Discussion on externalization of internal audit in small and medium-sized enterprises

Discussion on externalization of internal audit in small and medium-sized enterprises

Externalization of internal audit is the result of socio-economic development, specialization and cooperation. Due to the limitation of their own conditions, many small and medium-sized enterprises have no independent internal audit department or the internal audit department exists in name only. This paper first briefly expounds the concept and characteristics of internal audit, and then analyzes the restrictive factors of internal audit in small and medium-sized enterprises. Then it analyzes the theoretical basis of externalization of internal audit of small and medium-sized enterprises, and expounds the feasibility, content, methods, advantages and disadvantages of externalization of internal audit of small and medium-sized enterprises. Finally, the development trend of internal audit externalization is prospected.

Keywords small and medium-sized enterprises; Internal audit; objectification

I. Overview of internal audit of small and medium-sized enterprises

(A) the concept of internal audit

Internal audit is an independent and objective assurance and consulting activity, whose purpose is to increase the value of the organization and improve its operational efficiency. It evaluates the risk management, control and governance procedures of institutions through systematic and standardized methods, improves their efficiency, and thus helps institutions achieve their goals.

(B) the characteristics of internal audit

Internal audit is the audit supervision of the authenticity, legality and efficiency of financial revenue and expenditure from the inside by audit institutions set up in departments and units. Internal audit has its unique characteristics:

(1) Relative independence of work Internal audit, like external audit, must be independent. Because the internal audit institution is an institution set up in a department or unit, and the internal auditors are employees of the unit, the independence of internal audit is greatly limited. Especially in the case of conflict between national interests and the interests of departments and units, the independent decision-making of internal audit institutions may be restricted by the interests of their own units.

(2) the relative simplification of audit procedures

The procedure of internal audit mainly includes four stages: planning, implementation, termination and follow-up audit. Because the internal audit institutions are familiar with the situation of their own departments and units, the work in each stage is greatly simplified in the specific implementation of the audit process.

(3) the extensiveness of the scope of review

Internal audit mainly serves the operation and management of the unit, which determines that the scope of internal audit must involve all aspects of the unit's economic activities. Internal audit can not only carry out internal financial audit and internal economic benefit audit, but also carry out after-the-fact audit and prior audit; We can carry out both protective audit and constructive audit.

(4) the particularity of audit purpose

Internal audit is an important part of internal control, which is the main content of internal audit. It is the basic function of internal audit to sum up experience and find out the gap through the inspection of the internal control system and operation management of the department and the unit, so as to improve the operation management and improve the internal control system of the department and the unit, which embodies the internal audit? Audit internal control? The characteristics of.

(5) timeliness of audit implementation

The internal audit institution is a department of this department and this unit, and the internal auditors are employees of this department and this unit. They can review the problems of this department and this unit at any time as needed. First, the audit procedure can be simplified according to the needs, and the audit can be carried out in time under the leadership of the person in charge of the department and the unit; Second, through daily understanding, we can find problems or signs of problems in management in time, and quickly communicate with relevant functional departments or reflect them to the top managers of our departments and units, so as to take measures to correct existing and possible problems.

Second, SMEs to implement internal audit constraints

At present, there are obviously not enough qualified internal auditors in China, especially in small and medium-sized enterprises. Due to the limitation of funds, understanding and development stage, there are many bottlenecks in the internal audit of small and medium-sized enterprises, which are far from meeting the needs of their business development.

These limiting factors mainly include the following:

(A) weak internal control of SMEs

Weak internal control is the main reason why small and medium-sized enterprises seek external forces for internal audit. The main goal of enterprise internal control is to ensure the safety and integrity of property and materials and the authenticity and reliability of accounting information; Urge enterprises to strengthen risk management and improve operational efficiency. However, many small and medium-sized enterprises in China can hardly do it on their own.

(B) SMEs lack of resources

There are three necessary conditions for establishing an effective internal audit department: sufficient funds;

Audit institutions that can be independent of other departments; Senior talents with knowledge of finance, management and social risk analysis. Small and medium-sized enterprises in the initial stage or gradually improving do not have these conditions.

(C) SMEs have huge operational risks.

In today's rapidly changing economic situation, on the one hand, small and medium-sized enterprises should maintain their core competitiveness and cope with the squeeze of large enterprises at home and abroad; On the other hand, it is necessary to weigh the operational risks including personnel changes, production, sales and finance. Therefore, the management urgently needs to evaluate the internal control system of the enterprise, check the economic contract and control the unfavorable factors in the process of economic operation, so as to reduce the operational risk and improve the operational efficiency. The best way to cope with competition and avoid risks is to introduce external forces and choose a suitable external and internal audit model.

Third, the feasibility analysis of external and internal audit of SMEs

Externalization of internal audit was first put forward by some world-renowned consulting institutions. They believe that internal audit is the cost center of an enterprise and cannot add value to the enterprise, so they suggest that the enterprise entrust internal audit to an external consulting organization.

Demand analysis

With the development of global economic integration, these small and medium-sized enterprises have launched fierce competition on a global scale. Under the pressure of competition, small and medium-sized enterprises demand to improve their internal audit work in order to improve their operating efficiency. Outsourcing internal audit to consulting institutions (especially accounting firms) is an ideal choice for small and medium-sized enterprises. The advantages of externalization of internal audit of small and medium-sized enterprises are:

(1) Externalization of internal audit can improve the operational efficiency of small and medium-sized enterprises. The goal of internal audit is to add value to the organization and improve its operational efficiency, which is particularly important for small and medium-sized enterprises with weak ability to resist various operational risks. Small and medium-sized enterprises can outsource internal audit and introduce professionals from professional consulting institutions to participate in enterprise management, so that all business management of enterprises can be carried out under the guidance of professional employees, which is conducive to improving the efficiency of business management of small and medium-sized enterprises.

(2) Externalization of internal audit can greatly reduce the operating costs of SMEs. With the change of market environment and the increasingly fierce competition among enterprises, the traditional function of internal audit can no longer meet the needs of enterprise value-added. Therefore, in order to meet the needs of enterprise management, internal audit has continuously expanded its functions and gradually expanded to risk management and management consulting.

The development of risk management and management consulting needs professionals in the fields of finance, accounting, personnel, marketing, engineering and computer. At this time, enterprises will face high costs.

Externalization of internal audit can save the cost of recruitment, training and maintenance, the cost of developing software and new methods, and the cost of employing people.

(3) Externalization of internal audit can improve the experience and quality of SME managers. With the development of auditing, accounting firms have gathered various professionals such as accounting, management and marketing. These professionals (including certified public accountants and computer experts) have received formal training and passed the examination. They have provided consulting services for various industries for a long time, and also cultivated their own strong observation and analysis ability. Enterprise managers can learn from them in the process of cooperation with them.

(4) The external auditor carries out internal audit according to the agreement signed with the enterprise and directly accepts the leadership of the owner, so the independence and authority of the audit are also improved. Formally, auditors are not led by operators, they are equal subjects, and the audit scope can also involve the business decisions of senior management; In essence, the external auditor will not get any other economic benefits from the audited entity except charging reasonable audit fees in accordance with the relevant provisions of our country. As a foreign institution, it has no emotional connection with the staff of the audited department, which ensures its substantive independence.

Supply analysis

In recent years, with the development of accounting firms and other intermediaries in the market, especially the opening of the accounting service market after China's entry into WTO, there have been and are suppliers of external internal audit in China. Accounting firms and other intermediaries.

(1) Certified public accountants have strong professional ability and can guarantee the quality of internal audit. At present, the examination system and follow-up education system for accountants, certified public accountants, asset appraisers and project appraisers are becoming more and more perfect, attracting many outstanding talents from society to join the accounting industry; With the opening of accounting service market in China, foreign accountants and certified public accountants have joined the ranks of accounting members in China, which makes accounting firms reserve a large number of certified public accountants with diversified knowledge structure and rich experience, some of whom can specialize in internal audit.

(2) The internal audit work of accounting firms is conducive to their own development. With the increase of accounting firms and other intermediaries in China, especially the participation of famous foreign accounting firms, the competition of accounting firms and other intermediaries in traditional audit business is becoming increasingly fierce, the marginal profit of audit business is declining and the audit risk is increasing. Expanding the business scope to the internal audit of small and medium-sized enterprises is bound to become its first choice.

Fourth, implement external and internal audit of small and medium-sized enterprises.

(A) the main ways to externalize the internal audit of SMEs

Looking at the experience of western countries and academic achievements in China, there are three main ways to externalize the internal audit of small and medium-sized enterprises: full outsourcing, partial outsourcing and management consulting.

First, all outsourcing. Organizations usually do not have an internal audit department. No matter what the purpose of internal audit is, it is completely handled by accounting firms. An organization may employ an internal auditor to supervise the execution of audit business, evaluate the performance and effect of outsourcing contracts, and serve as a communication medium between accounting firms and management.

The second is partial outsourcing, also known as cooperative internal audit. An enterprise retains a small number of internal auditors, and some routine and unimportant internal audit work is carried out by internal auditors. For some important internal audit work involving a wide range and requiring high professional judgment and reasonable knowledge structure, external personnel and internal auditors jointly carry out it.

Third, audit management consulting. It is an extension of the existing consulting or auditing business of accounting firms, which mainly helps enterprises to determine the establishment, number and equipment of internal audit institutions, and may promote the formation and improvement of internal audit plans.

(B) from the perspective of external institutions

At present, accounting firms in China are mainly qualified to undertake outsourcing business. It needs to be improved from the aspects of industry management and internal mechanism adjustment of accounting firms.

(1) Externalization of internal audit will be a new business for accounting firms. Regulators need to consider and coordinate the work of relevant departments from various aspects, and regulate the business undertaken by accounting firms by formulating administrative regulations and industry self-discipline clauses. In order to ensure the quality of audit business and avoid vicious competition, it is necessary to guide the charging, which is supervised by the industry and commerce, price bureau and tax bureau; Revise relevant auditing standards, design business operation guidelines and standardize auditors' professional norms; Compulsory accounting firms to improve the quality control system and impose business restrictions on firms with irregular internal institutions and imperfect internal control. The personnel in charge of the audit business of the firm are required not to manage the internal audit business at the same time. Practical suggestions can be put into practice in more mature cities, and then gradually promoted.

(2) The internal business of the accounting firm needs to be rectified, and the existing audit business (social audit business) and internal audit business personnel are managed by departments. Personnel who perform social audit business shall not undertake the internal audit business of the same unit, and the partners in charge of social audit business shall not manage the internal audit business at the same time.

(C) from the perspective of enterprises

The management authorities need to prepare for the following aspects:

(1) Refine the organizational objectives of enterprises into specific objectives that can be implemented by internal audit. Only when an enterprise is clear about its own needs can it formulate specific outsourcing contents. Corporate governance needs to reasonably evaluate the role of internal audit in explicit value creation and implicit value appreciation, which reflects the close relationship between corporate governance and shareholders' interests to some extent.

(2) Establish internal audit function department. This paper advocates the externalization of internal audit, so it is necessary to set up relevant functional departments within the enterprise, and the specific number can be set according to the needs of the enterprise, and at least one auditor-general should be retained. The auditor-general can be a full-time person or a part-time financial person. Auditor-General is responsible for supervising the implementation of internal audit business, evaluating the performance and effect of outsourcing contracts, and serving as a medium for communication between accounting firms and management.

(3) Reasonable selection of accounting firms. Avoid entrusting internal audit and external audit to the same accounting firm, so as to ensure the independence of internal audit and improve audit quality; Before signing the contract, we should investigate the clients and select reputable accounting firms that have not been handled by the regulatory authorities.

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