On December 22, 2005, after a joint meeting the Chinese Auditing Standards Board (CASB) and the International Auditing and Assurance Standards Board (IAASB) released a joint statement in which the CASB stated that the fundamental principle of drafting Chinese auditing standards is to improve the Chinese auditing standards system and to accelerate its convergence with the IAASB's International Standards on Auditing (ISAs). The Ministry of Finance of the People's Republic of China (MoF) and the CASB intend to eliminate over time, as the environment in China changes, those differences between the Chinese auditing standards and ISAs that still exist. In particular, there are differences in the approach to dealing with guidance which is an integral part of ISAs but which cannot be incorporated in the legal instruments containing the requirements of Chinese auditing standards. The CASB plans to include explanatory materials in interpretative guidance which will be required to be read and applied in conjunction with the standard, to ensure the completeness and effectiveness of the standard. On February 15, 2006, the MoF announced that it has adopted 48 new Chinese Auditing Standards that are similar to ISA. The new auditing standards will become effective for listed enterprises from January 1, 2007. Other enterprises are encouraged to adopt them.

General Overview

On December 22, 2005, after a joint meeting the Chinese Auditing Standards Board (CASB) and the International Auditing and Assurance Standards Board (IAASB) have released a joint statement in which the CASB stated that the fundamental principle of drafting Chinese auditing standards is to improve the Chinese auditing standards system and to accelerate its convergence with the IAASB's International Standards on Auditing (ISAs). During 2005, China has established the policy of convergence its national auditing standards with ISAs, reformed its standards system and planned schedule for international convergence. During the process, the CASB made amendments it considered necessary and maintained some standards dealing with matters that are not specifically covered in ISAs to reflect China's unique circumstances and business requirements, such as standards for the verification of capital contributions and communication between predecessor and successor auditors. The IAASB recognized that such additional requirements may be necessary and are acceptable where they do not conflict with ISAs. (Jun & Kellas 2005, pp. 1, 2)

The Ministry of Finance of the People's Republic of China (MoF) and the CASB intend to eliminate over time, as the environment in China changes, those differences between the Chinese auditing standards and ISAs that still exist. In particular, there are differences in the approach to dealing with guidance which is an integral part of ISAs but which cannot be incorporated in the legal instruments containing the requirements of Chinese auditing standards. The CASB plans to include explanatory materials in interpretative guidance which will be required to be read and applied in conjunction with the standard, to ensure the completeness and effectiveness of the standard. (Jun & Kellas 2005, p. 2)

On February 15, 2006, the MoF announced that it has adopted 48 new Chinese Auditing Standards that are similar to ISAs issued by the IAASB. The new auditing standards will become effective for listed enterprises from January 1, 2007. Other enterprises are encouraged to adopt them. (IASB website)

Under the China's regulatory framework, auditing standards are drafted by the Chinese Institute of Certified Public Accountants (CICPA) and issued by the Ministry of Finance (MoF). In 1994, the CICPA formed an independent committee responsible for drafting the standards. In 1995, the MoF set up separate teams comprising local and foreign experts. When a draft standard is completed, the CICPA would issue it in the form of exposure draft. Exposure drafts are circulated to all local associations of CPA's and CPA firms. After further amendments, the Ministry of Finance then issues final standards. During 2004, the Auditing Standards Committee was established by the CICPA with the aim of developing proposed independent auditing standards, including an exposure draft and comments prior to final adoption. (CSRC 2000, p. 9; Deloitte IAS Plus website)

Limited liability companies, governmental companies (with few exceptions) are required to be audited. Branches of foreign companies are required to be audited by the Company Law of China. (CICPA 2004)

The MoF is responsible for setting accounting and auditing standards for financial institutions. The China Banking Regulatory Commission (CBRC) oversees the auditing work of the financial institutions by formulating supervisory rules and regulations or additional rules governing the banking institutions if needed. In practice, the CBRC coordinates with MoF to ensure consistency of the inspection. The CBRC requires financial institutions to submit their audited accounting statements and relevant materials regularly. China Securities Regulatory Commission (CSRC) is the principal administrative body relating to audits of entities with listed securities, and the MoF also has this right. Both of them have the right of administrative punishment. (CICPA 2004)

China Insurance Regulatory Commission (CIRC) does not regulate the audit profession directly and is not responsible for accounting and auditing standards setting. The CIRC holds the responsibility of supervising and inspecting the implementation of the accounting and reporting standard by insurance companies, insurance asset managing companies and insurance intermediary institutes. (CICPA 2004)

The CICPA is a member of the International Federation of Accountants (IFAC). (IFAC website)

The Principles

ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No 1101: Objective and General Principles Governing an Audit of Financial Statements was based on ISA 200: Objective and General Principles Governing an Audit of Financial Statements effective as of December 15, 2004. (Deloitte IAS Plus website) However, ISA 200 was subsequently revised with the revisions effective for periods beginning on or after June 15, 2006 and there is no information publicly available as to whether these amendments have been incorporated into the Chinese standard. (IAASB 2007, p. 1)

ISA 210 Terms of Audit Engagements (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No 1111 Audit engagement letters was based on ISA 210 Terms of Audit Engagements effective as of December 15, 2004. (Deloitte IAS Plus website) However, ISA 210 was subsequently revised with the revisions effective for periods beginning on or after June 15, 2006 and there is no information publicly available as to whether these amendments have been incorporated into the Chinese standard. (IAASB 2007, p. 1)

ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1121 Quality control for audits of historical financial information was based on ISA 220R Quality Control for Audits of Historical Financial Information effective as of June 15, 2005. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 220R.

ISA 220 Quality Control for Audits of Historical Financial Information is effective for audits of historical financial information for periods commencing on or after June 15, 2005. (IAASB 2007, p. 1)

ISA 230R Documentation (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1311 - Audit working papers was based on ISA 230R Documentation effective as of June 15, 2006. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 230R.

ISA 230 Documentation is effective for audits of financial information for periods beginning on or after June 15, 2006. (IAASB 2007, p. 1)

ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1141 - Consideration of fraud in an audit of financial statements was based on ISA 240 The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 240.

ISA 240 The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 1)

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1142 - Consideration of laws and regulations in an audit of financial statements was based on ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 250.

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 1)

ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1151 - Communications with those charged with governance was based on ISA 260 Communications of Audit Matters With Those Charged With Governance effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 260.

ISA 260 Communications of Audit Matters With Those Charged With Governance is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 300 Planning an Audit of Financial Statements (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1201 - Planning an audit was based on ISA 300 Planning an Audit of Financial Statements effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 300.

ISA 300 Planning an Audit of Financial Statements is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1211 - Understanding the entity and its environment and assessing the risks of material misstatement was based on ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 315.

ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 320 Audit Materiality (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1221 -- Materiality was based on ISA 320 Audit Materiality effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 320.

ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1231 - Procedures in response to assessed risks of material misstatement was based on ISA 330 The Auditor's Procedures in Response to Assessed Risks effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 330.

ISA 330 The Auditor's Procedures in Response to Assessed Risks is effective for audits of financial statements for periods beginning on or after June 15, 2006. (IAASB 2007, p. 2)

ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1212 - Consideration relating to entities using service organizations was based on ISA 402 Audit Considerations Relating to Entities Using Service Organizations effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 402.

ISA 402 Audit Considerations Relating to Entities Using Service Organizations is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 500 Audit Evidence (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1301 - Audit evidence was based on ISA 500 Audit Evidence effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 500.

ISA 500 Audit Evidence is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1311--Supervision of physical inventory count was based on ISA 501 Audit Evidence - Additional Considerations for Specific Items Part A effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 501.

ISA 501 Audit Evidence - Additional Considerations for Specific Items is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007,p.2)

ISA 505 External Confirmations (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1312 -- Confirmations was based on ISA 505 External Confirmations effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 505.

ISA 505 External Confirmations is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 510 Initial Engagements — Opening Balances (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1331 - Audit of opening balances on initial engagements was based on ISA 510 Initial Engagements -- Opening Balances effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 510.

ISA 510 Initial Engagements -- Opening Balances is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 520 Analytical Procedures (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1313 - Analytical procedures was based on ISA 520 Analytical Procedures effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 520.

ISA 520 Analytical Procedures is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1314 - Audit sampling and other means of testing was based on ISA 530 Audit Sampling and Other Selective Testing Procedures effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 530.

ISA 530 Audit Sampling and Other Selective Testing Procedures is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 2)

ISA 540 Audit of Accounting Estimates (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1321 - Audit of accounting estimates was based on ISA 540 Audit of Accounting Estimates effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 540.

ISA 540 Audit of Accounting Estimates is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1322 Auditing fair values measurements and disclosures was based on ISA 545 Auditing Fair Value Measurements and Disclosures effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 545.

ISA 545 Auditing Fair Value Measurements and Disclosures is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 550 Related Parties (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1323 - Related parties was based on ISA 550 Related Parties effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 550.

ISA 550 Related Parties is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 560 Subsequent Events (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1323 - Related parties was based on ISA 560 Subsequent Events effective as of December 15, 2004. (Deloitte IAS Plus website) However, ISA 560 was subsequently revised with the revisions effective for periods beginning on or after December 31, 2006 and there is no information publicly available as to whether these amendments have been incorporated into the Chinese standard. (IAASB 2007, p. 3)

ISA 570 Going Concern (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1324 - Going concern was based on ISA 570 Going Concern effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 570.

ISA 570 Going Concern is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 580 Management Representations (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1341 - Management representations was based on ISA 580 Management Representations effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 580.

ISA 580 Management Representations is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 600 Using the Work of Another Auditor (effective)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1401 - Using the work of other CPAs was based on ISA 600 Using the Work of Another Auditor effective as of April 2006. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 600.

ISA 600 Using the Work of Another Auditor has no effective date and is deemed to be effective. (IAASB 2007, p. 3)

ISA 610 Considering the Work of Internal Auditing (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1411 - Considering the work of internal auditing was based on ISA 610 Considering the Work of Internal Auditing effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 610.

ISA 610 Considering the Work of Internal Auditing is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 620 Using the Work of an Expert (effective 2005)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1421 - Using the work of an expert was based on ISA 620 Using the Work of an Expert effective as of December 15, 2004. (Deloitte IAS Plus website) However, ISA 620 was subsequently revised with the revisions effective for periods beginning on or after June 15, 2005 and there is no information publicly available as to whether these amendments have been incorporated into the Chinese standard. (IAASB 2007, p. 3)

ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1501 - Auditors' report was based on ISA 700 The Auditor's Report on Financial Statements effective as of December 31, 2006. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 700.

ISA 700 The Auditor's Report on Financial Statements is effective for auditors' reports' dated on or after December 31, 2006. (IAASB 2007, p. 3)

ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1502 - Modified auditors' report was based on ISA 701 Modifications to the Independent Auditor's Report effective as of December 31, 2006. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 701.

ISA 701 Modifications to the Independent Auditor's Report is effective for audits of financial statements for periods beginning on or after December 31, 2006. (IAASB 2007, p. 3)

ISA 710 Comparatives (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1511 - Comparatives was based on ISA 710 Comparatives effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 710.

ISA 710 Comparatives is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. No. 1521 - Other information in documents containing audited financial statements was based on ISA 720 Other Information in Documents Containing Audited Financial Statements effective as of December 15, 2004. (Deloitte IAS Plus website) However, there is no information publicly available as to the extent of compliance of Chinese requirements with ISA 720.

ISA 720 Other Information in Documents Containing Audited Financial Statements is effective for audits of financial statements for periods beginning on or after December 15, 2004. (IAASB 2007, p. 3)

ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

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According to Deloitte, as of April 2006, Independent Auditing Standard No. 1601 - Auditors' report on special purpose audit engagements was based on ISA 800 The Auditor's Report on Special Purpose Audit Engagements effective as of December 15, 2004. (Deloitte IAS Plus website) However, ISA 800 was subsequently revised with the revisions effective for periods beginning on or after December 31, 2006 and there is no information publicly available as to whether these amendments have been incorporated into the Chinese standard. (IAASB 2007, p. 3)