Research On The Effect Of Internal Audit In Corporate Governance

Series of financial frauds in the 21st century are all caused by the corporate governance problems. Corporate governance defects are largely due to the imperfections of external governance. The independence of external audit can't be guaranteed, which provides the opportunity to get involved in the corporate governance for internal audit. Besides, the financial fraud of World Communications was disclosed by internal audit. So, its status has been rose immediately. And for this reason internal audit has also absorbed more and more attention.With importance of the internal audit improving in corporate governance, SEC & IIA have made some requirements and improvements related to internal audit. The board of directors has paid more attention to the functions of internal audit, which should break the traditional limits to expend its functions. These functions include supervising, evaluating, advising and controlling. Through these basic and service functions, it can not only improve the quality of financial information and inhibit the occurrence of financial fraud, but improve the performance of company and bring added value for the organization. The effect of these roles depends on not only the quality of internal audit, but also the external environment element, such as board of directors or management as superior, separation of chairman and general manager in corporate governance structure, senior managerial shareholdings, and so on. This study focuses on the external environment of internal audit.This paper adopts combination of normative analysis and empirical research method, choosing 2008 and 2009 main board listed companies in Shenzhen as the sample. It uses the logistic regression model, from several aspects, to illustrate that internal audit inhibits the earnings management and improves the performance of company, such as the establishment of internal audit, the relationship of internal audit and the board or the Audit Committee under the Board, the relationship of internal audit and the combination of the two positions, and senior managerial shareholdings. The results show that the issues of internal audit are still obvious in our country. There retains a lot of problems, such as internal audit hasn't integrated into the corporate governance structure. Its reporting level is still low. Its independence and authority still need to be strengthened. The board and the management don't pay enough attention to internal auditor. At last, the paper lists two pieces of proposals based on these conclusions.This study totally includes four parts. The first part introduces the background and the significance of this study, research achievement at home and abroad, research ideas, research methods and innovation. The second part analyzes the meaning of internal audit and corporate governance and their relationships. Then this part summarizes internal audit's role in corporate governance. Part three lists the five hypotheses and illustrates the source of data, the sample and variable selected, the model built. This part concludes and analyzes the results finally. Based on the previous study, the last part summarizes the main conclusions, then proposes several policy recommendations to make full play of internal audit in the company governance. At last, the paper pointes out the limitations of this study.