Research On Mechanism And Governance Effect Of The Internal Audit Activity

Series of financial fraud scandal broke out at the beginning of this century. In therevelations course of WorldCom fraud, the internal audit department performedoutstandingly, and has got the recognition from listed company and regulatory. Internalaudit has thus become the focus of corporate governance. Internal audit and the Boardof directors, senior management, external audit together constitute the four cornerstoneswhich has become the consensus of the international corporate governance communityand the internal audit community. However, the economic environment of the internalaudit system in China and the West are very different and motives of the establishmentof the internal audit department are not the same, too. The internal audit of the West isthe spontaneous need of enterprises’ survival, competition and development, while thissystem in China is found by the country in order to strengthen the audit supervisionsystem and establish and improve the enterprise self-discipline mechanism according tothe new situation after the economic system reform.It is established through top-downadministrative means. Therefore, despite the internal audit in the UK and other countrieswas proved to be an effective system, Whether it can play a role in the institutionalenvironment of China’s listed companies is still a topic worthy of further study.In this background, this paper starts from the related concepts of corporategovernance and internal audit and builds a theoretical framework of internal audit’sgovernance utility: on the one hand, the internal audit expands the functions ofgovernance effect by itself; on the other hand, through the interaction with the Board ofDirectors, senior management and external audit, internal audit has promoted itscorporate governance effect. Meanwhile, Measured the quality of the internal audit,based on the relevant data of Shenzhen Stock Exchange’s listed companies, this paperexamined the effect of internal audit in corporate governance by empirical analysismethod.Through research, we find that:(1) The higher the internal audit quality of listedcompanies, the lower the agent cost, embodied in the management of on-the-jobconsumption level is lower and the company’s total asset turnover is more efficient.(2)The quality of internal audit and external audit fees of listed companies is significantlynegative correlation. Shows that internal audit quality is higher, the higher utilizationdegree of external audit on internal audit, and external audit fees are lower. According to these conclusions, this paper puts forward relevant policy suggestions: strengthen theindependence of the internal audit, perfect the internal audit practice environment,attach importance to the talent construction of internal audit and improve the overallstrength of the internal audit activity and so on. There is no doubt that these studies willhave certain reference significance on the internal auditing theory and practice.