The Role of Internal Audit in Enhancing Corporate Governance: A Comparative Analysis of Risk Management and Compliance Strategies

Abstract

This essay examines the role of internal audit in enhancing corporate governance with specific reference to risk management and compliance strategies; it does so in the comparative contexts of several East Asian countries and global best practices points. Part I provides an overview of the development and functions of internal audit, focusing on risk management and compliance issues in corporate governance. Part II presents the methodology for the comparative analysis, highlighting both the commonalities and differences in risk management and compliance strategies. The comparative methodology combines case studies of the internal audit practices of several firms in East Asia that have best practices backgrounds of selected global leading companies. Part III examines these strategies and considers whether East Asian companies are adopting similar internal audit practices. Part IV discusses the research findings within the theoretical framework provided by the literature on corporate governance, internal audit and risk management. Two orientations in the literature on the internal auditing process are discussed: the control-support orientation, the subjective-auditing orientation. areas of concern about potential conflicts of interest between the board and shareholders, inadequate monitoring functions of the board, and audit committee arrangements, the shortcomings of external auditors; and the role of internal audit in corporate governance in its ability to provide objective and specialized auditing processes. The essay argues that taking this theoretical framework and focusing on risk management and compliance issues, a more fruitful and innovative approach can be made in analyzing the role of internal audit in corporate governance. Several important research objectives are set: to explain how risk management and compliance issues have been reflected in the changing accountabilities and practices of audit firms and corporate management; to explore how internal audit meets the changing needs of best practices in global corporate governance and adapting it to a non-western context; and to compare these practices between Asia and the rest of the world and advanced industrial economies. This article is of particular interest in the contexts of newly industrializing countries in Asia where the capacity and practices of internal auditors in risk management and compliance issues remain relatively under-researched areas of corporate governance.