Study on the Auditing System of Socialism with Chinese Characteristics. Liu Jiayi

goes far beyond individuals. This process gives birth to systems. In this sense, systems refers to standardization achieved during production and communication, formed according to cultural traditions and historical experience, to safeguard the order of production and social development, meet common social needs and coordinate the behavioral relations among humans and with society. “Understanding of systems in an era must be inseparable from deep cognition of humans.”5

      Third, a system has a hierarchical feature. The literature of institutional economics presents a different understanding to the composition of systems. Some have argued that a system involves an institutional environment, institutional arrangements and implementation mechanisms. Some believe a system consists of a constitutional environment, institutional arrangements, and implementation mechanisms. Others divide a system into three types, namely, official and unofficial rules and their execution mechanisms. The official rules include social systems, laws, rules and regulations, code of ethics, disciplines, and so forth; unofficial rules refer to the established codes of conduct formed through long-term social communication of people, and publicly recognized as norms to be jointly abided by, including values, manners and customs, cultural traditions, ethics, ideologies, and so on. Although without the dominant executive force and binding force, the unofficial rules constitute a theoretical foundation and the supreme principle of official institutional arrangements (or official restrictions) in the forms of “guiding principle,” “guideline,” “principle,” and so on. Oliver Williamson divided the general institutional framework into four interrelated levels: the first covers the history and the culture of a country, including traditional customs, code of ethics, and so forth. These are “unofficial rules”6 proposed by Douglass C. North; the second level covers the basic institutional environment, including the Constitution, and the fundamental systems, and so on of a country; the third level involves various governance mechanisms; and the fourth refers to a short-term resource distribution system. Each level is subject to the higher. 7 It can be said that systems are closely related to economic and social development. To understand a system thoroughly, we need to analyze the logic of various rules and essentials, and also need to make in-depth analysis on the history of its generation and development, as well as the background of the times and the basic institutional environment.

      2. ABOUT THE AUDITING SYSTEM

      The auditing system is a normative scheme relating to audit formed under the particular historic conditions, and a sum of work procedures or action guidelines relating to acts of auditing. According to such elements as audit subjects, functional localization, objectives, and roles, auditing is divided into government auditing, internal auditing, and CPA auditing (also known as independent auditing). The auditing system mentioned herein means the government auditing system. Government auditing refers only to actions whereby national professional audit institutions supervise public funds, State-owned assets, and State-owned resources independently according to law. In nature, it is an endogenous “immune system” 8 within the overall system of national governance, with functions of exposure, resistance, and prevention. “No system may be isolated. All systems must interact with each other, forming a complete set.”9 A country’s auditing system, as an important part of the national political system, must be determined by its fundamental political system, social nature, and economic system. We can analyze the connotations of a government auditing system as well as the chosen mode and arrangement design from three aspects.

      First is analysis of the relationship between the auditing system and national governance. National governance is the process of controlling and managing State affairs and social affairs and providing services by configuring and exercising State powers, so as to ensure national security, safeguard national interests and the people’s interests, maintain social stability, and realize scientific development.10 The generation and development of countries shows that, despite the differences in historical and cultural traditions and socioeconomic development, all must configure State power to achieve a reasonable division, form the corresponding power structure, and establish a mechanism for mutual balance and restriction among different powers, so as to prevent abuse of power. Under the modern constitutional system, the function of separation of powers never means negatively restricting State power, but dividing various State powers and functions proactively and specifying responsibilities and procedures.11 The design of an auditing system is, in nature, a specific distribution of State audit powers in the national governance system. Government audit emerged to satisfy the need for governing a nation, national governance objectives determine the direction of government audit, and the national governance mode determines the system and form of government audit.12 In addition, the power restriction mode of the national governance system directly determines the framework, mode, and operation mechanism of auditing system.

      International practice shows a division into structural power restriction mode and functional power restriction mode.13 Under the former, State power is divided into those of legislation, administration, and jurisdiction, which are separated and restrained mutually, and auxiliary means such as multiparty competition, open election and judicial independence, and so on are adopted, so as to achieve the goal of establishing a capitalist constitutional system and to manifest the nature of the political system. The functional power restriction mode involves the distribution of decision-making power, executive power, and supervisory power generated against the expansion of administrative power, reflecting the quality of the political system through functional division and setting of the operational level and operation mechanism of the political system. Adapting to national governance modes and power restriction modes, the government auditing systems of various countries also have their own characteristics. Audit institutions in some countries are independent from the legislative, judicial, and administrative organs but are responsible to legislative bodies; audit institutions in some other countries are independent from the legislative and administrative organs but have certain rights of judicial decision and are responsible to the legislative bodies. There are countries where audit institutions practice an integrated audit and supervision system; there are countries where audit institutions come under government departments; for example, the Chinese National Audit Office (CNAO), as a government department, independently exercises the audit power according to law under the premier’s guidance and reports its work to the National People’s Congress upon government entrustment.14 The core of any auditing system is to guarantee the independent exercise of audit power according to law, and to effectively give full play to the role of government auditing as the bedrock and important guarantee for national governance.

      Second is analysis of the relationship between government auditing and other aspects of national governance. If we regard national governance as a large system, government auditing belongs to the scope of supervision and control, serving the decision-making organs and playing a role of monitoring and restraining the executive organs.15 Compared with other aspects of national governance, government auditing has a unique status. First, it is independent. Among national governance agencies, government audit institutions undertake their audit responsibilities objectively and independently, without specific functions of decision making and management; however, a vast majority of countries also explicitly require legally safeguarding the independent exercise of audit power in accordance with the law, without any intervention. Such role design and institutional guarantee determine that government audit institutions are not tied to the interests of any institution, organization, or individual and can reveal problems, report realities, audit, and offer recommendations objectively and fairly based on the overall situation of national governance so as to safeguard the interests of the State and the general public. Second, it is comprehensive. Government auditing is a regular control system covering all public funds, State-owned assets, and State-owned resources. The wide-ranging audit targets and contents involve many fields of national governance, including a number of institutions and participating personnel.

5

Ibid., p. 1.

6

(U.S.) Douglass C. North, “New Institutional Economics and Development,” in Transition, Rules and Institutional Choice, edited by Sun Kuanping. Beijing: Social Sciences Academic Press, 2004, pp. 3–4. (“North” mentioned in this paragraph remains consistent with the commonly used expressions hereof.)

7

Paul L. Joskow, A Report Card. June 2, 2004; Oliver Williamson, a representative personage of new institutional economics. About systems levels, refer to Joskow.

8

Liu Jiayi, “National Governance and State Audit.” Social Sciences in China, No. 6, 2012, p. 60.

9

Chien, p. 2.

10

Liu Jiayi (chief editor), Study on the Auditing Theory of Socialism with Chinese Characteristics (Rev. ed.). Beijing: Commercial Press, China Modern Economic Publishing House, 2015, p. 8.

11

Han Dayuan, “Formal Meaning and Material Significance of ‘A Country under Rule of Law. Procuratorial Daily, January 14, 2014.

12

Liu, p. 13.

13

For relevant arguments, see Tang Yalin, Theoretical Investigation, Issue No. 3, 2015.

14

Scientific Research Institute of the China National Audit Office, Introduction to Foreign Audit Supervision System. Beijing: China Modern Economic Publishing House, 2013, p. 4.

15

For relevant arguments, see Liu.