Internal Audit in China: For Whom and Why?

Foreign investors with subsidiaries in China may be concerned about the efficiency, compliance, and overall direction their overseas companies are heading towards. Therefore, conducting an internal audit and performance review can provide the necessary tools for foreign investors to better understand their business in China.

Internal auditing can be effectively defined as an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. Unlike an annual external audit, which attempts to ensure the statutory compliance of a company, an internal audit is generally not compulsory for small, private companies. Nevertheless, analyzing and improving the specific management processes within a firm and other functions of a company can significantly enhance both its financial and non-financial performance, as well as ensuring compliance with the local (ever-changing) tax and accounting laws and regulations.

An internal audit conducted by third party professionals can add more value for the company operations compared with attempts to conduct a self-conducted internal audit. Internal auditors possess the set of skills and experience and are in an independent position to issue opinions about a business.

Businesses that often face the following circumstances are especially advised to hire professional internal auditors:

- Consistent overhead costs, irregularities in the financial reports, and unsatisfactory performance;

- Difficulties in communication between the parent company abroad and its subsidiary in China;

- M&A deals that require the assessment of the company;

- Key personnel changes;

- Fraudulent activities have been identified.

An internal audit adds value for both SMEs and large multinational companies by identifying weak areas in their early stages through the experience of a professional internal auditing firm. At PHC Advisory, our experts can provide the necessary support in the provision of such services. Please, feel free to contact us at to know more about us and how we can assist you.

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