Auditing profession, standards and forms of audit report

Only very recently has the impact of accountants or auditors on national economic activities become more apparent. By virtue of the PRC Accounting Law promulgated in January 1985, the function of certified public accountants in carrying out audits was established. This law has now been superseded by the PRC Registered Accountant Law which became effective 1 January 1994. Following the setting up of the Chinese Institute of Certified Public Accountants in 1988, the status of certified public accountants and professional accounting firms in society received a major boost. In China some accounting firms are direct functional units of certain government bureaus. Although other professional accounting firms are not direct functional units of any government departments, many of them are still financially dependent units and require approval from the State to conduct their business as certified public accountants. In 1998 the State Council set forth regulations that require certified public accountants to be independent from any government bureaus. Many professional accounting firms have transformed (or are in the process of transforming) in order to operate in the form of sole proprietorship or partnership with unlimited liabilities.

In December 1988 the Ministry of Finance promulgated the Auditing and Certification Regulations (Provisional) which sets out the roles of certified public accountants, audit scope and procedures and the requirements for maintaining audit working papers. From 1995 to 1996 four General Independent Auditing Standards “ Basic Standards, Quality Control, Continuing Education and Ethics were issued. New specific auditing standards applicable 1 January 1997 were also promulgated, which complete and clarify the provisional regulations and general standards. So far, twenty-seven specific auditing standards, ten practice bulletins and four practice guidelines have been issued.

The audit report normally contains a scope paragraph and an opinion paragraph. The scope paragraph sets out the areas covered, the principal audit work and procedures carried out and the results. The opinion paragraph sets out whether the accounts have been prepared in accordance with the relevant laws and regulations. Any reservations in the opinion need to be elaborated on.

In some instances different government bureaus may stipulate their own requirements as to what certified public accountants should opine on. Sometimes these additional requirements have not been agreed by the Ministry of Finance or the CICPA and fall beyond the expertise of what is normally expected of a certified public accountant. In some circumstances these requirements issued by other government bureaus have been retracted.