auditing corporate governance

Table of Contents Introduction I Under the trend of global economic convergence and changing market environment, there are inevitably large changes in the practice of corporate governance in various countries, which makes more and more company owners and leaders realize that corporate governance is Strengthening core competitiveness and increasing the company’s performance plays an important role in realizing that good governance can protect investors and stakeholders from all walks of life and ensure that the modern market economy system can operate healthily and steadily At present, internal auditing abroad has successfully participated in corporate governance as an indispensable part of corporate governance structure and plays a pivotal role Definition of Corporate Governance Governance Governance simply is the amalgam of processes and structures designed to help the organization achieve its objectives These processes and structures are influenced not only by risks that affect an organization’s ability to achieve objectives but also by the organization’s efforts to mitigate known risks and discover unknown risks Corporate governance Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure Internal audit Definition Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes They ensure compliance with laws and regulations and help to maintain accurate and timely financial reporting and data collection Internal audits also provide management with the tools necessary to attain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit Internal audit’s role Internal audit’s role in governance is vital Internal audit provides objective assurance and insight on the effectiveness and efficiency of risk management, internal control, and governance processes Internal audits play a critical role in a company’s operations and corporate governance Internal controls are processes and procedures implemented by a company to ensure the integrity of its financial and accounting information, promote accountability, and help prevent fraud Examples of internal controls are segregation of duties, authorization, documentation requirements, and written processes and procedures Internal audits seek to identify any shortcomings in a company's internal controls Timing Internal audits may take place on a daily, weekly, monthly or annual basis Some departments may be audited more frequently than others For example, a manufacturing process may be audited on a daily basis for quality control, while the human resources department might only be audited once a year Audits may be scheduled, to give managers time to gather and prepare the required documents and information, or they may be a surprise, if unethical or illegal activity is suspected Objective II An internal audit helps a company ensure it has the proper controls, governance and risk management processes in place By nature, it’s an independent activity by a person or team that can present objective findings and make recommendations for corrective measures A robust internal audit function can find and correct deficiencies quickly and limit costs to your company Monitor Governance The internal audit’s role in corporate governance is to evaluate whether the company’s processes, plans and standards are best suited to achieve its objectives and serve its stakeholders in a legal and ethical manner It generally takes on an advisory role, informing the leadership group of control issues Particularly in companies or industries that have had governance issues in the past, an internal audit might take on a more formal oversight role For example, if a business has gotten into legal trouble for financial improprieties, this violation of corporate ethical standards likely would require a formal response from internal audit Evaluate Internal Controls Controls are policies that companies enact to manage risk and increase the likelihood that everyone works toward the same goals and objectives Internal auditors evaluate controls in areas like operational efficiency, data and information security, and financial compliance These controls can be preventive, meaning designed to prevent errors from being introduced, or detective, seeking to find errors or irregularities after the fact Auditors take an objective look at how these controls are serving the organizational goals Risk Management A business faces risks every day, and internal auditors focus on issues that could prevent the company from meeting its objectives Internal audit examines a company’s tolerance for risk, its plans for detecting and mitigating risk and communicating and monitoring risk appropriately One core function is to offer assurance that risks have been adequately defined and correctly evaluated An internal auditor might determine, for example, that emerging risks aren't being properly considered, such as the potential disruptive influence of a new technology The auditor would alert the owner or leadership group of this deficiency Report and Advise Generally, an internal audit reports findings to the chief financial officer or the chief risk officer if your company has one These reports may make recommendations for correcting problems, but the ultimate action is up to the business owner or management The purpose of internal audit is to identify areas of concern, present them to management in a balanced way and give ownership the information it needs to make an informed decision on how to correct deficiencies going forward III Concept of Corporate Governance Many management scholars have recognized that strong corporate governance is vital to resilient and vibrant capital markets and is an important tool of investor protection Corporate Governance is the application of best management practices, compliance or jaw in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders Corporate governance is the system by which companies are directed and controlled It encompasses the entire mechanics of the functioning of a company and attempts to put in place a system of checks and balances between the shareholders, directors, employees, auditor and the management Firms at global level recognizing that better corporate governance adds substantial value to their operational performance in the following ways:  It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience, and a host of new ideas  It justifies the management and monitoring of risk that a firm faces globally  It limits the responsibility of senior management and directors, by carefully articulating the decision making process  It assures the integrity of financial reports  It has long term reputational effects among main stakeholders, both internally and externally Objective of Corporate Governance The fundamental objective of corporate governance is to boost and maximize shareholder value and protect the interest of other stake holders World Bank described Corporate Governance as blend of law, regulation and appropriate voluntary private sector practices which enables the firm to attract financial and human capital to perform efficiently, prepare itself by generating long term economic value for its shareholders, while respecting the interests of stakeholders and society as a whole Corporate governance has various objectives to strengthen investor's confidence and intern leads to fast growth and profits of companies Corporate Governance and the Board of Directors The board of directors is the primary direct stakeholder influencing corporate governance Directors are elected by shareholders or appointed by other board members, and they represent shareholders of the company The board is tasked with making important decisions, such as corporate officer appointments, executive compensation, and dividend policy In some instances, board obligations stretch beyond financial optimization, as when shareholder resolutions call for certain social or environmental concerns to be prioritized Boards are often made up of inside and independent members Insiders are major shareholders, founders and executives Independent directors not share the ties of the insiders, but they are chosen because of their experience managing or directing other large companies Independents are considered helpful for governance because they dilute the concentration of power and help align shareholder interest with those of the insiders  A properly structured Board proficient of taking independent and objective decisions is in place at the helm of affairs  The Board is balanced as regards the representation of suitable number of non-executive and independent directors who will take care of the interests and well-being of all the stakeholders  The Board accepts transparent procedures and practices and arrives at decisions on the strength of adequate information  The Board has an effective mechanism to understand the concerns of stakeholders  The Board keeps the shareholders informed of relevant developments impacting the company  The Board effectively and regularly monitors the functioning of the management team  The Board remains in effective control of the affairs of the company at all times Elements of a good Corporate Governance It has been established in various management reports that aspects of good corporate governance comprise of transparency of corporate structures and operations, the accountability of managers and the boards to shareholders, and corporate responsibility towards stakeholders While corporate governance basically lays down the framework for creating long-term confidence between companies and the external providers of capital There are numerous elements of corporate governance which are mentioned below:  Transparency in Board's processes and independence in the functioning of Boards The Board should provide effective leadership to the company and management to realize sustained prosperity for all stakeholders It should provide independent judgment for achieving company's objectives  Accountability to stakeholders with a view to serve the stakeholders and account to them at regular intervals for actions taken, through strong and sustained communication processes  Impartiality to all stakeholders  Social, regulatory and environmental concerns  Clear and explicit legislation and regulations are fundamentals to effective corporate governance  Good management environment that includes setting up of clear objectives and suitable ethical framework, establishing due processes, clear enunciation of responsibility and accountability, sound business planning, establishing clear boundaries for acceptable behavior, establishing performance evaluation measures  Explicitly approved norms of ethical practices and code of conduct are communicated to all the stakeholders, which should be clearly understood and followed by each member of the organization  The objectives of the corporation must be clearly recognized in a long- term corporate strategy including an annual business plan along with achievable and measurable performance targets and milestones  A well composed Audit Committee to work as liaison with the management, internal and statutory auditors, reviewing the adequacy of internal control and compliance with significant policies and procedures, reporting to the Board on the key issues  Risk is an important component of corporate functioning and governance, which should be clearly acknowledged, analyzed for taking appropriate corrective measures In order to deal with such situation, Board should formulate a mechanism for periodic reviews of internal and external risks  A clear Whistle Blower Policy whereby the employees may without fear report to the management about unprincipled behavior, actual or suspected frauds or violation of company's code of conduct There should be some mechanism for adequate safeguard to personnel against victimization that serves as whistle-blowers Bad Corporate Governance Bad corporate governance can cast doubt on a company's reliability, integrity or obligation to shareholders—all of which can have implications on the firm's financial health Tolerance or support of illegal activities can create scandals like the one that rocked Volkswagen AG starting in September 2015 The development of the details of "Diesel gate" (as the affair came to be known) revealed that for years, the automaker had deliberately and systematically rigged engine emission equipment in its cars in order to manipulate pollution test results, in America and Europe Volkswagen saw its stock shed nearly half its value in the days following the start of the scandal, and its global sales in the first full month following the news fell 4.5% Public and government concern about corporate governance tends to wax and wane Often, however, highly publicized revelations of corporate malfeasance revive interest in the subject For example, corporate governance became a pressing issue in the United States at the turn of the 21st century, after fraudulent practices bankrupted high-profile companies such as Enron and WorldCom It resulted in the 2002 passage of the SarbanesOxley Act, which imposed more stringent recordkeeping requirements on companies, along with stiff criminal penalties for violating them and other securities laws The aim was to restore public confidence in public companies and how they operate Other types of bad governance practices include: • Companies not cooperate sufficiently with auditors or not select auditors with the appropriate scale, resulting in the publication of spurious or noncompliant financial documents • Bad executive compensation packages fail to create an optimal incentive for corporate officers • Poorly structured boards make it too difficult for shareholders to oust ineffective incumbents Risk Governance What is risk governance? 10 Risk governance applies the principles of good governance to the identification, assessment, management and communication of risks It refers to the formal structures used to support risk-based decision making and oversight across all operations of an organization Risk governance involves the board, board committees, delegations, management structures (i.e CEO, senior management team, etc.) and related reporting Risk governance structures must be designed to fit the size, business mix and complexity of each organization’s operations To manage risk effectively, the board must ensure it has adequate systems to measure, manage and report the material risks to which it is exposed The risk management system must be sufficient to: o Provide the board, board committees and the SMT with regular, accurate and timely information regarding the organization’s risk profile; o Measure, assess and report all material risks; o Provide robust (relevant, timely, complete and accurate) data; o Measure risk against pre-determined limits (tolerances) and promptly report and escalate when limit breaches occur; o Provide a sound basis for making risk-based decisions Role of Internal Auditing in Corporate Governance IV Internal Audit’s Role Internal audit provides assurance by assessing and reporting on the effectiveness of governance, risk management, and control processes designed to help the organization achieve strategic, operational, financial, and compliance objectives 11 It is best positioned to provide assurance when its resource level, competence, and structure are aligned with organizational strategies and It can this best when it is free from undue influence By maintaining its independence, internal audit can perform its assessments objectively, providing management and the board an informed and unbiased critique of governance processes, risk management, and internal control Based on its findings, internal audit recommends changes to improve processes and follows up on their implementation Functioning independently within the organization, internal auditing is performed by professionals who have a deep appreciation of the importance of strong governance, an in-depth understanding of business systems and processes, and a fundamental drive to help their organizations succeed Internal audit provides insight by acting as a catalyst for management and the board of have a deeper understanding of governance processes and structures Internal audit insights on governance, risk and control provoke positive change and innovation within the organization It inspires organizational confidence and enables competent and informed decision making What’s more, successful internal auditing can mature to provide foresight to the organization by identifying trends and bringing attention to emerging challenges before they become crises Internal audit can add value by providing advisory and consulting services, intended to improve governance, risk management, and control processes, so long as internal audit assumes no management responsibility This is vital to maintaining internal audit’s objectivity and avoiding conflicts of interest Selection of the type of audits or services to be performed should be based on the audit activity’s authority, maturity, and purpose, as well as the organization’s needs and issues 12 Board and Audit Committee Roles The board establishes structures and processes that define governance within the organization, taking into consideration the perspectives of investors, regulators and management, among others The board oversees and monitors the company’s strategic, operational, financial and compliance risk exposures, and it collaborates with management in setting risk appetite, risk tolerances, and alignment with strategic priorities A corporate governance practice for listed companies – sometimes mandated is to use audit committees to provide strengthened oversight of the financial and ethical integrity of publicly held companies The audit committee, made up of independent directors, can greatly strengthen the independence, integrity, and effectiveness of audit activities by providing independent oversight of the internal and external audit work plans and results, assessing audit resource and qualification needs, and mediating the auditors’ relationship with the organization Audit committees also ensure that audit results are aired and any recommended improvements or corrective actions are addressed or resolved Audit committees can serve the same function in privately held and public sector organizations Ideally, internal audit should report functionally to the board or audit committee and administratively to management The strong management and board support of internal audit is nurtured by relationships built on mutual trust and frequent and meaningful interactions with the chief audit executive The Analysis of the Relationship between Internal Audit and Corporate Governance 13 In the rapid development of the modern corporate system, the role of corporate governance has become particularly important These stakeholders will require their corresponding rights in the company structure A sound governance requires checks and balances of various factors, while internal audit It plays an important role 3.1 Internal audit is an integral part of corporate governance The board of directors, executive management, external audit, and internal audit basically determine the integrity and security of the corporate governance structure A company’s healthy development is inseparable from a solid governance structure Boards and senior management need to fully understand the various factors and risks that threaten the achievement of the goals In the process of executing the target, various performance situations may have deviations that affect the achievement of the target At this point, an independent role is needed to monitor operations, and internal audit can play such a role Through various review methods, timely evaluation can reflect various risks and existing problems in internal operations, report to management in a timely manner, issue revised plans, and implement revised plans to ensure the final goal is achieved Therefore, when using internal audit to evaluate the implementation results of the enterprise system, its focus is mainly on whether the corporate governance structure has achieved effective checks and balances Thus, in the field of corporate governance, internal audit plays an irreplaceable role 3.2 The role of internal audit in promoting the corporate governance structure of corporate companies 14 In advanced foreign companies, in order to better manage the company, they all attach great importance to internal audit, which shows that the company’s sustainable development is inseparable from internal audit Internal audit plays a facilitating role in corporate governance structure, mainly in the following two aspects:  Internal audit is an important means to promote effective corporate governance Under the modern company system, “the rights and responsibilities are clear, and the government and enterprises are separated.” Shareholders have a lack of understanding of the company’s operations and there is a possibility of decision-making risks: while management attaches importance to operational risks and prevents losses, it may ignore internal regulatory risks and Audit risk: For potential investors, the company’s comprehensive development capabilities and operating performance are fancier Internal audit has found a way to solve these problems Through independent and objective review, it can evaluate the company’s operating conditions and effectively supervise the company’s resources Compared with external auditing, it is more familiar with the status quo of the enterprise, and can provide professional and objective audit evaluation for the demander, so as to make more accurate decisions  Internal audit and corporate governance have a common purpose Enterprises are profit-seeking organizations, and the effectiveness of corporate governance is related to the degree of coordination of the rights of various rights holders Corporate governance is to achieve a good balance between this relationships, thus providing a guarantee for the continued growth of the company’s economic interests As an independent and objective existence within the enterprise, internal audit can effectively supervise the operation of the company without being bound, and truly reflect the problems 15 of the enterprise, thus helping the company to improve operational efficiency and promote the growth of economic interests Therefore, internal audit and corporate governance the purpose coincides 3.3 The impact of corporate governance on the internal audit environment On the one hand, corporate governance can enhance the independence and authority of internal audit In the fierce battle of the economy, only the cooperation of internal auditing continuously enhances the company’s profitability is the key to stand out, and when an operator ignores the problems in the company When it happens, it will lead to business failure To ensure the authority of internal audit, companies should create conditions for independent work for the audit department In addition, the objectives to be achieved by internal audit are related to corporate governance It differs from the government’s regulations on this work, because internal audit is an assisting department within the company Ways to Strengthen Internal Audit and Improve Corporate Governance The improvement of the company’s internal audit is conducive to preventing the fraud of senior management personnel and protecting the interests of shareholders and investors; it is conducive to timely grasping the problems existing within the company and promptly correcting and improving the operational efficiency of the enterprise; it is conducive to safeguarding the property security of enterprises and enhancing the value of enterprises 16 4.1 Improve the company’s internal audit system to promote the sustainable development of enterprises Government audits and internal audits complement each other and play an indispensable role in organization’s audit system Although a developing country is not as perfect as the development of foreign internal audit, it can learn from foreign advanced experience, learn from foreign advanced auditing techniques and combine specific national conditions, and explore and explore an internal auditing road that belongs to us With the aid of computers and the Internet, the establishment of data models, the reduction of audit workload, and the improvement of work efficiency, etc., we need to continuously absorb and mine our audit through our own exploration efforts In addition, in addition to economic supervision, government audit institutions should also supervise and guide the audit activities of the company’s internal audit, and actively guide their work to become more standardized and professional In addition, it is also important to improve the auditing law It can make the company’s internal audit work more organized, legally compliant, and create a good environment Form a collaborative mechanism for internal and external audits, reduce the pressure on audit work, promote the improvement of audit efficiency, and eliminate hidden dangers of fraud The joint development of internal audit and company audit has a positive significance for improving the macro audit system and helps to promote long-term stable and healthy development 4.2 Give full play to the independence of internal audit To fully play the role of internal audit, we must grasp the core “independence” of internal audit The company must improve the company’s rules and regulations, and use the system charter to give internal audit sufficient rights In state-owned enterprises, there are often times when shareholders can absolutely control the operation of the company, or the 17 uneven distribution of rights leads to the imbalance of the company structure, and the power is excessively concentrated in the hands of insiders, which seriously affects the development of the audit work Therefore, it is necessary to improve the company’s rules and regulations, improve internal auditing, implement job rotation, and reduce collusion At the same time, senior management personnel must have sufficient support for internal auditing, arrange arrangements according to the company’s development requirements, and give internal audit a good operating environment Cooperate with external audit to promote the overall improvement of audit quality The implementation of the above measures is very helpful for strengthening the internal audit effectiveness, thereby further promoting the improvement of corporate value and effectively solving the problem of poor corporate management or government auditing 4.3 Improve the quality and professional skills of internal auditors The auditors did not understand the foreign trade business, and did not have professional auditing techniques and implemented effective audit procedures, which led to a major impact on society This reflects a common phenomenon in our country, that is, the lack of professional knowledge and skills of our auditing practitioners, because most of them are directly separated from the financial profession, and there is no professional training through auditing Therefore, the company is sifting, and internal auditors must be rigorous At the time of recruitment, you can conduct multiple assessments and retests Be sure to select the people who understand the audit knowledge Integrity of professional ethics cannot be ignored, the primary professional ethics of internal auditors is integrity In the process of carrying out related work, internal auditors must follow objective principles, adhere to the bottom line of professional ethics, and continuously improve the efficiency of audit work In addition, it has the spirit of study hard, and spends time in the spare time to 18 explore deeper professional knowledge and improve the comprehensive ability of its own audit Internal auditors should also broaden their knowledge while receiving professional skills training They should understand the aspects of business management, facilitate and conduct audit activities more effectively, learn advanced foreign audit methods, conduct full-time audits of work, and combine audits The method replaces the backward audit method and improves the audit efficiency After the post, the internal auditor’s technology can be further expanded, and they are encouraged to use the Internet and computing to learn about business knowledge in other fields and obtain relevant certificates Actual situation V Example 1: Volkswagen AG Volkswagen Group (the parent company Volkswagen Aktiengesellschaft) is a German multinational corporation in the field of automobile manufacturing based in Wolfsburg, Niedersachsen state The Group operates within the scope of designing, manufacturing, manufacturing and distributing passenger cars, commercial vehicles, motorcycles, automobile engines and turbine engines, as well as financial services, leasing Finance and transport management Volkswagen was the second largest car manufacturer in the world in 2011 by volume, and has maintained its position as the largest market share in the automotive market in Europe for more than two decades On September 24, the German prosecutor announced that he had charged a series of senior officials of the Volkswagen car maker (VW), including CEO (CEO) Herbert Diess, former CEO Martin Winterkorn, and Chairman of the Council Managing director Hans Dieter Putsch, had manipulated the stock market in connection with the company's emissions scandal Prosecutors in the northern city of Brunswick accused the three men of operating the VW in 2015 for deliberately failing to promptly notify investors 19 of the financial impact of the case Emissions scandal in 2015, and this action has "illegally" affected VW's share price Under German law, companies listed on the stock market must immediately disclose information that can affect the market Volkswagen saw its stock shed nearly half its value in the days following the start of the scandal, and its global sales in the first full month following the news fell 4.5% The move means that all three senior VW officials will be brought to court, similar to the case of Rupert Stadler, former chairman of Audi AG and a former member of the association Volkswagen Group board, for alleged fraud and deception in the emissions scandal The prosecution of the three men is part of a legal effort by the German authorities to test VW's leadership in connection with the deliberate attempt to cover up the emissions scandal for investors At the end of 2015, US authorities discovered that VW used a software to help diesel-powered cars emit excessive amounts of emissions to pass air quality tests without being detected Investigations later revealed that around 11 million diesel-powered vehicles worldwide, including 600,000 in the United States, emit many times more than what is permitted, but were hidden in tests VW's emissions scandal forced CEO Winterkorn to resign In April, he and four other partners were charged with charges by prosecutors in Brunswick on charges of fraud, unfair competition and deceiving authorities Volkswagen paid a hefty price tag and lost more than $ 31 billion in fines, settling lawsuits and environmental compensation, mainly in the United States, in connection with the emissions scandal In Germany, Audi, Porsche and VW have to pay a total of 2.5 billion USD for failing to prevent the scandal  This example shows that the internal audit of the Volkswagen AG does not work effectively Example 2: WorldCom 20 What Is WorldCom? WorldCom was not just the biggest accounting scandal in the history of the United States—it was also one of the biggest bankruptcies The revelation that telecommunications giant WorldCom had cooked its books came on the heels of the Enron and Tyco frauds, which had rocked the financial markets However, the scale of the WorldCom fraud put even them in the shade This spate of corporate crime led to the Sarbanes-Oxley Act in July 2002, which strengthened disclosure requirements and the penalties for fraudulent accounting In the aftermath, WorldCom left a stain on the reputation of accounting firms, investment banks, and credit rating agencies that had never quite been removed Who Is Bernie Ebbers? WorldCom has become a byword for accounting fraud and a warning to investors that when things seem too good to be true, they just might be It’s CEO, Bernie Ebbers—a larger-than-life figure whose trademark was cowboy boots and tengallon hat—had built the company into one of America’s leading long-distance phone companies by acquiring other telecom companies At the peak of the dotcom bubble, its market capitalization had grown to $175 billion When the tech boom turned to bust, and companies slashed spending on telecom services and equipment, WorldCom resorted to accounting tricks to maintain the appearance of ever-growing profitability By then, many investor had become suspicious of Ebbers’ story—especially after the Enron scandal broke in the summer of 2001 Shortly after Ebbers was forced to step down as CEO in April 2002, it was revealed that he had, in 2000, borrowed $400 million from Bank of America to cover margin calls, using his WorldCom shares as collateral As a result, Ebbers lost his fortune 21 Cooking the Books This was not a sophisticated fraud To hide its falling profitability, WorldCom inflated net income and cash flow by recording expenses as investments By capitalizing expenses, it exaggerated profits by around $3 billion in 2001 and $797 million in Q1 2002, reporting a profit of $1.4 billion instead of a net loss WorldCom filed for bankruptcy on July 21, 2002, only a month after its auditor, Arthur Andersen, was convicted of obstruction of justice for shredding documents related to its audit of Enron Arthur Andersen—which had audited WorldCom's 2001 financial statements and reviewed WorldCom’s books for Q1 2002—was found later to have ignored memos from WorldCom executives informing them that the company was inflating profits by improperly accounting for expenses The Fallout Bernard Ebbers was sentenced to 25 years in prison, and former CFO Scott Sullivan received a five-year jail sentence after pleading guilty and testifying against Ebbers Thanks to debtor-in-possession financing from Citigroup, J.P Morgan and G.E Capital, the company would survive as a going concern when it emerged from bankruptcy in 2003 as MCI—a telecom company WorldCom had acquired in 1997 However, tens of thousands of workers lost their jobs Without admitting liability, Worldcom's former banks, including Citigroup, Bank of America, and J.P Morgan, would settle lawsuits with creditors for $6 billion Of that amount, around $5 billion went to the firm's bondholders, with the balance going to former shareholders In a settlement with the Securities and Exchange Commission, the newly formed MCI agreed to pay shareholders and bondholders $500 million in cash and $250 million in MCI shares 22 VI Conclusion Corporate governance encompasses systems and procedures designed to structure authority, balance responsibility and provide accountability to stakeholders at all levels Fundamentally, corporate governance is about harmonizing success with sustainability Management literature have shown that corporate Governance is a set of ideas, innovation, creativity, thinking having certain ethics, values, principles which gives direction and shape to its people, personnel and possessors of companies and help them to succeed in global market A company's board of directors is the primary force influencing corporate governance Bad corporate governance can cast doubt on a company's reliability, integrity, and transparency—all of which can have implications on its financial health Internal audit strengthens corporate governance through risk-based audits that provide assurance and insights on the processes and structures that drive the organization toward success As risks grow and become more complex, internal audit’s role is likely to expand in areas such as risk governance, culture and behavior, sustainability, and other nonfinancial reporting measures As organizations address the growing array of risks created by new technology, geopolitics, cybersecurity, and disruptive innovation, a vibrant and agile internal audit function can be an indispensable resource supporting sound corporate governance Internal audit can not only maintain the balance between shareholders and senior management in the company, ensure the correct performance of fiduciary responsibility, but also help the correct disclosure of financial accounting information, protect the legitimate interests of stakeholders, and help the management and scientific decision-making of enterprises have a positive effect on the improvement of corporate value Internal audit and corporate governance complement each other and are inseparable Corporate governance is the institutional environmental guarantee for the effective 23 implementation of internal audit Internal audit is an important aspect of corporate governance structure It provides the required information for corporate governance The existence of reasonable internal audit is the inherent requirement of corporate governance Therefore, internal audit has a corporate governance role and plays an irreplaceable role in corporate governance 24 VII Reference JAMES CHEN (2019) Corporate Governance Definition, from: https://www.investopedia.com/terms/c/corporategovernance.asp Laura Austin, Role of Internal Auditing in Corporate Governance, from: https://smallbusiness.chron.com/purpose-internal-auditing-81775.html Craig Berman, What Is the Purpose of Internal Auditing, from: https://smallbusiness.chron.com/purpose-internal-auditing-81775.html Hopgoodganim Advisory Group, (2019) Risk Governance, from: https://www.effectivegovernance.com.au/services/risk-governance/ Nicholas J Price, (June 5, 2017) Important of Corporate Governance, from: https://diligent.com/en-gb/blog/importance-corporate-governanceorganisation/ By the Institute of Internal Auditors (2018) INTERNAL AUDITING’S ROLE IN CORPORATE GOVERNANCE, from: https://na.theiia.org/aboutia/PublicDocuments/Internal-Auditings-Role-in-Corporate-Governance.pdf (2019), from: https://www.civilserviceindia.com/subject/Management/notes/corporategovernance.html 25 ... successfully participated in corporate governance as an indispensable part of corporate governance structure and plays a pivotal role Definition of Corporate Governance Governance Governance simply is... discover unknown risks Corporate governance Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled Corporate governance essentially involves... Therefore, internal audit and corporate governance the purpose coincides 3.3 The impact of corporate governance on the internal audit environment On the one hand, corporate governance can enhance the