China: The New Frontier for Internal Auditing

As I write this week’s blog, I find myself once again in perhaps one of the most dynamic places in the world for the internal audit profession – China.

This week, representatives from more than 80 countries and territories are in Beijing for The Institute of Internal Auditors’ annual Global Council to share their perspectives on the future of the profession. I think it is particularly appropriate that we are gathered where the frontier of our profession offers some of the brightest prospects for the future.

This ancient and beautiful country has great influence, from global economics and geopolitics to space exploration and cybersecurity. When it comes to our profession, the Chinese government has made a strong and sustained commitment to use internal audit to improve its own efficiency and that of its flourishing business community.

Here are a few facts about internal auditing in China that you might not know:

• Today, there are approximately 70,000 internal audit departments in the country, boasting more than 250,000 internal auditors.
• The number of internal audit departments and the number of professionals increased more than 5 percent in 2014 alone.
• Internal auditors in China issued more than 1.5 million internal audit reports in 2014, according to IIA-China. Those reports contained almost 24 million recommendations.
• About half of all Certified Internal Auditor (CIA) exams taken worldwide in 2014 were in China.
• Since 1998, nearly 35,500 CIAs have been awarded in China. In contrast, about 43,600 CIAs have been issues in the U.S. since 1974.
• Mr. Liu Jiayi, China’s auditor general and head of the China National Audit Office, currently serves as Chairman of the International Organization of Supreme Audit Institutions (INTOSAI).
• Mr. Liu was awarded the United Nations Peace Medal in 2013 in recognition of his auditing work for U.N. peacekeeping operations.

In China, government and those who manage organizations are trying to achieve economies of scale, efficiencies, integrity, and effectiveness. This portends great things for the profession. For example, the Chinese government is making anti-corruption a high priority. A strong internal audit function is an essential component of any anti-corruption and anti-fraud effort.

Not only should internal audit assess the effectiveness of anti-corruption program components, but it also should incorporate anti-corruption testing into all its audits. For example, routine financial audits should include a review of cash transactions, and vendor management audits should include a review of third-party due diligence practices.

China is also seeing success in its private-sector efforts, which will require increasingly sophisticated financial reporting. In September, Alibaba Group claimed the record for the largest U.S.-listed initial public offering, raising US$25 billion for the Chinese online commerce behemoth. Internal audit will play a major role in its reporting for years to come.

Air pollution is a particularly challenging issue for China. The growing areas of integrated reporting and sustainability reporting within internal audit offer opportunities for the government and organizations to recognize and mitigate their environmental impacts.

With its enormous resources — along with its people’s ambition and ingenuity — this country with a population of more than one billion will continue to shape the global economy and geopolitical landscape for decades to come, and a maturing internal audit function can help it achieve great outcomes.

There are many countries that are showing remarkable growth in internal auditing. I have noted in the past how rapidly the profession is growing in the Middle East and other regions of Asia. However, no single country in the world can boast of the extraordinary expansion of the profession over the past decade that would surpass that of China. It is truly the 21^st Century frontier for our profession.