Research On Internal Audit's Role In The Post-SOX Era

At the beginning of the 21st century, there have been tremendous changes in the regulatory environment of capital market as a result of Enron, WorldCom and other financial and accounting scandals. As one of those changes, the Sarbanes-Oxley Act (SOX) was passed to reduce fraud and bring reliability to financial reporting, and to restore confidence to the public markets. The emphasis on SOX has transformed rules and procedures with regard to accounting, auditing, internal control and corporate governance, which have a profound impact on the internal auditing profession. Today, more than ever, the fortunes of the company can be tied to internal audit. In fact, a properly structured internal audit function can bring great value to an organization, impacting not just regulatory compliance but also operational excellence. Internal auditors have enjoyed increase prominence, higher appreciation as well as greater challenges. During the post-SOX era, internal auditors are expected to play more important roles on SOX compliance, corporate governance, risk management, fraud prevention and so on. However, the current development status of the internal audit's role can't meet the ever-increasing demands from stakeholders. Among those complicated roles, which one is more significant? What is the relationship between them? Based on the duality analysis of the internal audit' role, this paper provides the Internal Audit's Role Framework for addressing the above questions and guiding role orientation of internal audit in the post-SOX era.This paper concludes duality is the main characteristic of the role of internal audit. The duality analysis identifies the basic contradiction of the internal audit's role and suggests that owners (shareholders and the board) are the basic and final client of internal audit. This paper also analyzes three other contradictions and draws relevant conclusions.Then this paper establishes the Internal Audit's Role Framework, which represents the original thoughts from the author. The Framework is designed as a triangle and consists of three aspects, which are the objective of internal audit, the organization mode of internal audit and the internal audit role types. According to the Framework, there are three internal audit role types, which are the basic roles, the core roles and the functional roles. Moreover, this paper reviews relationships between the three roles.To certify the effectiveness of the Framework, this paper further researches the rebalance of internal audit' role. The Framework successfully explains the question of why the role of internal audit needs to move back to balance.In the final chapter, this paper provides suggestions to the development of internal audit's role in China according to the three aspects of the Framework.