A Research Of Internal Control

Internal control auditing is a special auditing procedures that conducted by certified public accountants who express audit opinion on the effectiveness of enterprise’s internal control of a specific date. The development of its emergence and development is closely related to the global capital markets. Since the beginning of this century, the staggering financial fraud scandal, broke out in the United States of Enron, has directly resulted the bankruptcy of Arthur Andersen which is known for its hundred years’ credibility. Followed by Enron, some well-known companies such as WorldCom of USA, Vivendi of Europe, have also break out the financial scandals. This series of astonishing financial fraud cases, brought great shock on the capital markets, and also caused strong concern of the accounting profession, the government regulatory agencies, civil society organizations and the public, they have deep reflection on this series of events from different perspectives, and all of them believe that one of the important reasons is the failure of internal controls and the Lacking of internal control audit system.In Order to rectify the capital market order and rebuild public confidence in capital markets, the United States has walked in front of the world again. Unite States enacted "Sarbanes-Oxley Act" in2002, the bill requires the management section to make known financial reporting along with the assessment of internal control, At the same time, the Act requires that the internal control be audited by registered CPA. Subsequently, other developed countries have to follow the United States to formulate relevant laws and regulations of the internal control audit according to the national realities. China also jointly issued "The Basic Norms of Corporation Internal Control" by five ministries in2008, which indicates that China will soon start the engagements of internal control audit."Enterprise Internal Control Guidelines","internal control evaluation guidelines" and "internal control audit guidelines" released the same period in the April15of2010."The Basic Norms of Corporation Internal Control" require that listed companies and unlisted large and medium-sized enterprises should make the self-assessment of the effectiveness of the Company’s internal control, disclose the annual self-evaluation report, and also listed companies shall employ Intermediaries with the securities and futures business qualifications to audit the effectiveness of internal controls and issue the internal control audit reports.In the August23of2011, the AICPA released "the internal control audit guide (draft)"openly for comments. The SFC announce the pilot enterprises among the listed company whose internal control will be audited and this will actively promote the launching of the internal control audit of listed companies. Launching this new service will produce far-reaching impact on improving the information quality of the financial report and preventing the financial fraud of listed companies, which is also the value of this paper which studies the audit of internal control. In this paper, based on study the domestic and international relevant literature about audit of internal control and its developmental history, I define the relevant concepts of the internal control audit, and analyze the shortcomings in the development of China’s internal control audit to make suggestions for improvement, combining with the development of domestic and international internal control audit.This article focuses on the internal control audit process under the framework of an integrated audit, and analysis the three aspects of integrated audit:the integration of the audit plan, the audit implementation and audit reports, starting from the integration of objectives of financial statements and internal control audit. The main innovation of this paper and its conclusions are as follows:(1) Improve the internal control audit process and introduce the internal control audit risk model.By studying the PCAOB standards of internal control over financial report and in conjunction with understanding of other research results, such as "the internal control audit guidelines" and "the internal control audit guide (draft)", I have designed a set of audit processes for our internal controls, improved the internal control audit process, standardized audit procedures and optimized the audit methodology, which can make CPA mainly focus on areas of greatest risk. The designed process include:audit plan, selecting the control points, control testing, evaluation of control deficiencies, the summary of the auditing and issuing internal control audit reports, and made clear that it is better to adopt top-down audit. And introduce the internal control audit risk model to internal control audit, drawing on the financial statement audit risk model.(2) CPA can carry out the audit of internal control and the audit of financial statement at the same time for the same audited unit. There are many similarities between them. Thus, we can put forward specific implement strategy, called integrated audit whose objective is to carry out the goals for audit of internal control, and develop appropriate measures. I put the integrated implement process of the audit planning stage, the implementation phase and reporting phase used in a listed company to test its feasibility, for CPA specific routes in the practical operation.This article is mainly divided into five chapters for narration: The content of the first chapter includes the purpose and significance, literature review and so on, and put forward the methods for studying and possible innovations. In this chapter, I introduce the predecessors’research results and the inadequacies and make a clear purpose and direction of this study.The second chapter introduces the basic theory of the internal control audit, including the course of development and the relevant concept of the internal control audit and the theoretical basis of this study. This chapter is the theoretical part of this article, defining the scope of this study.The third chapter introduces the development of foreign internal control audit and the implications for our country, I discuss the existing problems in China’s internal control audit and the experience of developed countries we should learn from the development of the internal control audit of developed countries.In the fourth chapter, drawing on the experience of other countries and combining with China’s actual conditions, I mainly design and improve the process should be used in our internal control audit, which is elaborated from the three aspects of planning, implementation and completion, and with the introduction of the internal control audit risk model.The fifth chapter mainly introduces integrated audit and its application in the audit of internal control under the constraints of cost-effective principle. It provides a new way for CPA to carry out internal control audit.This article also exist the following deficiencies:First, the system of our internal control auditing standards is still imperfect and we just started internal control practice, so I mainly draw on internal control audit guidelines, relevant drafts and U.S. PCAOB auditing standards No.5and so on. It remains to be tested whether the implementation of these guidelines is suit for China’s national conditions. Second, the scope of this study is narrow, for I only discuss the internal control audit of financial statements and only focus on the overall effectiveness of internal control.