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 standardizing financial audit of state monetary  
institutions and ensuring the quality of such audit.

Article 2   The term "state monetary institutions" mentioned herein                 refers to policy-related state banks (including branches at all levels), state commercial banks (including branches at all levels; subordinate companies which are fully owned by such banks or where such banks dominate), non-banking monetary institutions engaged in insurance, trust and securities (including branches at all levels) which are fully owned by the state or where the state dominates.

Article 3   The term "financial audit of state monetary institutions" mentioned herein refers to audit of the truthfulness, compliance and effectiveness of assets, liabilities, profits and losses of monetary institutions.

Article 4  Audit institutions shall audit assets, liabilities, profits and losses of monetary institutions in a manner that will help implement general and specific financial policies formulated by the state, facilitate compliance with financial and economic laws and regulations and maintenance of financial and economic disciplines, promote improvement of business management and internal control in state monetary institutions, realize  value preservation and appreciation of state assets and help state monetary institutions to ensure sustainable, speedy and healthy development of the national economy.

Article 5   The CNAO shall audit assets, liabilities, profits and losses of state monetary institutions at the central level.

Local audit institutions shall audit assets, liabilities, profits and losses of state monetary institutions at local levels.

Audit of assets, liabilities, profits and losses of state monetary institutions at the central level should be uniformly organized by the CNAO and conducted by audit institutions at various levels and the CNAO's resident audit offices.

Article 6   When auditing accounting items, accounts, vouchers, books of account and accounting statements of state monetary institutions, audit institutions shall focus on the following aspects:
(1) Use of account items and establishment of accounts;
(2) Consistency of amounts disclosed in self-prepared account vouchers with those recorded in attached historical vouchers;
(3) Compliance of various transacts disclosed in the books of account with the consistency principle of mutual agreement between related accounts, accounts corresponding to historical vouchers, records in accounts corresponding to physical existence, accounted amounts corresponding to actual amounts, accounts corresponding to statements, and non-published accounts corresponding to published ones;
(4) Observation of the principle of consistency in preparing consolidated accounts;
(5) Truthfulness of consolidated final accounts.
    
Article 7  Tests and evaluation of internal management and control systems of state monetary institutions shall  focus on the following aspects:
(1) Completeness, relevance, restraint and effectiveness of the overall internal management and control system and the departmental management and control systems;
(2) Implementation of various internal management and control systems.

Article 8      When auditing assets, liabilities, profits and losses of state banks, audit institutions shall focus on the following aspects:
(1) Truthfulness, compliance and effectiveness of the formation, utilization and management of various assets.  Audit should cover the utilization and management of various loans and lent funds;  utilization of interest and recovery of principals with interests;  withdrawal, writing-offs of bad debts and provisions for bad debts;  management of overdue loans and bad debts of loans;  management of various receivables and payments on accounts;  management and accrued depreciation of fixed assets; management of works under construction and transfer of completed works into fixed assets;
(2) Truthfulness, compliance and effectiveness of the formation, repayment and management of various liabilities. Audit shall cover the absorption and management of various deposits, borrowings, L/C and borrowed funds; the use of interest rates;  accrual, management and utilization of various payables; truthfulness and compliance of contingent liabilities arising in various forms such as guarantee and L/G;
(3) Truthfulness, compliance and effectiveness of increase-decrease variation and management of items under owner's equity.  Audit shall cover the composition and increase-decrease variation of called-up capital;  accrual and use of capital reserves and public welfare funds; the carrying forward and distribution of profits;
(4) Truthfulness and compliance of profits and losses. Audit shall cover the compliance of operating incomes and expenses with the principles of accrual basis accounting;  truthfulness and compliance of various incomes and expenses; separation of capital expenditure from revenue expenditure; computation of pre-tax and after-tax profits and payment of taxation.

Article 9   When auditing assets, liabilities, profits and losses of state insurance institutions,  audit institutions shall focus on the following items:
(1) Assets.  
Audit shall cover the management of premiums receivable and reinsurance debtors, clearance of insurants' borrowings and prepaid indemnity, management of deposited reinsurance reserves and margins and clearance of inter-sector current funds;
(2) Liabilities.  
Audit shall cover the accrual, variation and carrying forward of the immature responsibility reserve, reserve for outstanding losses, long-term responsibility reserve and personal insurance responsibility reserve;  management of insurants' savings, receipts of the reinsurance reserve and margins;  clearance of inter-sector current funds;  clearance of advance calls, reinsurance creditors and commissions payable;
(3) Owner's equity.  
Audit shall cover the increase-decrease variation of working capital, capital reserves and profit reserves appropriated by superior authorities, accruals and utilization of capital reserves and profit reserves and the carrying forward and distribution of profits;
(4) Profits and losses.  
Audit shall cover the base figure for accrual and incurrence of entertaining expenses, business publicity expenses, natural calamity prevention expenses and commissions under the item of operating expenses;  the computation of difference between accruals and carrying forwards;  the computation of death difference, exchange rate difference and interest difference.

Article 10   When auditing assets, liabilities, profits and losses of state monetary institutions engaged in trust, investment and securities,  audit institutions shall focus on the following aspects:
(1) Trust funds.  
Audit shall cover the scope and duration of various trust deposits, classification of A-type and B-type trust loans and validity of A-type contracts or agreements, percentage of discretionary trust deposits and loans, levels of commissions and interest rates, as well as recovery of trust loan principals with interests;
(2) Consignment funds.  
Audit shall cover the truthfulness of various consigned deposits and loans and compliance with the principle of managing consigned deposits and loans according to the assets/liabilities ratio;
(3) Investment funds.  
Audit shall cover sources of various investment funds, compliance and value for money of investment projects, management of investment projects, accruals and writing-off of the investment risk reserve,  redemption of securities and buying short and selling short of securities, actual existence of negotiable securities and storage certificates, as well as percentage of investment business;
(4) Lease funds.  
Audit shall cover the truthfulness of lease projects, completeness of lease project formalities as well as rates, computation and collection of lease rentals;
(5) Owner's equity.  
Audit shall focus on the adequacy of the sum of owner's equity plus reserves against a fixed proportion of the total net assets;
(6) Profits and losses.  
Auditors shall examine recovery of returns on investments and ascertain whether such returns are directly reinvested.

Article 11  Audit institutions shall conduct audit in accordance with stipulated audit procedures and impose sanctions and penalties against discovered acts of revenues and expenditures in violation of relevant state stipulations.

Article 12  Where it is discovered that financial and accounting regulations, systems and methods formulated by state monetary institutions conflict with laws, administrative laws and regulations or are inappropriate in certain aspects,  audit institutions shall put forward recommendations for correction or improvement to the concerned institutions.  Where state monetary institutions refuse to make relevant corrections, audit institutions shall refer the concerned cases to competent organizations to impose relevant penalties in accordance with the law.

Article 13  When auditing revenues and expenditures of state
monetary institutions, the CNAO shall mainly adopt the approach of
inter-sector audit with special audit conducted for significant audit
items.  
Such audit shall be conducted mainly by means of sampling together with
the use of Computer Assisted Audit Techniques.

Article 14    The CNAO shall require state monetary institutions to
provide the following documents and materials according to relevant
stipulations:
(1) Documents recording approval by financial departments of annual
financial plans prepared by state monetary institutions together
with documents recording the adjustments made to such plans;  documents
recording state monetary institution's approval of  annual financial
plans at their corresponding levels and those prepared by their branches
(including sub-branches and subsidiary companies) together with
documents recording their approval of the adjustments made to such plans;
(2) Consolidated and state monetary institutions' own annual
financial reports;
(3) Monthly statistical statements of credit  and cash as well bulletins on
monetary operations;
(4) Regulations, systems and methods for credit, foreign exchanges,
finance and accounting;
(5) Books, vouchers and other relevant accounting documents;


Article 15    Where state monetary institutions violates the Audit
Law by refusing or delaying the provision of documents related to the
audit items, or rejecting and obstructing the performance of audit, audit institutions shall order them to make relevant corrections, may issue a warning or circulation a notice of criticism where appropriate, or may affix
responsibility according to the law on state monetary institutions  
when the latter resists the order to make corrections.

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.