The development of internal audit in the public sector (state-owned companies) in China

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1 The development of internal audit in the public sector (state-owned companies) in China 1. INTRODUCTION: The dissertation will focus on the development of internal audit in the China public sec... tor in last decade. In order to achieve this aim, the research has the following objectives: 1. To identify the desirable attitudes (characteristics and elements) of internal audit in China and in terms of its quality (independence, objective assurance, consultancy role); 2. To obtain insight into the quality of internal audit in China from companies` annual reports in the last decade; 3. To identify the differences between internal audit in China and the US, to reflect on reasons for these differences and to provide suggestions to the future development of internal audit in the Chinese public sector, In 2006, China joined the World Trade Organisation (WTO), this had implications for the development for the Chinese economy but also the market competition with foreign companies. Chinese internal audit started in 1980s and developed quite slowly at the beginning, then increased dramatically in the twenty-first century. Because the majority of large Chinese corporations are2 owned by the state, the development of internal audit has much more significant influence on public sector companies. Here too, the reform of Chinese state-owned companies started in 1990s and accelerated in the twenty-first century. The reform also impacted the development of internal audit. Thus, the internal audit in public sector is worthy of detailed investigations. Although the internal audit has developed significantly in China recently, it still has numerous weaknesses, compared with internal audit of western counties. In my research, I would like to focus on comparing the internal audit of China and western countries and give some suggestion as to how Chinese state-owned companies can learn from western counties. Structure Chapter1. Introduction Briefly explain background to the study and summary the outline Chapter2. Theoretical background and internal audit policies Discuss the theory of internal audit and review the development of internal audit in China and western countries in last decades. Chapter3. Internal audit in China and US3 Choose some public sector cases about banking, manufacture in China and US respectively and make a comparison. Chapter4. Weaknesses of internal audit in China and suggestions Discuss the existing problem about internal audit in China and give some suggestions. Chapter5. Future development Discuss likely developments in internal audit in China and recommendations to total change. 2. LITERATURE REVIEW: There is now a very significant literature, both academic and professional or to the development of internal audit both in China and in western countries. The current Definition of Internal Auditing was approved by the Institute's Global Board of Directors in 1999. It states: Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined4 approach to evaluate and improve the effectiveness of risk management, control, and governance processes. According to Fisher (1991), large companies need an internal audit system to survive. Albrecht et al. (1988) asserted that adequate corporate environment, full management support, certificated internal auditors and quality internal audit working are the four key factors about the effectiveness of internal audit. Al-Twaijry et al (2003) found that internal audit in the Saudi Arabian public sector is ineffective in all four aspects and does not add value. Therefore, I will also research and analysis the internal audit of China public sector in these four areas and examine the ineffectiveness of the development of internal audit in China. The Institute of Internal Auditors (IIA) (2007), “Standards for the Professional Practice of Internal Auditing” (SPPIA), addressed independency, proficiency, the scope of work, the performance of work and the management of internal audit department are the five aspects of SPPIA. Thus, I still need to discuss these areas about internal audit of China in order to check the success and weaknesses of development. In terms of the Chinese literature, according to Shi (2011), there are a number of key problems about the internal audit of state-owned corporations. First of5 all, the enterprises inadequately understand internal audit and draw less attention to internal audit work, and internal audit lack of sufficient independence and authority. Secondly, the limitations of internal audit work in public sector and the poor performance of audit results restrict the internal audit function. Finally, the low quality of internal auditors, outdated audit methods and imperfect of the reward mechanism also restrict the development of internal audit. In addition, He and Chen (2006) asserted that future opportunity in terms of the development of Chinese internal audit is important, internal audit will play role in promoting the effective corporate governance including risk management but caution that internal auditors still need to improve their professional competence. Other relevant documentations about internal audit in China and the US including “Standards for the Professional Practice of Internal Auditing”, “Internal Audit Standards in China” and “Sarbanes-Oxley Act”. From these Standards and Acts, I can analyse the different countries` attitude to the internal audit and find the development and tendency of internal audit in different countries.6 3. METHODOLOGY: In order to achieve the research objectives, the following methods will be employed: 1. Case study In my research, I will mainly use case study to analyse the internal audit in China and US. I will choose cases from the banking and manufacturing sectors in both countries. In China, China Construction Bank (CCB) and Wuhan Iron and Steel Corporation (WISCO) will be treated as cases to analysis the internal audit in large Chinese state-owned corporations. The methodology will be archival in nature focusing on annual reports, which disclose detailed as to audit committee, internal audit structure and internal audit mechanism. Then I can analyse the changes and development of internal audit in these companies. 2. Comparative analysis Compare the internal audit of China and the US, and analysis the advanced internal audit system in US and identify some aspects that can be learnt from US practice. Chinese and American companies in the same sectors like banking and manufacturing, there will be some similar aspects of internal audit. It is important to find and summary these differences and similarities. Access this will be archival in nature based on an in-depth literature review.7 3. Survey There will be a questionnaire to these investigated companies in order to get some internal information about the internal audit in these companies. The questionnaire will focus on investigate the independence, objective assurance, consultancy role of internal audit in these companies. It will make the research much more persuasive if I obtain original information from the investigated companies. 4. TIME FRAME: 26th March to 16th April, collect data and resources about the topic and begin to the dissertation. 16th April to 24th May, prepare and have exams 25th May to 15th August, write up the first draft of the dissertation. 16th August, submit the full draft of dissertation to supervisor. 20th August, request a final meeting with supervisor for feedback on draft. 21stAugust to 16th September, polish up my dissertation. 17th September, submit the final dissertation. 5. REFERENCES: Albrecht, W. S., Howe, K. R., Schueler, D. R. & Stocks, K. D. (1988), Evaluating the Effectiveness of Internal Audit Departments. Florida: The Institute of Internal Auditors, Altamonte Springs.8 Al-Twaijry, A., Brierley, J. & Gwilliam, D. (2003). The Development of Internal Audit in Saudi Arabia: An Institutional Theory Perspective, Critical Perspectives on Accounting, vol.14, 507-531. Fisher, D. 1991. Institute of Internal Auditors. Internal Auditing, June, 1-6. He, Y.Q., & Chen, J.J. (2006). The Changes of Contemporary International Internal Audit and the Opportunity to Development of Internal Audit in China. Audit Research, vol.4, 87-90. Institute of Internal Auditors (IIA). (1999). Definition of Internal Auditing. Florida: The Institute of Internal Auditors, Altamonte Springs. Institute of Internal Auditors (IIA). (2007). International Standards for the Professional Practice of Internal Auditing. Florida: The Institute of Internal Auditors, Altamonte Springs. Shi, Q. (2011).The Problems and Measures of State-owned Enterprise Internal Audit, The Metallurgical Accounting, vol. 3, 30-31. [Show More]

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