Research On Governance Effects Of Internal Audit Funtion Of Listed Companies

The important role of internal audit function(IAF) in corporate governance has been recognized in the academic circles,and the perspective that corporate governance is comprised of four cornerstones:the IAF and the board of directors,senior management, external auditing has been gradually accepted by an ever increasing number of people.But, the questions which include what the IAF plays in corporate governance,whether the IAF gives a full play under the current corporate governance mechanism,whether the interactive relationship between the IAF and the other three corporate governance parties improves the quality of governance and so forth,are lack of enough theoretical foundation and empirical research at the present literature.Accordingly,the answers to these questions will help enhance understanding the role of the IAF in corporate governance and have great theoretical and practical significance to further enrich and extend the research of the IAF,strengthen internal auditing practices and improve corporate governance.First,this research establishes a theoretical framework of governance effects of the IAF by means of organic combination of accountability theory,internal control theory and value chain theory.Then it explains the interactions between the IAF and the board of directors, audit committee,senior management,external auditing and analyses the pathway to bring about governance effects.Furthermore,based on 2006-2007 annual data from the listed companies of main board market in China,it presents the current situation of the IAF and examines the achievement of governance effects of the IAF in the aspect of earnings management and corporate performance.The results show that 1) the board of directors,audit committee,senior management and external auditing directly influence institutional arrangement of the IAF,then influence its governance effects;2) it contributes to inhibiting earnings management and improving corporate performance by establishing an IAF and reinforcing internal audit strength,but the impact of the IAF itself is limited;3) the IAF can achieve its governance effects more effectively through a positive interaction with the board of directors,audit committee,senior management and external auditing.According to the results,this research put forward some suggestions about how to improve the governance effects of the IAF.These suggestions include optimizing the professional environment of the IAF,increasing the positive interaction between the IAF and the board of directors,audit committee,senior management, external auditing.The theoretical framework of governance effects of the IAF overcomes the deficiency of using a single theory which cannot completely explain governance effects of the IAF,and provides a more stable theoretical foundation in order to further understand the realization mechanism of governance effects of the IAF.At the same time,this research is a valuable attempt in making empirical research on governance effects of the IAF.From the view of demonstration analysis,the effectiveness of the IAF participating in corporate governance is tested and given a positive answer.Moreover,the empirical results about interactive relationship between the IAF and the other three corporate governance parties provide new ideas to further study the role of the IAF in corporate governance.