Practice Directions of Audit Institutions for Financial Audit of the State Commodity Circulation Sector
(Promulgated on December 16, 1996)

                              
Article 1. These Practice Directions are formulated in accordance with the Audit Law of  the People's Republic of China (hereinafter referred to as the Audit Law)  for the purpose of regularizing auditing supervision over the state commodity circulation sector and ensuring the quality of such audit.

Article 2. The term "state commodity circulation sector" mentioned herein  refers to administrative departments of commodity circulation that are engaged in commerce, food stuff, material, medicine and foreign trade, enterprises and undertakings of the same nature under direct control of the above departments and subsidiaries, branches or other entities subordinate to such enterprises including entities where the above mentioned enterprises exercise control or hold more than 50% of the total assets.
  
Article 3.  The term "audit of the state commodity circulation sector"  mentioned herein refers to audit carried out according to the law by audit institutions of the truthfulness, compliance and value for money of the revenues and expenditures of administrative departments of commodity circulation and their subordinate enterprises and undertakings as well as the performance of their policy-driven operations related to revenues and expenditures.

Article 4. The objective of auditing the state commodity circulation sector is to maintain the financial and economic order within the sector and safeguard state equity, supervise value preservation and appreciation of state assets, strictly enforce state financial and economic laws and regulations,  promote the building of clean and honest governments and ensure healthy development of the national economy.

Article 5.  Audit institutions shall audit the state commodity circulation sector according to the audited bodies' financial affiliations and relationship of asset supervision and management.

The CNAO shall be responsible for auditing central administrative departments of commodity circulation and head offices of national companies as well as domestic and overseas enterprises or undertakings under direct control of the above-mentioned departments and offices.

Local audit institutions shall be responsible for auditing administrative departments of commodity circulation at their corresponding levels  as well as domestic and overseas enterprises or undertakings under direct control of the above-mentioned departments.

Article 6. Audit of budgetary implementation of administrative departments of commodity circulation should be carried out in accordance with the Provisional Practice Directions for Auditing Central Budgetary Implementation.  Priorities of such audit shall include the following items:
(1) Implementation of budgets for ear-marked subsidies and expenditure of various modulation funds.  
Examinations should be made mainly on the approval and implementation of budgets for such subsidies and modulation funds, management and utilization of such subsidies and funds as well as their value for money and existing problems;
(2) Implementation of budgets for administrative funds and operating funds.  Examinations should be made mainly on the approval of budgets for such funds, appropriation, management and utilization of such funds as well as actual expenditures in comparison with sources of funds;
(3) Turn over of budgeted revenues.  
Examinations should be made mainly on the revenue items and the manner, amount and time limit of their turnover as well as  turnover of various budgeted revenues by enterprises and undertakings that have tasks of turning over special incomes and pooled tax payment arrangements;
(4) Turnover funds and not-on-vote funds.
Examinations should be made mainly on the management, utilization, value for money and repayment of turnover funds and the sources, utilization, management and  value for money of the not-on-vote funds;
(5) Implementation of budgets for expenditures on and funds for overseas assistance.
Examinations should be made mainly on the approval and adjustment of the budget for expenditures on overseas assistance, the arrival, transfer and availability of  funds for overseas assistance and the manner, purpose, value for money and existing problems of such expenditures as well as  the sources and utilization of budgetary funds for overseas assistance;
(6) National strategic reserves and special reserves.
Examinations should be made mainly on the implementation of the national reserve plans, the use of and security arrangements for the national reserve funds as well as interests on funds used for storing commodities and other financial costs;
(7) Bank accounts.
Examinations should be directed to the establishment and control of bank accounts;
(8) Implementation of budgets for capital construction expenditures.
Such audit should be carried out according to the Practice Directions of Audit Institutions for Auditing Budgetary (Estimate) Implementation of State Construction Projects.

Article 7.   While auditing the truthfulness, compliance and value for money of assets, liabilities, profits and losses of the state commodity circulation enterprises, audit institutions should,  in addition to items stipulated in the Practice Directions of Audit Institutions for Financial Audit of State Industry Enterprises, also take into account special features of the commodity circulation enterprises and examine the following items:
(1) Whether incomes and expenses of foreign exchanges are in compliance with state regulations on the settlement, sale, payment and accounting treatment of foreign exchanges and have been posted on the accrual basis in time and full; whether there are concealments or unauthorized hedgings of foreign exchanges; whether accounting treatments of the receipts of foreign exchange capital and  profits and losses of exchange transacts are made correctly and in compliance with relevant laws and regulations;
(2) Whether imports are conducted according to relevant state regulations with import duties paid in time and full;
(3) Whether applications for and the utilization, transfer and return of import quotas and licenses are in compliance with state regulations;
(4) Whether sources of foreign exchange for investments or reinvestments outside China are in compliance with relevant laws; whether remitted out-flow of foreign exchanges has gone through necessary procedures; whether enterprises located overseas have turned over proportions of their after-tax incomes into the Treasury according to the specified rates; whether there are any cases of non-compliance that have resulted in overseas losses of state assets;
(5) Whether export tax refunds are true and regular; whether the calculation of such refunds is accurate; whether their accounting treatments are regular;
(6) Whether the incomes, costs and expenses of goods for imports and exports as well as their accounting treatments are in compliance with laws and regulations; whether the recognition of current incomes and accrued incomes is accurately made.

Article 8.  While auditing policy-driven operations of the commodity circulation sector, audit institutions should focus on the following areas:
(1) Distribution and completion of the planned tasks of purchase, transfer and sales;
(2) Implementation of pricing policies. Whether commodity pricing, price adjustments and marginal controls are regular; whether there are any cases of making fraudulent profits or incurring losses through  purchases or sales not in accordance with designated state prices;
(3) Whether there are any cases of encroachment on or appropriation of ear-marked financial subsidies in the course of their appropriation and utilization;
(4) Truthfulness of policy-related account balances of loss as well as the causes and off-settings of such financial balances.  Whether there are any cases of mixing operating losses with policy-related losses so that the latter is deliberately overstated;
(5) Availability, management, utilization and value for money of policy-related special loans. Whether there are cases of encroachment on or appropriation of loans or lending out loans to reap colossal profits.

Article 9. Audit institutions may extend their audit or conduct audit investigations to cover other related units in terms of implementation within the commodity circulation sector of policies related to revenues and expenditures.

Article 10.  Audit institutions may organize  inter-sector audit of the administrative departments in charge of commodity circulation enterprises or head offices and group corporations exercising administrative power over these enterprises. The objective of such audit is to disclose and analyze common problems related to revenue and expenditure and produce opinions or recommendations for improvement.

Article 11. Audit institutions may carry out special audits of revenues and expenditures of special funds or material items, and may also carry out special audit investigations into universal tendentious issues or issues that governments at various levels or the public are most concerned with,  after which special reports shall be submitted to audit institutions at  higher levels, governments at their corresponding levels and competent departments.

Article 12. Audit institutions should carry out their audit according to the stipulated audit procedures and shall impose sanctions according to laws and regulations against acts of revenues and expenditures in violation of relevant laws and regulations.    

Article 13. Audit institutions shall have the power to require the audited bodies to provide the following information within the prescribed time limit:
(1) Bank accounts, accounting vouchers, books of account, accounting statements and annual financial plans as well as other financial information;
(2) Information related to internal control systems and business operations of the enterprises;
(3) Documents related to regulations, systems and policies issued by competent superior authorities;
(4) Other information required by audit.

Article 14.  Audit of the national system of supply and marketing cooperatives shall be conducted in accordance with these Practice Directions  in terms of state funds utilized by the above-mentioned system including state budget appropriations, special reserves, financial subsidies, policy-related special loans from state banks as well as policy-driven operations of the system.

Article 15.  Audit of the tourist industry shall be conducted with reference to these Practice Directions.

Article 16. The authority to interpret these Practice Directions rests with the CNAO.

Article 17. These Practice Directions shall come into effect as of January 1, 1997.