Brief History

China has a long history and brilliant civilization. The Chinese people is known in the world for their diligence, bravery and wisdom. The practice of an auditing system in China can be traced to the beginning days of the dynasties. A rudimentary form of auditing emerged as early as the Western Zhou Dynasty, 3,000 years from now. A royal audit court was set up in the Song Dynasty in 992 A.D. From then on, every dynasty established specific institutions or offices in charge of monitoring state revenues and expenditures.

There were no independent audit institutions in the first 30 years after the founding of the People's Republic of China in 1949. The control of state revenues and expenditures was conducted by internal supervisory bodies of departments of public finance. To adapt to the demand of reform and opening, in December1982, the 5th Plenary Session of the 5th National People's Congress adopted the resolution to practice an auditing system in China, which was included in the amended Constitution. Thereafter, in September 1983, the National Audit Office of the People's Republic of China (hereinafter referred to as the CNAO) was established with provincial, municipal and county people's governments setting up their local audit institutions in succession and audit carried out gradually all over the country. In August 1994, the Audit Law of the People's Republic of China was formally promulgated. Since the establishment of the audit institutions, auditing has played an irreplaceable role in facilitating healthy development of the national economy, promoting the building of a clean government and ensuring the implementation of government financial policies and economic laws.

Legal Status

Government audit institutions in China are comprehensive bodies in charge of controlling public finance and monitoring the economy. The Audit Law stipulates that:

The State Council shall establish audit institution who will take charge of auditing revenues and expenditures of public finance of departments of the State Council and local governments at various levels, revenues and expenditures of state banking institutions, state enterprises and undertakings. The audit institution shall be under the direct leadership of the Premier of the State Council and exercise its power of supervision through auditing independently in accordance with the law and subject to no interference by any administrative organ or public organization or individual.

People’s governments at and above the county level shall establish corresponding audit institutions. Local audit institutions at various levels shall be accountable and report on their work to the peoele’s governments at the corresponding levels and to audit institutions at the next higher levels.

The Constitution also stipulates that the Auditor General shall be a member of the State Council. The Auditor General shall be nominated by the Premier and, subject to approval by the National People's Congress or its Standing Committee, shall be appointed or removed by the President of the State.

Audit work in China is uniformly managed and audit institution of each level reports to its next higher level audit institution. As the supreme audit institution of China, the CNAO, directly under the leadership of the Premier, organizes and administers audit work of the whole country and reports its work to the State Council. Local audit institutions, under the dual leadership of the administrative heads of their corresponding level governments and the audit institutions at their next higher levels, organize and manage audit work within their jurisdiction. Their audit work should be directed mainly by audit institutions at the next higher levels and reported to their corresponding level governments as well as the next higher level audit institutions.

Duties and Responsibilities

According to the Constitution and the Audit Law, the duties and responsibilities of the audit institutions are:

. auditing budget implementation, final accounts, management and use of off-budget funds of departments at the corresponding levels and governments at lower levels;

. auditing assets, liabilities, profits and losses of state-owned monetary organizations and state-owned enterprises;

. auditing revenues and expenditures of state non-profit undertakings;

 . auditing budget implementation and final accounts of state construction projects;

. auditing revenues and expenditures of projects with assistance or loans provided by international organizations or foreign governments;

. auditing state-owned enterprises which are vital to the national economy and people's livelihood, receive large entitlements from the government or suffer substantial losses, as well as other state-owned enterprises designated by the State Council or corresponding local people's governments;

. auditing special funds such as social security funds and agricultural funds. Every year, audit institutions at various levels shall present a report on the audit of budget implementation and other revenues and expenditures of the public finance to the standing committees of the people's congresses at their corresponding levels on behalf of their corresponding level people's governments.

Powers

Audit institutions have the powers to:

. require the audited bodies to provide budgets, financial plans, statements about budget implementation, final accounts, financial reports and other relevant information;

. review accounting information and assets of the audited bodies;

. investigate relevant units and individuals about issues related to audit assignments and obtain evidence thereof;

. curb audited bodies' ongoing acts of revenues and expenditures which are in violation of state laws and regulations;

. announce audit findings to relevant government departments and publish audit findings to the public.

Audit Procedures

Audit institutions shall form audit teams according to the audit items specified in the audit plans and shall serve audit notifications to the auditees three days prior to the execution of audit. After the completion of audit, audit teams shall submit audit reports to the audit institutions. The latter will examine the audit reports, appraise the audit items and produce their audit opinions. Audit institutions shall make audit decisions or produce audit recommendations to the competent authorities on making out disposition or punishment against relevant irregularities.

Relation with Public Audit and Internal Audit

Audit institutions at various levels provide professional guidance and supervision over internal audit organizations and carry out quality check on public audit firms.

Audit Scope

The CNAO, under the leadership of the Premier of the State Council, takes charge of government audit nationwide. Audit directly conducted by the CNAO covers the following areas:

. implementation of the central budget, other revenues and expenditures of public finance;

. revenues and expenditures of central departments, non-profit undertakings and their subordinate units;

. budget implementation and final accounts of provincial people's governments;

. revenues and expenditures of the Central Bank, assets, liabilities, profits and losses of central monetary institutions;

. revenues and expenditures Or central government owned enterprises and enterprises where state assets dominate or predominate;

. revenues and expenditures related to funds managed by relevant departments of the State Council;

. revenues and expenditures of projects with loans and assistance from international organizations and foreign governments.

Auditor Generals

Since the establishment of the CNAO, four prestigious financial experts have assumed the position of Auditor General in succession. They are:

Mr. Li Jinhua, the fourth Auditor General, March 18,1998- the present

Mr. Guo Zhenqian, the third Auditor General, May 12,1994- March 18,1998

Mr. Lu Peijian, the second Auditor General, March 19,1985- May 12, 1994

Mr. Yu Mingtao, the first Auditor General, June 20,1983- March 19,1985

International Relations

Since its founding, the CNAO has established friendly and cooperative relations in the audit field with more than 60 countries. Throughout the years, the CNAO has joined various international organizations related to auditing, the more important ones being the International Organization of Supreme Audit Institutions (INTOSAI) in 1982 and the Asian Organization Supreme Audit lnstitutions (ASOSAI) in 1984. In 1987, the China Society of Internal Auditors became the China National Chapter of the International Institute of Internal Auditors (IIA). In May 1991, the CNAO successfully hosted the 5th ASOSAI Assembly and the 4th International Seminar in Beijing. In addition, ASOSAl convened its Seminar on Auditing Public Works in Beijing in May 1996. 27 auditors from 21 ASOSAI member countries participated in the seminar. China was Chairman of ASOSAI from 1991-1994 and is a current member of the Governing Board of ASOSAl. In September I998, the CNAO successfully hosted the 26th ASOSAI Governing Board Meeting in Beijing.

In the future, China shall, as always, maintain and develop cooperative relations with SAIs of all friendly nations, so as to strengthen friendly communication with and further understanding of other SAIs, and thereby ultimately make due contribution to the development of the cause of auditing in the whole world.

Current Development

In the recent period, the CNAO, focusing on the central task of developing the national economy, has continued to strengthen audit of public finance, monetary institutions and enterprises. Positive results have been achieved through enhancing audit of key funds and key projects, exerting vigorous efforts in the detection of trails of severe irregularities, disclosing and fighting against false financial and accounting information.

Transparency of audit has been improved with increasing attention from all walks of life being drawn to government audit and some major audit findings publicized timely. In December 1998, the CNAO successfully held its press conference. In June 1999, Mr. Li Jinhua, Auditor General of China, entrusted by the State Council, presented to the Standing Committee of the National People's Congress the CNAO's annual audit report. The report disclosed irregularities committed by some government departments and agencies, revealed problems existing in budget implementation and other revenues and expenditures, which resulted in stronger repercussions in the public than ever before. With CNAO's continuous cooperation with the mass media, government auditing and the mass media in China are making joint efforts to become a powerful source of supervision.

In these years, the CNAO is implementing the Audit Law in an all-round manner to promote the realization of the goal of ruling the country by law. The CNAO has played an important role in urging the audited bodies to conduct administration, management and operation in accordance with the law. Meanwhile, the CNAO has also worked to strengthen and improve the construction of audit regulations, formulate an applicable audit standard framework which will cater to the Chinese situation and comply with the principles of generally accepted auditing practices. The CNAO adopts the guiding principle of "conducting audit in accordance with law, adapting audit to the overall national situation, centering audit around key issues, focusing on audit priorities and cultivating a truthful and practical audit attitude”. With the audit priority placed on ensuring the truthfulness and compliance of revenues and expenditures, the CNAO will continue its mission to safeguard the economic order and promote good value for money. To this end, the CNAO will further strengthen its power of making out sanctions and penalties, make further efforts to establish a well-structured quality work force commensurate with the development of audit, extend the application of modern audit techniques, actively carry out computer audit with a view to improve audit efficiency and effectiveness in a continuous manner.