The history of auditing in China dates back nearly 3000 years to the Western Zhou dynasty, where the "zaifu" was an official charged with the responsibility of economic supervision. During the Northern and Southern Dynasties around the year 234 AD, the "bibu" system, which was characterised by independence from financial departments and exclusive right to exercise economic supervision, was in practice. It was during the reign of the Song dynasty that a royal audit court was set up in 992 AD. From then on, successive dynasties had specialised institutions or officials in charge of audit, responsible for supervision of state finances.
For several decades after the founding of the People's Republic of China in 1949, the State did not immediately establish any separate audit institution, with financial institutions being responsible for supervision of state revenues and expenditure connected with their functional area. With the adoption of economic reform and an open-door policy from 1978 and the move towards a socialist market economy, it was felt necessary to establish an independent audit institution, responsible for supervision of public finance and revenues and expenditure of government departments and agencies.
In December 1982, the Fifth Plenary Session of the Fifth National People's Congress approved an amendment to the Constitution, providing for the establishment of a system of auditing supervision. In September 1983, the State Council established the National Audit Office, while the governments at the provincial, municipal and county levels set up their own audit institutions. In August 1994, the Ninth Plenary Session of the Eighth National People's Congress reviewed and adopted China's first Audit Law, which came into effect from January 1, 1995. This Law formally crystallises the roles and responsibilities of government audit institutions, and represents a landmark in public auditing in China.
The National Audit Office of the People's Republic of China is a Ministry of the State Council under the leadership of the Premier, and is responsible for guiding audit work all over the country. The nomination of the Auditor General is done by the Premier of the State Council, which is subject to approval by the National People's Congress or its Standing Committee. The candidate thus approved, is then appointed as Auditor General by the President. The Auditor General is also a Member of the State Council.
Government audit institutions enjoy a high supervisory and legal status. They exercise their audit supervision in accordance with the duties and procedures stipulated by law, and are not subject to interference by other administrative organisations, public bodies or individuals.
The Constitution and the Audit Law clearly delineate the role, responsibilities and jurisdiction of government audit institutions at the national, provincial and local levels.
The National Audit Office of the People's Republic of China (CNAO), besides guiding the audit work of the whole country, is responsible for :-
Besides the staff situated in the CNAO, there are audit offices attached to the 41 ministries and departments, which are authorised by the CNAO to audit revenue and expenditure of the immediate subsidiaries of their respective ministries and departments, evaluate economic performance of their respective sectors and guide internal auditing work. In addition, the CNAO has resident audit offices in 16 cities to audit the revenues and expenditures of the provincial governments, and the accounts of state institutions and enterprises located outside Beijing.
The Constitution and the Audit Law stipulate that audit institutions shall be set up in people's governments above county level. Local audit institutions at various levels shall independently exercise their power of auditing supervision in accordance with law and are accountable to their respective governments viz. governors of provinces, chairmen of autonomous regions, mayors, prefectural heads and heads of counties, as well as audit institutions at the next higher levels. With regard to technical areas, these local audit institutions are subject to the instructions of audit institutions at the next higher levels, with the CNAO providing overall guidance for audit work throughout the country.
An idea of the scope and coverage of national and local audit institutions in China can be gained through the following table :-
| Institutions | No, of Offices | No. af Staff |
| National Audit Office of the People's Republic of China (CNAO) | 1 | 803 |
| Audit Offices of CNAO in Ministries and Departments under State Council | 41 | 449 |
| Resident Audit Offices of CNAO | 16 | 1425 |
| Nanjing Audit Institute | 1 | 301 |
| Audit Offices of Provinces, Municipalities and Counties | 3121 | 78333 |
| TOTAL | 3180 | 81311 |
As stipulated in the Audit Law, audit institutions have the power to :-
As part of the audit planning process, audit institutions should determine the audit scope and coverage, organise audit teams and issue notices of audit to the auditees three days before the commencement of audit. Field work by audit staff involves collection of evidence by :-
After completion of field work, the audit teams submit reports to their audit institutions, which review these reports, make observations on the audit findings and present their audit opinions. Where irregularities requiring disposition or penalties are brought to light, the audit institutions make audit decisions or make recommendations to the competent departments regarding the disposition or penalty. The audit institutions are required to communicate their audit opinions and audit decisions within 30 days after the receipt of audit reports from the field audit teams.
Since its institution, the National Audit Office of the People's Republic of China has built up friendly co-operative relationships in the audit field with more than 50 other SAIs. It joined INTOSAI in 1982 and ASOSAI in 1984. In May 1991, SAI-China hosted the 5th Assembly and 4th International Seminar of ASOSAI. The Auditor General of China was the Chairman of ASOSAI from 1991 to 1994; he is now a member of the ASOSAI Governing Board. Through these international exchanges, CNAO has not only played a significant role in developments in the international audit arena, but has also drawn upon audit methodologies, procedures and experiences in different SAIs in the course of development of a socialist audit system with Chinese characteristics.
Over the years, audit institutions at various levels have actively fulfilled their role of auditing supervision, centred around the economic functioning of the country. By 1995, their audit jurisdiction covered nearly 1.8 million bodies. Through their investigation and punishment of acts in violation of financial laws and regulations, savings of nearly 80 million RMB have been effected by these institutions , besides referring over 2000 cases of large scale embezzlement. In addition, several suggestions for improved management and administration have been notified to the governments and other competent authorities. China's audit institutions have played a positive role in enforcement of financial and economic laws and regulations, implementation of measures for macro-economic adjustment and control, promotion of clean governance and improved economic effectiveness, thus aiding the smooth progress of reform and economic development.