basic_standard.doc

KPMG BARENTS GROUP LLC 2001 NOVEMBER ADB CNAO AUDIT STANDARDS PROJECT Page 1 of 8 BASIC STANDARD BASIC GOVERNMENT AUDIT STANDARDS OF THE PEOPLE S REPUBLIC OF CHINA Chapter OneGeneral Principles Article 1These standards are prepared in accordance with the Audit Law of the People s Republic of China hereinafter referred to as the Audit Law for the purpose of standardizing audit activities ensuring audit quality and specifying audit responsibility Article 2These standards are the basic measurement for audit quality and codes of conduct for audit institutions and auditors to observe in carrying out audit procedures Article 3These standards are applicable to audit institutions in auditing the truthfulness compliance and effectiveness of the revenues and expenditures of central government departments and local government departments at various levels the revenues and expenditures of the state monetary institutions enterprises and undertakings as well as other revenues and expenditures subject to audit pursuant to the law Article 4Audit institutions should independently exercise the power of audit and supervision in accordance with the responsibilities powers and procedures provided in the Audit Law the Regulations on the Implementation Procedures of the Audit Law as well as other related laws and regulations Any audit activities that audit institutions should carry out must be undertaken by duly qualified and professionally competent auditors Article 5On completing due audit procedures audit institutions should make audit evaluations and mete out appropriate sanctions or penalties based on laws regulations and other rules concerning revenues and expenditures and produce audit opinions and audit resolutions Chapter TwoGeneral Standards Article 6The General Standards are the qualifying conditions and professional requirements demanded of audit institutions and auditors Article 7To conduct audits audit institutions should meet the following requirements Having independent organization and qualified auditors Having statutory responsibilities and mandates KPMG BARENTS GROUP LLC 2001 NOVEMBER ADB CNAO AUDIT STANDARDS PROJECT Page 2 of 8 BASIC STANDARD Having sound system of quality control and system of investigation and sanction of auditor s mistakes Having ensured availability of funds Article 8Auditors engaged in audit assignments should satisfy the following conditions Being familiar with relevant laws regulations and policies Having the knowledge of auditing and other related disciplines Having certain professional experiences in audit and other related work Being capable of carrying out investigation and analysis making professional judgement and being proficient in communication Article 9When conducting audits audit institutions and auditors should be objective and fair seek truth from facts and maintain adequate independence and due professional care Article 10Audit institutions and auditors should not be involved in the administrative or management activities of the audited bodies They must observe the disciplinary rules on clean and honest administration Article 11Auditors should withdraw from performing any audit assignments when they have direct interest in the audited bodies or the audited subjects Article 12Auditors should maintain rigorous professional ethics and safeguard state secrets and business secrets of the audited bodies which they have acquainted with in the course of audit Information obtained in the course of audit should not used for purposes not related to audit work Article 13Auditors recruited by audit institutions can not undertake audit assignments before they are properly trained and qualified after examination Audit institutions should establish and implement system of continued education and training to ensure that auditors have high political qualities and necessary professional knowledge and competence Article 14The National Audit Office and provincial audit offices should establish examination and appraisal systems in recognizing the technical qualifications of auditors Chapter ThreeOperation Standards Article 15Operation standards are codes of conduct for audit institutions and auditors to observe in audit planning preparation and implementation KPMG BARENTS GROUP LLC 2001 NOVEMBER ADB CNAO AUDIT STANDARDS PROJECT Page 3 of 8 BASIC STANDARD stages Article 16Audit institutions should specify audit priorities and prepare annual audit plan in accordance with relevant laws regulations and requirements of audit institutions at their next higher levels and of people governments at their corresponding levels Annual audit plans prepared by audit institutions should be submitted to audit institutions at the next higher levels for record Article 17Audit institutions should according to their annual plans determine audit assignments form audit teams and appoint team leaders Team leaders or principal auditors in charge are held accountable for the team work Article 18Before carrying out audit assignments audit teams should be familiar with related laws regulations and policies acquire an understanding of basic conditions of audited bodies and prepare audit programs Principles of materiality and due professional care should be adopted in preparing audit programs Based on audit risk assessment the scope contents methods and procedures for each audit should be specified centering on audit objectives Article 19Audit programs should be reviewed by the unit leaders and submitted to the institution leaders in charge for approval before they are implemented by audit teams Article 20Audit institutions should issue a notification of audit to audited bodies three days before audits are carried out Article 21Audit institutions should adopt and improve the system of commitment When issuing audit notification to audited bodies audit institutions should demand in letters the legal persons and Chief Financial Executives of the audited bodies to take on commitments to the truthfulness and completeness of their accounting data and other relevant conditions In the process of audit audit teams may also ask audited bodies to make written commitments on other matters as the cases may require Audit teams and auditors should include letters of commitments provided by audited bodies into working papers as audit evidence KPMG BARENTS GROUP LLC 2001 NOVEMBER ADB CNAO AUDIT STANDARDS PROJECT Page 4 of 8 BASIC STANDARD Article 22When carrying out audit assignments audit teams should deeply study the conditions of the audited bodies and conduct compliance tests on internal control systems to further specify audit priorities and methods If necessary audit programs can be revised according to related rules Article 23In the process of audit audit teams and auditors can use the audit results of internal audit functions or public auditors after the results are verified and confirmed Article 24In the process of audit audit teams and auditors can use the methods of review monitoring observation interview and letter confirmation computation analytical review and etc They can examine the audited bodies bank accounts accounting vouchers accounting books and statements review related documents and other data and check cash balances physical materials valuable papers as well as the computerized financial accounting systems to obtain evidence When interviewing related bodies or persons during audits auditors should produce to them auditors work ID and copies of audit notifications Article 25If special needs arise from audits audit teams and auditors can appoint specialized institutions or people having specialized knowledge and meeting the audit requirements to take part in some special assignments Article 26Audit teams and auditors carrying out audits in a computerized environment should not change the audit objectives and scopes prescribed in audit programs Article 27Auditors should record key audit items and the auditors professional judgement prepare audit working papers and be responsible for the truthfulness of the working papers Article 28Audit teams should make timely reports to audit institutions on key issues arising from audit process Article 29Audit institutions should monitor and check on the audit work carried out by audit teams and hold auditors liable for serious remiss of duties and irregularities Chapter 4Standards on Reporting Article 30The standards on reporting are codes of procedure that should be followed by audit teams in presenting audit results and preparing audit reports and by audit institutions in reviewing audit reports KPMG BARENTS GROUP LLC 2001 NOVEMBER ADB CNAO AUDIT STANDARDS PROJECT Page 5 of 8 BASIC STANDARD Article 31Before presenting audit reports to audited bodies audit teams should solicit opinions of the audited bodies on the reports The audited bodies should within 10 days after receiving the reports put forward written opinions Failure to put forward the opinions within the designated period is deemed to be no different opinion from the audited bodies and should be noted down by auditors If an audited body disagrees with audit reports audit teams should carry out further studies and verification and revise the report where necessary Article 32After the completion of audit assignments audit teams should present audit reports to audit institutions within a period not longer than 60 days Audit teams should submit to audit institutions audit reports written opinions of audited bodies on audit reports as well as any written explanations of audit teams Article 33Audit institutions should institute and improve a system of review of audit reports In doing so audit institutions should establish specialized organizations or designate specialized staff to review audit reports After completing the review of audit reports reviewing organizations or staff should put forward opinions of review and take records of the reviewing work Article 34After the completion of the reviewing process audit reports should be examined and finalized by audit institutions Reports concerning ordinary audit assignments can be examined and finalized by competent leaders of audit institutions and reports concerning significant assignments should be examined and finalized by professional meeting s of the audit institutions Article 35Audit institutions normally examine and finalize the following items in audit reports Whether facts related to the audit assignments are clear and evidence are verified Whether opinions of the audited bodies about the audit reports or review opinions put forward by reviewing organizations or staff are correct Whether audit opinions are appropriate Whether the determination of the nature of irregularities and the recommendation of sanctions and penalties are accurate legal and appropriate KPMG BARENTS GROUP LLC 2001 NOVEMBER ADB CNAO AUDIT STANDARDS PROJECT Page 6 of 8 BASIC STANDARD Chapter 5Standards on Report Discretion Article 36Standards on Report Discretion are code of conduct for audit institutions to observe after the report review process in assessing audit findings producing letter of audit opinions and proposing sanctions and or penalties on financial activities in violation of state regulations and the Audit Law or producing letter of recommendations and reporting on audit results Article 37After the review and finalization of audit reports audit institutions should discriminate the specific situations and make the following respective resolutions Proposing self corrections and remedial recommendations and producing letters of audit opinions in cases where audit opinions are sought on the truthfulness compliance and value for money of the financial activities of audited bodies Meting out due sanctions and or penalties according to laws and producing letters of audit decisions in cases where financial irregularities are warranted for sanctions and penalties No penalty will be given in cases where irregularities are not found in the previous two years However audit institutions should mete out due sanctions according to laws Producing letters of recommendation and recommending competent departments in charge to mete out due sanctions and or penalties in cases where competent departments in charge are deemed responsible for giving due sanctions and or penalties to financial irregularities as well as individual officials or staff directly liable for the irregularities Issuing letters of case transfer and transferring cases to judiciary departments for criminal prosecutions in situations where financial acts and individual officials and staff directly involved are found in violation of state laws administrative regulations and are suspected of criminal nature Presenting special reports to governments at the audit institutions corresponding levels and to audit institutions at their next higher levels on significant issues concerning the macro economic management and serious illegal and irregular cases Article 38Where audit institutions should make audit decisions and mete out penalties involving significant amount of money on audited bodies and individuals involved audit institutions should notify audited bodies and individuals involved about the pending penalty and they have the right to require in three days for public hearings Audit institutions should hold public hearings if requested by audited bodies and individuals involved Article 39Before producing letters of audit opinions and issuing audit decisions the letters of audit opinions audit decisions audit KPMG BARENTS GROUP LLC 2001 NOVEMBER ADB CNAO AUDIT STANDARDS PROJECT Page 7 of 8 BASIC STANDARD recommendations and the draft letter of case transfer should be reviewed and verified by specialized organizations or individuals Article 40Audit sanctions include Ordering audited bodies to deliver to the treasury revenues that they should pay within a prescribed period Ordering audited bodies to return illegal gains Ordering audited bodies to reinstate encroached state assets Ordering audited bodies to write off or reduce or adjust accounting items Taking other necessary measures as the case may require according to law Article 41Audit penalties include Warnings and circulated criticism Fining Confiscating illegal gains Taking other necessary measures as the case may require according to law Article 42Audit institutions should deliver letters of audit opinions and audit decisions to audited bodies and competent departments within 30 days on receiving audit reports from audit teams Audit decisions are effective on the day of receipt and the implementation of the decisions should normally be completed within 90 days In special conditions the time limit of the implementation process can be properly relaxed but the relaxation should be reported to and authorized by audit institutions Audit institutions should know about how audit opinions are acted on and monitor how audit decisions are executed within 90 days after the day of delivering the audit opinions and or audit decisions to audited bodies If audit decisions are not executed within the 90 day period audit institutions should report the cases to the relevant governments or ask competent departments in charge to execute according to their statutory jurisdictions or appeal to people s court for compulsory execution Article 43Audited bodies can appeal for reexamination if they are not convinced of the specific administrative actions of audit institutions If audited bodies are not convinced of the specific administrative actions taken by audit institutions audited bodies should first appeal to audit instit