internal governance. Since
then, internal audit has been on the stage of the world and has received more at-
tention and attention.
1) Overview of internal audit
According to the “Internal Audit Practice Framework Standard” launched by
China in 2011, internal audit is an activity with both independence and objectiv-
ity. Its main work is confirmation and consultation [1]. Internal audit selects a
scientific and rational approach to evaluate the effectiveness of risk management
efforts to ensure that organizations achieve development goals faster and better.
The fundamental purpose of a company is to make profits and maximize its val-
ue. In the whole process of operation, there will always be various problems, and
the existence of these problems will greatly hinder the healthy development of
the company. Internal audit activities exist to solve these problems. It makes full
use of appropriate auditing methods, reveals the shortcomings in the process of
comprehensively and objectively reflecting the implementation results of the en-
terprise system, and proposes targeted solutions. The department’s work is im-
proved, which promotes the company’s sustainable development towards the
goal, while effectively monitoring the company’s property, reducing unnecessary
expenses, and ensuring the security of the company’s resources and property.
According to the theory of the Institute of Internal Auditors, the internal au-
dit work is organized to promote the improvement of its own value, so the func-
tion of this work is to confirm and consult.
2) Overview of corporate governance
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American Journal of Industrial and Business Management
J. J. Zou
In essence, the purpose of corporate governance is to save on the agency costs
of modern enterprises that implement the “two-right separation” system. The
company combines its own actual situation and relevant legal requirements to
formulate a sound and modern rules and regulations system, and distribute the
rights, responsibilities and interests of personnel in different roles within the en-
terprise to ensure that its shareholders, board of directors and senior executives
can check each other. Driven by the development of the times, the benefits of the
company no longer only affect the interests of shareholders, the company has
become a whole benefit including employees, customers, suppliers, and its bene-
fits will affect the interests of the various members of the whole. The company
adopts scientific management methods, continuously cooperates, promotes the
realization of goals, and provides protection for the interests of all stakeholders.
Corporate governance is a discipline that was born under the impetus of the
continuous development of Western companies. In the 1870s, the idea of “sepa-
ration of the two powers” did not appear. After entering the 1920s, the scale of
the company expanded rapidly, and the owners distributed the important tasks
of the business to the managers. Back in the 70s, the control of the operators was
getting bigger and bigger, and the issue of corporate governance caught people’s
attention [2]. Nowadays, the contradiction between owners and operators is be-
coming more and more fierce. We have to deeply reflect on corporate gover-
nance in China.
3. The Analysis of the Relationship between Internal Audit
and Corporate Governance
China’s internal audit development has not been long, but it has achieved re-
markable achievements, but there are still many loopholes. Especially in the
rapid development of the modern corporate system, the role of corporate go-
vernance has become particularly important. These stakeholders will require
their corresponding rights in the company structure. A sound governance re-
quires checks and balances of various factors, while internal audit It plays an
important role.
1) Internal audit is an integral part of corporate governance
The board of directors, executive management, external audit, and internal
audit basically determine the integrity and security of the corporate governance
structure. A company’s healthy development is inseparable from a solid gover-
nance structure. Boards and senior management need to fully understand the
various factors and risks that threaten the achievement of the goals. In the
process of executing the target, various performance situations may have devia-
tions that affect the achievement of the target. At this point, an independent role
is needed to monitor operations, and internal audit can play such a role.
Through various review methods, timely evaluation can reflect various risks and
existing problems in internal operations, report to management in a timely
manner, issue revised plans, and implement revised plans to ensure the final goal
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DOI: 10.4236/ajibm.2019.91005
J. J. Zou
DOI: 10.4236/ajibm.2019.91005
is achieved. Therefore, when using internal audit to evaluate the implementation
results of the enterprise system, its focus is mainly on whether the corporate go-
vernance structure has achieved effective checks and balances. Thus, in the field
of corporate governance, internal audit plays an irreplaceable role.
2) The role of internal audit in promoting the corporate governance
structure of corporate companies
In advanced foreign companies, in order to better manage the company, they
all attach great importance to internal audit, which shows that the company’s
sustainable development is inseparable from internal audit. Internal audit plays a
facilitating role in corporate governance structure, mainly in the following two
aspects:
a) Internal audit is an important means to promote effective corporate gover-
nance
Under the modern company system, “the rights and responsibilities are clear,
and the government and enterprises are separated.” Shareholders have a lack of
understanding of the company’s operations and there is a possibility of deci-
sion-making risks: while management attaches importance to operational risks
and prevents losses, it may ignore internal regulatory risks and Audit risk: For
potential investors, the company’s comprehensive development capabilities and
operating performance are more fancy. Internal audit has found a way to solve
these problems. Through independent and objective review, it can evaluate the
company’s operating conditions and effectively supervise the company’s re-
sources. Compared with external auditing, it is more familiar with the status quo
of the enterprise, and can provide professional and objective audit evaluation for
the demander, so as to make more accurate decisions.
b) Internal audit and corporate governance have a common purpose
Enterprises are profit-seeking organizations, and the effectiveness of corporate
governance is related to the degree of coordination of the rights of various rights
holders. Corporate governance is to achieve a good balance between this rela-
tionship, thus providing a guarantee for the continued growth of the company’s
economic interests [3]. As an independent and objective existence within the
enterprise, internal audit can effectively supervise the operation of the company
without being bound, and truly reflect the problems of the enterprise, thus help-
ing the company to improve operational efficiency and promote the growth of
economic interests. Therefore, internal audit and corporate governance The
purpose coincides.
3) The impact of corporate governance on the internal audit environment
On the one hand, corporate governance can enhance the independence and
authority of internal audit. In the fierce battle of the economy, only the coopera-
tion of internal auditing continuously enhances the company’s profitability is
the key to stand out, and when an operator ignores the problems in the compa-
ny. When it happens, it will lead to business failure. To ensure the authority of
internal audit, companies should create conditions for independent work for the
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American Journal of Industrial and Business Management
J. J. Zou
audit department. In addition, the objectives to be achieved by internal audit are
related to corporate governance. It differs from the government’s regulations on
this work, because internal audit is an assisting department within the company.
4. The Problems in the Process of Modern Corporate
Governance
With the acceleration of economic globalization, many Chinese companies are
listed in the US, many Chinese companies have been investigated and punished
by regulatory agencies, class actions, delisting, etc. These series of negative news
have seriously affected the image of Chinese companies in the international
market.
1) The internal audit of modern companies is not perfect and the degree
of emphasis is not high
China’s internal audit development is lagging behind other advanced coun-
tries’ enterprises. Auditors do not have enough experience or technology to de-
velop and improve internal auditing. They are all modified and used in foreign
control tests. In particular, some of the specific audit procedures have not been
specially developed, and the audit guidance is only framework, and can not meet
the characteristics of various types of companies for effective auditing, and put
forward practical recommendations. The general internal audit is based on the
principle of voluntariness. The setting of internal audit depends on whether the
company has the necessary settings and the amount of audit work. But most of
the current companies are forced to set up because of government pressure, not
out of consciousness. As a company’s top management, a company’s operators,
they tend to focus more on how to improve economic efficiency, streamline the
structure of the company’s department, are unwilling to recruit high-quality
professional auditors, and China’s current legal system. It is not suggested that
enterprises must establish an internal audit department. The existence of these
objective reasons has made internal audit work a neglected awkward situation
for a long time.
2) The independence of internal audit has not been fully utilized
The main feature of internal audit is independence. If this is not fully guaran-
teed, internal audit work will be difficult to achieve the desired results. Accord-
ing to the relevant provisions of the Company Law, the internal audit depart-
ment is managed by an audit committee attached to the board of directors. In
order to reduce various costs such as human resources, many companies require
financial personnel to be audited, or the general manager to lead the audit de-
partment [4].
In fact, this kind of setting makes the audit department easy to be pressured
by the top management, cannot play the independence of the audit, cannot ef-
fectively prevent financial fraud and effective monitoring of senior managers.
For example, the CAO incident, although they have their own internal audit, but
they have not received the attention of management, they are in vain. As a result,
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American Journal of Industrial and Business Management
DOI: 10.4236/ajibm.2019.91005
J. J. Zou
DOI: 10.4236/ajibm.2019.91005
the internal audit status is low, the supervision authority is very limited, and the
independence of the audit is greatly reduced. Therefore, it is difficult to achieve
the expected effect and become a security risk of enterprise development.
3) The quality of auditors is low and audit technology is backward
In the domestic internal audit field, there is a serious imbalance between
supply and demand in professional talent resources. The overall quality of the
existing auditors is not high, mainly reflected in these aspects: the auditors did
not receive professional knowledge and skills training, the professional know-
ledge is not rich enough, most of the auditors are transferred from the financial
staff, it is difficult to meet the audit work. The need for economic management
knowledge. In addition, internal auditors have low levels of professional ethics
and are difficult to adhere to in the course of their work. Auditing can act as a
deterrent to fraud and expose fraud that has already occurred. The low profes-
sional ethics of internal auditors indicates that corporate governance is low. For
example, the Andersen Incident, in order to retain this large customer, and ob-
tain considerable audit fees, turned a blind eye to the unreasonable accounting
treatment in the audit, did not adhere to the application of professional pru-
dence and suspicion, did not find the existence of financial fraud, and ultimately
led to audit failure. The internal audit staff must improve their quality and pro-
fessional skills in order to successfully complete the audit task.
In addition to the quality of personnel, the backwardness of auditing technol-
ogy is also a very important factor. The rapid development of modern network
communication technology has led to the development of internal audit. How-
ever, China’s internal audit technology and methods are still very backward
compared with foreign advanced companies. After-the-fact audit, static audit,
these backward audit methods not only did not achieve the expected results, but
also spent more time, resources and other resources.
5. Explore Ways to Strengthen Internal Audit and Improve
Corporate Governance
The improvement of the company’s internal audit is conducive to preventing the
fraud of senior management personnel and protecting the interests of share-
holders and investors; it is conducive to timely grasping the problems existing
within the company and promptly correcting and improving the operational ef-
ficiency of the enterprise; it is conducive to safeguarding the property security of
enterprises and enhancing the value of enterprises. There are still many short-
comings and imperfections in China’s internal audit. Strengthening the explora-
tion of internal audit is the way to promote the healthy development of Chinese
companies.
1) Improve the company’s internal audit system to promote the sustaina-
ble development of enterprises
Government audits and internal audits complement each other and play an
indispensable role in China’s audit system. Although China is not as perfect as
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American Journal of Industrial and Business Management
J. J. Zou
the development of foreign internal audit, it can learn from foreign advanced
experience, learn from foreign advanced auditing techniques and combine spe-
cific national conditions, and explore and explore an internal auditing road that
belongs to us. With the aid of computers and the Internet, the establishment of
data models, the reduction of audit workload, and the improvement of work ef-
ficiency, etc., we need to continuously absorb and mine our audit through our
own exploration efforts. In addition, in addition to economic supervision, gov-
ernment audit institutions should also supervise and guide the audit activities of
the company’s internal audit, and actively guide their work to become more
standardized and professional. In addition, it is also important to improve the
auditing law. It can make the company’s internal audit work more organized,
legally compliant, and create a good environment. Form a collaborative me-
chanism for internal and external audits, reduce the pressure on audit work,
promote the improvement of audit efficiency, and eliminate hidden dangers of
fraud. The joint development of internal audit and company audit has a positive
significance for improving the macro audit system and helps to promote
long-term stable and healthy development.
2) Give full play to the independence of internal audit
To fully play the role of internal audit, we must grasp the core “independence”
of internal audit. The company must improve the company’s rules and regula-
tions, and use the system charter to give internal audit sufficient rights. In
state-owned enterprises, there are often times when shareholders can absolutely
control the operation of the company, or the uneven distribution of rights leads
to the imbalance of the company structure, and the power is excessively concen-
trated in the hands of insiders, which seriously affects the development of the
audit work. Therefore, it is necessary to improve the company’s rules and regu-
lations, improve internal auditing, implement job rotation, and reduce collusion.
At the same time, senior management personnel must have sufficient support
for internal auditing, arrange arrangements according to the company’s devel-
opment requirements, and give internal audit a good operating environment.
Cooperate with external audit to promote the overall improvement of audit
quality. The implementation of the above measures is very helpful for streng-
thening the internal audit effectiveness, thereby further promoting the im-
provement of corporate value and effectively solving the problem of poor cor-
porate management or government auditing.
3) Improve the quality and professional skills of internal auditors
In August 2001, the “Yinguangxia” incident was exposed by the media. The
auditors did not understand the foreign trade business, and did not have profes-
sional auditing techniques and implemented effective audit procedures, which
led to a major impact on society [5]. This reflects a common phenomenon in our
country, that is, the lack of professional knowledge and skills of our auditing
practitioners, because most of them are directly separated from the financial
profession, and there is no professional training through auditing. Therefore, the
company is sifting, and internal auditors must be rigorous. At the time of re-
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American Journal of Industrial and Business Management
DOI: 10.4236/ajibm.2019.91005
J. J. Zou
DOI: 10.4236/ajibm.2019.91005
cruitment, you can conduct multiple assessments and retests. Be sure to select
the people who understand the audit knowledge. Integrity of professional ethics
cannot be ignored, the primary professional ethics of internal auditors is integr-
ity. In the process of carrying out related work, internal auditors must follow
objective principles, adhere to the bottom line of professional ethics, and conti-
nuously improve the efficiency of audit work. In addition, it has the spirit of
study hard, and spends time in the spare time to explore deeper professional
knowledge and improve the comprehensive ability of its own audit.
Internal auditors should also broaden their knowledge while receiving profes-
sional skills training. They should understand the aspects of business manage-
ment, facilitate and conduct audit activities more effectively, learn advanced for-
eign audit methods, conduct full-time audits of work, and combine audits. The
method replaces the backward audit method and improves the audit efficiency.
After the post, the internal auditor’s technology can be further expanded, and
they are encouraged to use the Internet and computing to learn about business
knowledge in other fields and obtain relevant certificates.
6. Conclusions
Internal audit can not only maintain the balance between shareholders and se-
nior management in the company, ensure the correct performance of fiduciary
responsibility, but also help the correct disclosure of financial accounting infor-
mation, protect the legitimate interests of stakeholders, and help the manage-
ment and scientific decision-making of enterprises have a positive effect on the
improvement of corporate value. Internal audit and corporate governance com-
plement each other and are inseparable. Corporate governance is the institution-
al environmental guarantee for the effective implementation of internal audit.
Internal audit is an important aspect of corporate governance structure. It pro-
vides the required information for corporate governance. The existence of rea-
sonable internal audit is the inherent requirement of corporate governance.
Therefore, internal audit has a corporate governance role and plays an irrep-
laceable role in corporate governance.
Conflicts of Interest
The author declares no conflicts of interest regarding the publication of this pa-
per.
References
[1] Li, B.S. (2015) On the Role of Internal Audit in Corporate Governance and Its In-
stitutional Construction. Thesis, East China University of Political Science and Law,
Shanghai.
[2] Qiang, H.D. (2015) Role Positioning and Function Reconstruction of Internal Audit
in Corporate Governance. Thesis, Lanzhou Business School, Lanzhou.
[3] Lu, W.H. (2017) Research on Internal Audit Quality Control of XY Company. The-
sis, Chongqing University of Technology, Chongqing.
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American Journal of Industrial and Business Management
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