Article 1   These Practice Directions are formulated in accordance with Article 23 of the Audit Law of  the People's Republic of China (hereinafter referred to as the Audit Law) for the purpose of standardizing auditing supervision over budgetary (estimate) implementation of state construction projects (hereinafter referred to as construction projects) and improving the quality of such audit.

Article 2    The term "construction projects" mentioned herein refers to capital construction projects and technological renovation projects  with state asset investments or funds as their major sources of financing.

Article 3    The term "audit of budgetary (estimate) implementation of construction projects" mentioned herein refers to audit conducted by audit institutions of the truthfulness, compliance and effectiveness of the incomes and expenses related to the construction projects which are generated or incurred by the units responsible for project designing, construction as well as supervision and management within the period extending from the commencement of investment in the concerned projects until the preparation of final accounts at the completion of the projects.  The objective of such audit is to help units engaged in the construction projects improve their management, ensure rational and regular utilization of construction funds and promote value for money of investment.

Audit of incomes and expenses related to construction projects which are generated and incurred by the above units shall not be subject to the restriction of audit jurisdiction.

Article 4    When auditing the utilization of funds during the preparation period of the construction projects, audit institutions shall focus on the following aspects:
(1) Whether appropriation of land used for construction is made in the approved amount;  whether appropriation of land is in compliance with requirements of the approved development plans; whether expenses for demolishing and removal related to appropriation of land are properly managed;
(2) Payment for expenses on road, water and electricity during the preliminary stage of the projects.

Article 5     When auditing estimate adjustments of the construction projects, audit institutions shall focus on the following aspects:
(1) Whether adjustments to the estimates are made by qualified units according to the methods, quotas and standards stipulated by the state and with due approval from competent authorities;
(2) Whether alterations to the original designs are in compliance with relevant stipulations and have undergone complete formalities;
(3) Whether investment adjustments and alteration of construction items that will influence the pre-determined construction scales have been submitted for approval according to stipulated management procedures;  whether there is unauthorized expansion of construction scales and upgrading of construction standards.

Article 6    When auditing the execution of economic contracts related to the construction projects, audit institutions shall place their audit priorities upon the compliance of such contracts with relevant state laws and the conformity of their execution by relevant units with provisions of the contracts.

Article 7    When auditing expenses of construction projects in excess of the original estimates, audit institutions shall analyze the causes for any material variances.

Article 8    Audit institutions shall audit the establishment and implementation of the internal control systems of the project contractors.

Article 9    When auditing sources, availability and utilization of construction funds for the construction projects, audit institutions shall focus on the following aspects:
(1) Whether sources of construction funds (including project capital, similarly hereinafter) are legitimate;
(2) Whether sources of construction funds are ascertained;
(3) Whether construction funds are made available in time and in accordance with investment plans;
(4) Whether utilization of construction funds is in compliance with relevant stipulations;  whether there are encroachment upon, transfer and appropriation of construction funds;
(5)  Whether there are problems of illegal financing,  random apportionment and unauthorized charging;
(6) Whether accounting treatments of construction funds are made in strict separation from those of  production funds;
(7) Whether there are losses and wastes.

Article 10    When auditing accounting treatments of construction costs and other incomes and expenses of  the construction projects, audit institutions shall focus on the following aspects:
(1) Truthfulness and compliance of the settlement of project prices, truthfulness of relevant financial statements;
(2) Extent of and causes for overexpending apportionable investment.  Whether illegal expenses are crammed into apportionable expenses;
(3) Whether construction costs are classified and integrated by the construction units correctly and strictly in accordance with the estimate requirements and relevant systems;  whether unit construction cost is correct;
(4) Whether there is confusion between production costs and construction costs and between costs of various construction projects managed by the same organization;
(5) Legitimacy and accuracy of the sources of construction incomes, appropriateness of their distribution and utilization;
(6) Truthfulness and compliance of current items of account;
(7) Accounting treatments of assets delivered for utilization in the construction projects;
(8) Existence of violations such as extra accounts.

Article 11    When auditing purchase and management of equipment and materials of  the construction projects, audit institutions shall focus on the following aspects:
(1) Whether equipment and materials are purchased in accordance with design requirements;  whether there are acts of blind purchases;
(2) Whether inspection and acceptance tests, warehousing, utilization and maintenance of equipment and materials are effectively carried out;
(3) Whether accounting treatments of physical articles for construction are made in strict separation from those of physical articles for production consumption.

Article 12    When auditing computation and payment of tax and other charges on  the construction projects, audit institutions shall examine whether the construction units accrue and pay tax and charges in time and full according to relevant state stipulations.

Article 13    When auditing implementation of laws and regulations and policies on environmental preservation by the construction projects, audit institutions shall place their priorities on the implementation of such law and regulations and policies at the stages of project designing and construction and on the simultaneous progress of environmental improvement projects and construction projects.

Article 14    When auditing units in charge of project designing, audit institutions shall focus on the following aspects:
(1) Whether project designing is undertaken in accordance with the approved scales and standards;
(2) Whether charges for designs are made in compliance with relevant state stipulations.

Article 15   When auditing project contractors, audit institutions shall focus on the following aspects:
(1) Whether the contractors illegally sub-contract works under construction;
(2)  Compliance of the settlement of project prices.  Whether there are problems of jerry-building, over-estimate and fraudulent computation of project prices as well as dishonest disclosure and fraudulent claim of progress payments receivable;
(3)  Whether the project contractors pay their due amounts of tax according to relevant stipulations.

Article 16    When auditing units in charge of supervising and managing construction projects, audit institutions shall focus on the following aspects:
(1) Qualifications of the units in charge of supervising and managing construction projects, compliance of their supervision and management with requirements of the contracts;
(2)  Compliance of charges for supervision and management with relevant state stipulations.

Article 17    Division of duties among audit institutions concerning audit of  construction projects shall be carried out in accordance with the Interim Provisions of Audit Institutions on Determination of Audit Jurisdiction.    To audit construction projects, audit institutions shall plan and manage audit in accordance with the Provisions of Audit Institutions on Management of Audit Planning.  

Where the construction period of  a project lasts less than 5 years (including 5 years), the project shall in general be audited once during its course of construction.  Where the construction period of  a project lasts over 5 years, the project shall in general be audited more than two times (including two times) during its construction.

Article 18    Audit institutions shall conduct audit according to relevant audit procedures.  Audit notifications, audit opinions and audit decisions shall be issued to units respectively in charge of project designing, construction and supervision and management when the audited construction projects involve the above units.  Where acts of revenues and expenditures in violation of state stipulations are found in the audit of construction projects, measures of sanction shall be metered out according to relevant laws and regulations.

Article 19    Where foreign funds are applied in construction projects, audit institutions shall audit such projects in accordance with these Practice Directions and the Practice Directions of Audit Institutions for Auditing Projects with Foreign Loans and Assistance.

Article 20   The authority to interpret these Practice Directions rests with the CNAO.

Article 21    These Practice Directions shall come into effect as of January 1, 1997.