| A sound corporate governance framework and strong core competence have been an unswerving pursuit of bankers. As is stated by The Institute of Internal Auditors(IIA), internal audit of commercial banks should contribute more to the sustained development of corporation governance, risk management and internal control, to value creation, and to the realization of development strategies and operation targets. During the past 30 years since the adoption of the reform and opening-up policy, the government-leading financial system reform has gained great achievements with improving corporate governance and upgrading operation performance in banks. With the support of the board of directors and advocacy of the supervision departments, the functioning and status of internal audit enjoys sustaining expansion and promotion, especially in the value creation of commercial banks.The core role of corporation governance in the stability and development of global economy has been fully reflected in a number of economic and financial issues happening in the global financial market since the start of the new century. Benign corporation governance is considered crucial criteria by the international capital market and global investors in their assessment of operation performance and investment value of commercial banks. Corporate governance evaluation (hereafter referred to as CGE) is:1)a leap-step development internal audit realizes to improve corporation strategies and promote competitiveness and development of commercial banks; 2) an important means internal audit takes to improve risk management and promote high efficiency operation of the internal control system; 3) an inevitable choice to reflect the governance level of commercial banks in an all-round way, and to realize effective communication among stakeholders; 4) a significant measure internal audit adopts to upgrade managerial and service innovation, and to feasibly enhance fulfillment capability. Beginning with comparison and contrast of different governance scenarios of commercial banks both home and abroad, this paper reveals the significance of CGE in internal audit in the promotion of organizational development strategies and in the realization of operation targets of commercial banks based on the elaboration of the relationship between core competitiveness and corporate governance, corporate governance and fulfillment capability of internal audit in commercial banks. Through thorough paper research, this paper reveals the connotation of the accountability theory, contractual theory, and transaction cost theory, analyzes the particularity of corporate governance and effectiveness of governance structure, and studies such corporate governance properties as vulnerability, externality, and information asymmetry in commercial banks, thus establishing an effective evaluation system of corporate governance, including four aspects of evaluation:operation efficiency evaluation, IT governance capability evaluation, public disclosure evaluation, and social responsibility fulfillment evaluation. The final part of this paper brings forward matters to be focused on in the whole process of CGE in internal audit of commercial banks. This paper values the combination of theory and practice, and uses certain evaluation methodologies to guide practices.This paper is divided into seven parts:Part one:introduction. This paper takes the example of the corporate governance scenario of eleven advanced banks most representative in the international arena, and elaborate the intrinsic superiority and positive significance of CGE in internal audit. A literature survey is conducted in the following four aspects:corporate governance of commercial banks, practices of governance by the external stakeholders, and CGE, helping to form the research perspective and approach, and identify research content and methodology. In conclusion, the core of CGE in the perspective of internal audit is to implement and expand the functions of internal audit. Its major task is to improve core competency of commercial banks using the four aspects of evaluation:operation efficacy evaluation, IT governance capability evaluation, public disclosure evaluation, and social responsibility fulfillment evaluation, and therefore, realizes its purpose to effectively and continuously upgrade the governance capability of commercially banks. Part two:economic analysis of CGE in commercial banks. It includes:1) theoretical basis of CGE; 2) particularity of governance; 3) effectiveness of governance structure in commercial banks. This paper brings forward the root of internal audit by applying the transaction cost theory, defines the functional boundary of internal audit by applying the contractual theory, and analyzes the theoretical basis of CGE by apply the accountability theory. CGE can effectively balance the asymmetry information of stakeholders in commercial banks, maintain the principal-agent balance and promote principal-agent communication, thus avoiding problems of "moral hazard" and "adverse selection". In terms of governance particularity, this paper discusses the vulnerability, externality, and information asymmetry of the banking industry taking the example of the global financial crisis caused by the US subprime mortgage crisis and the present situation in China. In terms of governance structure effectiveness, this paper, adopting the method of normative research, brings forth the idea of effective governance in the following four aspects:shareholder governance, board of directors'governance, top managers'governance, and supervisory committee governance. The above two parts are the foundation of the establishment of the evaluation system, and the research in evaluation content and methodology from part three to six.Part three:operation efficiency evaluation of commercial banks. Efficiency is the essence and representation of commercial bank's competitiveness. Operation efficiency evaluation is of significant importance to assist the commercial banks to meet challenges, strive for competitive superiority, dissolve the external risks, raise operation performance, and realize profit maximization. Given the special role internal audit plays in various principal-agent and contractual relationships, this paper, taking Industrial and Commercial Bank of China (ICBC) as the research object, and analyzes its responsibility boundary, decision-making rules, incentive constraints mechanism, and the contribution of resource allocation to corporate interest. This analysis is conducted in terms of technical efficiency, allocation efficiency, and pure technical efficiency, etc. and enhanced by empirical analysis on operation efficiency in ICBC's domestic primary (directly subordinate) branches, thus bringing forward directions of sustained evaluation of ICBC.Part four:public disclosure evaluation of commercial banks. Corporate governance, as an internal institutional arrangement, guarantees the quality of the information to be disclosed. Qualified public disclosure promotes market credibility of commercial banks, thus playing an important role to alleviate credit crisis and enhance trust of the investors. Given the fact that public disclosure of internal audit composes an important part in the internal adjustment mechanism of commercial banks, it provides reference for the board of directors in its governance policy-making, and reduces transaction cost, helps to establish the settlement mechanism afterwards on the contracts, shortens the expectation gap between voluntary disclosure of the commercial banks and information demand of the investors, and thus improves the quality of information disclosed by the commercial banks. This paper also conducts a depth analysis of the connotation of authenticity, betimes and integrity concerning public disclosure, based on which sensitive matters are discussed including:the cause of public disclosure distortion; time characteristics and pattern of public disclosure; public disclosure and risk management; information disclosure and secrecy, etc. Public disclosure situation in domestic commercial banks is analyzed in the perspectives of compliance disclosure, voluntary disclosure and risk disclosure. The gap between current laws and regulation in China and the standards issued by Basel Committee on Banking Supervision is revealed through analysis of the following aspects:capital structure and adequacy, disclosure of credit, market, operation and liquidity risks, and information disclosure for derivative financial tools, etc.; and the gap between actual public disclosure in China's commercial banks and international practices through analysis of the following aspects:capital structure and adequacy, disclosure of credit, market, operation and liquidity risks, and information disclosure for derivative financial tools etc.Part five:social responsibility fulfillment evaluation in commercial banks. China's commercial banks should enhance their sense of social responsibility to cope with international competition to merge into international community, as is the same for all industries to update competitiveness and development quality. Corporate social responsibilities are in the center of attention in the globalization era. Social responsibility fulfillment, after price and quality competition, has become an important signal of the new-round international competition. This paper holds the opinion that social responsibility fulfillment evaluation of internal audit sets its foot on promoting stakeholders'recognition on fulfilling social responsibility, and improving governance environment of commercial banks. This paper points out aspects of social responsibilities commercial banks should shoulder in terms of stakeholders, staff, clients, counterpart organization and the general public. By apply social impact, social response and corporate effect as first degree indexes, this paper establishes an evaluation system of social responsibilities in commercials banks, taking the example of Bank A in its fulfillment of social responsibilities using the method of Fuzzy Comprehensive Evaluation, and then conducts precedence ordering and comparison of commercial banks in social responsibility fulfillment.Part six:IT governance capability evaluation of commercial banks. Information and information technology are important assets of commercial banks, making IT governance a crucial component in corporate governance given the risks, profits and opportunities they face. As the commercial banks are growing more dependent on information system, IT governance becomes more important in the realization of strategic objectives. IT governance capability evaluation plays a great role in the perfection of IT governance mechanism. The evaluation of IT governance's scientific nature and effectiveness is the guidance and services internal audit provides for IT governance in commercial banks. Based on the analysis of the present IT governance situation and the challenges, this paper conducts a depth analysis on the inner links of six governance arrangement modes and five key decision-making processes of IT governance, and the optimum combination. The methods of IT governance are discussed in terms of three different performance objectives:assets income, net assets earning, and income growth, thus presenting the focusing points of internal audit.Part seven:dynamic optimization of corporate evaluation and effectiveness evaluation of commercial banks. This paper reflects effective corporate governance in its nature and concludes that the nature of corporate governance is for the "effectiveness", and not for "constraint balance", which loses its existence significance without the former. Therefore, the improvement and perfection of corporate governance not only establishes a balancing power structure, but also the company control and distribution package of legal, cultural and institutional arrangements, with their functioning guaranteed. Along with the change of operation mode and growth pattern in China's commercial banks, internal audit needs corresponding adjustments in terms of its evaluation content and methods.The innovations of this paper are:research object, research perspective, research content, research methods and the combination of theory with practice.In terms of research object, this paper chooses CGE of commercial banks, the researches of which are rather limited in number both home and abroad. It is different from the current researches which take CGE in the general sense as the research object. Researches concerning Commercial banks, as an important component of national economy, shoulder crucial strategic missions. The improvement of corporate governance raises the operation efficiency and risk prevention capability, thus increasing corporate value. CGE of internal audit enriches the connotation of administration, and advances governance level of commercial banks.In term of research perspective, external supervisory institutions or social intermediary services are taken by most researchers as valuators. The conclusion is, therefore, in accordance the purpose of evaluation. Such valuators are outside the banking system, without a thorough understanding the operation inside the banking system. Their conclusions are of limited referential value. In this paper, CGE, as a special contract inside the banking system, shoulders the responsibility of raising the operation efficiency and organization value by means of evaluation. Internal audit, as a valuator, is acquainted with organization governance. Therefore, its evaluation shades more positive and effective impact on promoting and perfecting corporate governance of commercial banks.In terms of research content, this paper, using internal audit as its subject of evaluation, varies greatly from previous similar researches, the content of which is divided into two categories duo to different subjects of evaluation:1) evaluation in aspects of general meetings of stakeholders, board of directors, board of supervisors, top managers, and stakeholders, etc; 2) evaluation in aspects of governance environment, incentive and restrictive mechanism, and monitoring and assessment mechanism. This paper focuses on the operation efficiency and IT governance in commercial banks based on internal governance, taking full advantage of internal audit's status and taking into account of the particularity of commercial bank's governance. In combination of external governance, this paper also highlights the effectiveness of public disclosure and the fulfillment of social responsibilities. The above four aspects are what internal audit covers in corporate governance in commercial banks, which are beneficial for the integrity and accuracy of the evaluation conclusion. This paper expands the traditional research mentality, and overcomes obstacles in CGE, inputting new thoughts into this research.In terms of the combination of theory and practice, this paper intends to provide guidance for the practice of internal audit in commercial banks, thus focusing more on the choice of evaluation methods and models. Evaluation based on this research mentality varies from other auditing activities both in terms of research content and formation. Reports of CGE carry out series sorting of corporate governance effectiveness. The research-oriented reports seek the nature of corporate operation and administration, and apply methods of mathematical statistics and advanced measurement with less focus on the traditional approach of site audit confirmation.
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