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China has a long history and brilliant civilization. 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:
Powers
Audit institutions have the powers to:
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:
Article 1 This Law is formulated in accordance with the Constitution, with a view to strengthening the State supervision through auditing, maintaining the financial and economic order of the country, promoting the building of a clean government and ensuring the healthy development of the national economy.
Article 2 The State shall practise a system of supervision through auditing. The State Council and the local people’s governments at or above the county level shall establish audit institutions.
Revenues and expenditures of various departments of the State Council, of the local people governments at various levels and their departments, revenues and expenditures of State-owned monetary organizations, enterprises and institutions as well as other revenues and expenditures subject to auditing according to this Law, shall be supervised through auditing in accordance with the provisions of this Law.
Audit institutions shall, according to law, supervise through auditing the authenticity, legality and effectiveness of the revenues and expenditures specified in the preceding paragraph.
Article 3 Audit institutions shall conduct supervision through auditing in accordance with the functions and powers, and procedures prescribed by the law.
Article 4 The State Council and the local people’s governments at or above the county level shall annually present to the standing committees of the people’s congresses at the corresponding levels the audit reports prepared by audit institutions on budget implementation and other revenues and expenditures.
Article 5 Audit institutions shall independently exercise their power of supervision through auditing in accordance with the law, subject to no interference by any administrative organ or any public organization or individual.
Article 6 Audit institutions and auditors shall, in performing their audit items, be objective and fair, practical and realistic, clean and honest , and keep secrets.
Article 7 The State Council shall establish the National Audit Office to take charge of the audit work throughout the country under the leadership of the Premier of the State Council. The Auditor General shall be the administrative leader of the National Audit Office
Article 8 Audit institutions of the people’s governments of provinces, autonomous regions, municipalities directly under the Central Government, cities divided into districts, autonomous prefectures, counties, autonomous counties, cities not divided into districts and municipal districts shall be in charge of the audit work within their respective administrative areas under the respective leadership of governors of provinces, chairmen of autonomous regions, mayors, prefectural heads, or heads of counties and districts as well as under the leadership of audit institutions at the next higher levels.
Article 9 Local audit institutions at various 1evels shall be responsible for and report on their work to the people’s governments at the corresponding levels and to audit institutions at the next higher levels, and their audit work shall be directed chiefly by the audit institutions at the next higher levels.
Article 10 Audit institutions may, as required by work, designate resident audit officers to areas under their jurisdiction.
Resident audit officers shall, according to the authorization of audit institutions, conduct audit work in accordance with the law.
Article 11 Funds required by audit institutions for performing their functions shall be listed in the budgets of and guaranteed by the people ’s governments at the corresponding levels.
Article 12 Auditors shall possess the professional knowledge and ability suited to the audit work they engage in.
Article 13 Auditors shall withdraw in performing audit items if they have an interest in the auditees or the audit items.
Article 14 Auditors shall have the obligations to guard State secrets and the auditees’s trade secrets they have come to know in performing their functions.
Article 15 Auditors shall be protected by law in performing their functions in accordance with the law.
No organization or individual may reject or obstruct auditors from performing their functions in accordance with the law, or retaliate against them.
Persons in charge of audit institutions shall be appointed or removed in accordance with legal procedures. None of them may be removed or replaced at will unless they are found guilty of illegal acts, or negligent or no longer qualified for the appointment.
Article 16 Audit institutions shall exercise supervision through auditing over the budget implementation, final accounts and management and use of extra-budgetary funds of departments (including their subordinate units)at the corresponding levels and of the people’s governments at lower levels
Article 17 The National Audit Office shall, under the leadership of the Premier of the State Council, exercise supervision through auditing over the implementation of the budget of the Central Government and submit audit reports thereof to the Premier.
Local audit institutions at various levels shall, under the respective leadership of the governors of provinces, chairmen of autonomous regions, mayors, prefectural heads and heads of counties or districts as well as under the leadership of audit institutions at the next higher levels, exercise supervision through auditing over the budget implementation at the corresponding levels and submit audit reports to the people’s governments at the corresponding levels and to the audit institutions at the next higher levels.
Article 18 The National Audit Office shall exercise supervision through auditing over the revenues and expenditures of the Central bank.
Audit institutions shall exercise supervision through auditing over the assets, liabilities, profits and losses of the State-owned monetary organizations.
Article 19 Audit institutions shall exercise supervision through auditing over the revenues and expenditures of the State institutions.
Article 20 Audit institutions shall exercise supervision through auditing over the assets, liabilities, profits and losses of the State-owned enterprises.
Article 21 Audit institutions shall conduct audit in a periodic and planned way of the State-owned enterprises that are vital to the national economy and the people k livelihood, or State-owned enterprises that heavily depend upon government subsidies, or have large amount of losses, and other State-owned enterprises designated by the State Council or the people k governments at the corresponding levels.
Article 22 Supervision through auditing over the enterprises with State-owned assets controlling their shares or playing a leading role, shall be stipulated by the State Council.
Article 23 Audit institutions shall exercise supervision through auditing over the budget implementation and final accounts of the State construction projects.
Article 24 Audit institutions shall exercise supervision through auditing over the revenues and expenditures of the social security funds, public donations and other relevant funds and capital managed by governmental departments and public organizations authorized by the government.
Article 25 Audit institutions shall exercise supervision through auditing over the revenues and expenditures of projects with aids or loans provided by international organizations or governments of other countries.
Article 26 In addition to the audit items stipulated by this Law, audit institutions shall exercise supervision through auditing over the items that shall be audited by audit institutions as stipulated by other laws, administrative rules and regulations, in accordance with the provisions of this Law as well as relevant laws, administrative rules and regulations.
Article 27 With regard to the particular items relating to State revenues and expenditures ,audit institutions shall have the right to carry out special investigations through audit from relevant localities ,departments and units and report the results thereof to the people's governments at the corresponding levels and to the audit institutions at the next higher levels.
Article 28 Audit institutions shall determine their audit jurisdiction on the basis of the auditee’s financially subordinate relations or the supervisory and managerial relations with respect to the State assets of auditees.
Where a dispute arises on audit jurisdiction between audit institutions, the matter shall be determined by an audit institution superior to both disputing parties.
Audit institutions at higher levels may authorize audit institutions at lower levels to audit he items under their jurisdiction as stipulated from paragraph 2 of Article 18 to Article 25 in this law. Audit institutions at higher levels may directly audit the major items under the jurisdiction of audit institutions at lower levels. However, unnecessary repetitive audits shall be avoided.
Article 29 Departments of the State Council an of the local people’s governments at various levels, State-owned monetary organizations, enterprises and institutions shall establish and improve their internal auditing systems in accordance with the relevant provisions of the State., Such internal auditing shall be subject to the professional guidance and supervision of audit institutions.
Article 30 Public audit firms that independently conduct public audit according to law shall be guided, supervised and managed in accordance with relevant laws and provisions of the Sate Council.
Article 31 Audit institutions shall have the power to require auditees to submit, in accordance with the relevant provisions, their budgets or plans for financial revenue and expenditures, statements about budget implementation, final accounts and financial reports ,audit reports produced by public audit firms and other information relating to their revenues and expenditures. Auditees shall not refuse to do so, or delay the submission or make false reports.
Article 32 Audit institutions shall, in conducting audit, have the power to examine the accounting documents, account books, accounting statements and other information and assets relating to revenues and expenditures of the auditees, and the auditees shall not refuse to produce those materials.
Article 33 Audit institutions shall, in conducting audit, have the power to carry out investigations among units or individuals concerned into matters relating to audit items and obtain relevant testimonial materials. The units and individuals concerned shall support and assist the audit institutions in their work by providing them with truthful information and relevant testimonial materials.
Article 34 When audit institutions conduct audit, the auditees shall not transfer, conceal, falsify or destroy their accounting documents, account books, accounting statements or other information relating to their revenues and expenditures, and shall not transfer or conceal the assets that are in their possession but obtained in violation of the provisions of the State.
Audit institutions shall have the power to stop the ongoing acts of the auditees relating to the revenues and expenditures in violation of the provisions of the State. If they do not succeed in stopping such acts, they shall, with the approval of the responsible persons of audit institutions at or above the county level, notify the financial departments and the competent authorities to suspend allocating funds directly related to the acts in violation of the provisions of the State regarding the revenues and expenditures or to suspend the use of the funds already allocated. However, adoption of the above-mentioned measures shall not hinder the lawful business activities, production and operation of the auditees.
Article 35 If audit institutions consider that the regulations of the competent departments at higher levels on revenues and expenditures implemented by the auditees contravene the law or the administrative rules and regulations, they shall suggest that the competent departments concerned make corrections. If the departments concerned fail to make corrections, the audit institutions shall refer the matter to the competent organs for disposition according to law.
Article 36 Audit institutions may issue circulars about their audit results to the relevant governmental departments or publish such results to the public.
Audit institutions shall, in circulating or publishing audit results, keep State secrets and trade secrets of the auditees in accordance with the law and observe the relevant provisions of the State Council.
Article 37 Audit institutions shall form audit teams according to the audit items specified in the plans of the audit programs and shall serve audit notifications on the auditees three days prior to the execution of audit.
The auditees shall cooperate with audit institutions in their work and provide necessary working conditions.
Article 38 Auditors shall conduct audit and obtain testimonial materials by means of examining accounting documents, account books, accounting statements, and documents and data relating to the audit items, checking cash, negotiable securities and other property, and making investigations of the units and individuals concerned.
Auditors shall, in making investigations of the units and individuals concerned, produce their work certificates and a copy of the audit notification.
Article 39 Audit teams shall, after the completion of audit ,submit audit reports to the audit institutions. However, prior to the submission, they shall solicit opinions of the auditees. The auditees shall, within ten days from the date of receiving the audit reports, send their comments in written form to the audit teams or audit institutions.
Article 40 Audit institutions shall, after examining the audit reports, give an appraisal of the audit items and produce their audit opinions. They shall, within the sphere of their statutory functions and powers, make audit decisions on revenues and expenditures in violation of the provisions of the State ,that must be dealt with or punished according to law ,or they shall make suggestions concerning such disposition or punishment to the competent authorities.
Audit institutions shall, within 30 days from the date of receiving the audit reports ,serve their audit opinions and audit decisions on the auditees and units concerned.
Audit decisions shall enter into effect from the date when they are duly served.
Article 41 If an auditee in violation of this Law, refuses or delays provision of information relating to the audit items, refuses or hinders examination, the audit institution concerned shall order the auditee to make correction or may circulate a notice of criticism and issue a warning. Anyone refusing to make correction shall be investigated for responsibility in accordance with the law.
Article 42 When an audit institution discovers an auditee, in violation of the provisions of this Law ,transfers ,conceals ,falsifies or destroys accounting documents, account books, accounting statements or other materials relating to the revenues and expenditures ,the audit institution shall have the power to stop such acts.
If an auditee commits any of the acts specified in the preceding paragraph, and if the audit institution considers that the persons in charge and other persons held directly responsible shall be given administrative sanctions according to law, the audit institution shall put forward suggestions to this effect. And the auditee or its superior organ or the supervisory organ shall make decisions without delay in accordance with the law. If the offence constitutes a crime, the judicial organ shall investigate for criminal responsibility according to law.
Article 43 If an auditee in violation of this Law, transfers or conceals assets gained unlawfully, the audit institution, the people’s government or the competent authorities shall have the power to stop such acts within the sphere of its statutory functions and powers or appeal to the court for adoption of preservative measures If an auditee commits any of the acts specified in the preceding paragraph, and if an audit institution considers that the persons in charge and other persons held directly responsible shall be given administrative sanctions according to law ,the audit institution shall put forward suggestions to this effect. And the auditee or its superior organ or the supervisory organ shall make a decision without de- lay in accordance with the law. If the offence constitutes a crime, the judicial organ shall investigate for criminal responsibility according to law.
Article 44 Audit institutions, the people’s governments or the competent authorities shall, within the sphere of their statutory functions and powers and in accordance with the laws ,and administrative rules and regulations, deal with the acts violating the budgets committed by departments (including their subordinate units) at the corresponding levels or the governments at lower levels or other acts in violation of the provisions of the State regarding revenues and expenditures.
Article 45 If an auditee commits any acts in violation of the provisions of the State regarding revenues and expenditures ,the audit institution, the people’s government or the competent authorities shall, within the sphere of its statutory functions and powers and in accordance with the laws ,and administrative rules and regulations, order the auditee to turn over within a time limit the part of the revenues that shall be turned over ,to return within a time limit the income gained unlawfully or the State-owned assets illegally seized or take other corrective measures, and may impose penalties on the auditee according to law.
Article 46 With respect to the persons in charge and other persons held directly responsible for the acts committed by the audit in violation of the provisions of the State regarding revenues and expenditures ,if the audit institution considers that they shall be given administrative sanctions according to law ,the audit institution shall put forward suggestions to this effect. The auditee or its superior organ ,or the supervisory organ shall make a decision without delay in accordance with the law.
Article 47 If an auditee violates the provisions of relevant laws, or administrative rules and regulations in matters of its revenues and expenditures and if the offence constitutes a crime, the auditee shall be investigated for criminal responsibility according to law.
Article 48 Whoever retaliates or makes a false charge against an auditor shall, if such an act constitutes a crime, be investigated for criminal responsibility; if such an act does not constitute a crime, he shall be given administrative sanctions.
Article 49 If an auditor abuses his functions and powers, engages in malpractice for selfish ends, or neglects his duties, and if his act constitutes a crime, he shall be investigated for criminal responsibility; if his act does not constitute a crime, he shall be given administrative sanctions.
Article 50 Regulations on audit in the Chinese People’s Liberation Army shall be formulated by the Central Military Commission in accordance with this Law.
Article 51 This Law shall enter into effect as of January 1, 1995.The Audit Regulations of the People’s Re public of China promulgated by the State Council on November 30, 1988 shall be annulled therefrom.
(In case of discrepancy between the English translation and the original Chinese text, the Chinese text shall prevail - Translator)
