Internal Audit And Structure Of Companies

Internal audit: a compliance cost

The cost of compliance is the expenses incurred by the agent in order to obtain the trust of the client and maximize the interests of both parties.

It is concluded that internal audit is both a monitoring cost and a compliance cost.

As a compliance cost, it occurs because senior managers meet the needs of external participants, especially shareholders.

For an enterprise, if the total cost of the internal and external audit process is lower than the cost of external audit, the agent (Manager) is more willing to pay the cost of internal audit.

The combination of internal audit and external audit saves costs because internal auditors are familiar with the internal system of the enterprise and have specialized industry knowledge, which is more efficient than external audit.

Moreover, the internal audit is also a feedback mechanism, which can be used to make up for the shortcomings of various procedures so as to avoid the major adverse effects on the internal control system and the company's financial situation even to the whole company.

The cost of internal audit is also the supervision cost incurred by principals (owners) in order to protect their economic interests.

The early internal audit is the "right arm" of the manager, which is mainly used to assist the management to improve the company's internal management and reduce the company's cost and expenditure, so as to maximize the company's interests.

Two. Company structure and internal audit

Why do some organizations have internal audit departments, while others do not? Why are the nature and form of internal audit institutions different in different units? Why do different organizations have different emphasis on internal audit work?

The author thinks: first, internal audit can restrain the contractual relationship between the principal and the agent.

Moreover, internal audit can help clients solve the problem of information asymmetry and supervise the behavior of agents.

In a complex business environment, the problem of asymmetric information is more serious. It is more difficult for owners to monitor the behavior of agents. Therefore, large enterprises such as insurance companies need more internal audit services than some small businesses.

Therefore, the existence of internal audit organization varies from industry to industry.

Second, the owner controls the operation of an enterprise through agency relationship.

There are different types of internal audit organizations in enterprises whose owners control different structures.

As a matter of fact, in the same industry, the way of combination of enterprises is different, and the essence and form of their internal audit are also different.

That is to say, different enterprises in the same industry or business sector have different characteristics of their internal audit institutions.

Third, different organizations have different goals for clients and agents, so their internal audit work has different emphasis.

For example, in a stock insurance company with benefit sharing, managers and internal auditors are more willing to adopt ways of enhancing value for consideration of the interests of owners.

Similarly, compared with non-listed company, internal auditors of listed companies tend to perform financial audit, fraud investigation, internal control and compliance test.

Through audit charter, the position and responsibility of internal audit can be strengthened. The person in charge of internal audit can directly and unconstraint report to the chairman or audit committee of the board of directors, so as to prevent the manager from restraining the scope of the internal audit function and neglecting the internal audit recommendation.

In addition, through the appointment of high-quality and experienced employees and the provision of adequate funds to train and train employees, the company's credibility and internal audit independence will be enhanced.

In addition, the government can make laws and regulations, such as requiring the company to maintain an appropriate internal control system to protect the interests of owners whose interests are scattered and whose capacity is impaired.

With the gradual deepening of the reform of China's socialist market economic system, the establishment of corporate governance structure has become an important part of the reform of state-owned enterprises and the loss of state-owned enterprises.

From the western developed market experience, internal audit is an organic part of corporate governance structure.

How to establish and improve China's internal auditing system, including what behaviors should be set up internal audit system, whether the establishment and operation of internal audit system is different under different enterprise organization forms, the impact of enterprise scale on internal audit system, and how the internal audit system of state-owned enterprises cooperate with the inspection of Finance, auditing, taxation departments and so on, makes the internal audit system better serve enterprises and markets, and not only increases the operation cost of enterprises, but also is an urgent task in the current economic system construction in China.