Indexes System For Internal Audit Department's Performance Evaluation Based On BSC

With the economic and technological development in modern society, the organization' s operation has become more and more complicated. Within such a fast-moving business context, internal audit has played an important role in assisting management, audit committee, external auditors and other important external related interest parties. A sound and effective internal audit department will contribute significantly to the improvement of corporate governance mechanism and internal audit, the enhancement of risk management. Nowadays, developed countries in the western world have established a set of internal audit performance evaluation mode, which has already tended to be mature. Through the introduction of research progresses home and abroad, this paper showcases those research results and present evaluation modes for the purpose of futher research.This paper reviews the basic theories, clarifies the concept and characteristics of performance, the definition of performance evaluation. And a performance with three levels–corporations as a whole, departments and staffs, is pointed out. Internal audit department's performance evaluation falls in the category of departments', whose essence is to evaluate the contribution the internal audit department made to the corporation. The evaluation covers compliance, effectiveness and profitability.In China's academic circle of auditing, the issue as to the internal audit's performance evaluation is put forward lately. What's more, there is lack of a complete system for internal audit's performance evaluation in practice. And there exist many defects, such as the inconsistency between performance evaluation and organization's objectives, the incompleteness of evaluation indexes, the feasibility of evaluation indexes, and the lack of relationship between indexes. So there is an urgent need to establish a scientific and practical system for internal auditing's performance evaluation.Based on the origin and the evolution, characteristics and function, basic framework of Balanced Scorecard (BSC) and the application of BSC in China, this paper analyzes the feasibility of applying the BSC to internal audit's performance evaluation. The concept of BSC is equally suitable for internal auditing's performance evaluation. The technical accuracy of the BSC will satisfy the needs for internal auditing's performance evaluation. And the superiority of BSC will be in line with the objectives of internal audit department.Prior to the establishment of such a system, this paper firstly clarifies the function of internal audit, which comprises checking and supervision, assurance, appraisal, consulting services. Later, the operation characteristics of internal auditing department and the purposes for evaluation are analyzed. And the difficulties of establishing such a system is further discussed.After the clarification of the principles for evaluation indexes design, this paper draws on the BSC theory and takes the characteristics of internal audit department into consideration. The indexes system is readjusted to be four perspectives: board of directors and management administration and auditing's customers, financial goals, internal audit process and internal audit innovation. Each part is equipped with its evaluation indexes. And some suggestions are provided.At last, the application of internal audit department's BSC are composed of many parts, for example, the statement of strategic objectives, establishment of logical framework & indexes system, communication & affirmance, feedback & amendment. Only through the means of effective application can internal auditing department's BSC function properly.