The Research On The Value-added Function Of Internal Audit

With the expansion of implications of SOX in the global, the role of internal audit is constantly expanded, and the expectation of organizations for the internal audit function has also increased. How to build strategic internal audit function for the organization to add value, not just the issue that the senior managements of enterprises consider, but also the key issue that perplex the internal audit professionals and theoretical researchers. In 2001, the Institute of Internal Auditors (IIA) redefined internal audit : Internal audit is an independent, objective assurance and consulting activity, designed to add value and improve operations of an organization. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. This new definition showed that internal audit has entered a new era of value-addition. In developed countries, the incremental internal audit has become an important trend of development of corporate internal audit.However, in china, The awareness of internal audit remains on traditional concept, and the majority of internal audit in enterprises still remain in the phase of discovering types, which make internal audit not receive sufficient attention, and the value of audit not fully expressed. Nowadays, enterprises are facing greater operational risk, so the backward understanding on internal audit contradicts rapid development of enterprises. In addition, with the constant division of work in modern market economy, internal audit departments are facing embarrassment of being laid external of enterprise. Therefore, the problems that how to make internal audit play a greater value, and internal audit how to increase value for the organization, need to be solved urgently.The purpose of the article is designed as follows: with the guidance of western economics and business management theory, the author has research the incremental function, the route of adding value, the evaluation on incremental value, and the assurance for incremental value of internal audit, by combining normal analysis and case analysis, qualitative method and quantitative method.The basic clue of the article is as follow:Firstly, the author explains correlative conceptions and theories about the incremental function of internal audit, which not only pave the way for the discussion of article, but also answer the question that why internal audit can add value. Secondly, the author incorporate internal audit into enterprise's value chain to construct the logical framework that internal audit how to add value, thereby, the author answer the question that how the internal audit add value in this part. Thirdly, the author comes out Balanced Scorecard is the better choice to evaluate the value of internal audit by contrast and comparison methods, which answer the question that how to assess the value of internal audit. Finally, the author points out some suggestions available to play incremental functions.The article consists of five chapters:Chapter one: Introduction. This section points out the purpose of research, research backgrounds, research clues, research methods and the main contributions.Chapter two: Theoretical elaboration. The author point out internal audit has incremental function. The incremental function of internal audit not only includes assurance function and consulting function, but also extends and develops them. In the process of adding value for the organization, assurance and consultation are the internal audit's function, at the same time, they are the forms of internal audit adding value. In addition, the author testifies that internal audit has the incremental function from two aspects. Finally, the author analyses the status and the challenges internal audit is facing.Chapter three. The incremental path of internal audit. The author constructs the logical framework of adding value of internal audit by laying internal audit into he enterprise value chain. Providing reasonable assurance and consultation are the two forms of value increment of internal audit. The service scope of internal audit expands respectively in vertical and transverse. Thus, the extension of increment of internal audit is opened up, and consulting service in corporate governance, risk management and strategic management expands contents of value increment of internal. Finally, the author demonstrated the path of increment from three aspects, including corporate governance, risk management and strategic management.Chapter four. The evaluation of the value of internal audit. the author comes out an conclusion that the method of balance calculating card is more fit for evaluate the value of internal audit, and analyze the case of Langxun company.Chapter five. The assurance of value-addition of internal audit. These advices include building up the concept of marketing internal audit to managements, reinforcing the management of internal audit on personnel and department, choosing an appropriate organization mode, and making the nature of independence and objectivity service the nature of value increment.The major innovations of this paper are as follows:Firstly, the author raises the role of internal audit to the level of value-added function, creatively proposes concept of the incremental function of internal audit, and regards incremental functions as a function of internal audit.Secondly, the author explains the issues that why the internal audit can add value, and uses western economics and business management theory to explain the problem.Thirdly, the author tries to expand the enterprise value chain to build the logical framework of value increment of internal audit. Although the internal audit can not directly create value for the enterprise, it increases value indirectly by participation in corporate governance, risk management and strategic management.Fourthly, the author point out the method of index system is more fit for evaluate the value of internal audit, and advise to use the method of balance calculating card in value evaluation of internal audit.Fifthly, the author presents several propositions to play the incremental functions of internal audit. These advices include building up the concept of marketing internal audit to managements, reinforcing the management of internal audit on personnel and department, choosing an appropriate organize mode, and making the nature of independence and objectivity service the nature of value increment.