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.
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.
According to the Constitution and the Audit Law, the duties and responsibilities of the audit institutions are:
Audit institutions have the powers to:
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.
Audit institutions at various levels provide professional guidance and supervision over internal audit organizations and carry out quality check on public audit firms.
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: