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

      The Spring and Autumn Period (770–476 BC) and the Warring States Period (476–221 BC) witnessed changes in the system of public land into private ownership with taxation on land and the system of enfeoffment changed into the system of prefectures and counties, while a hereditary system regarding appointments changed into one of recruitment and dismissal. To meet the needs of national governance, the official rank system was replaced by the System of Administrative Reports. Accordingly, local officials were supervised and restricted. They or personnel sent in their place had to regularly report to the imperial seat the situation regarding any changes in the revenue and expenditure related to households, farmlands, taxes, property, and so on within their jurisdiction, while such officials as Chuanji (official rank), Neishi (clerk of the capital), minister, and counselor-in-chief assisted the ruler in investigating, assessing, and meting out rewards and punishments. In the development of the auditing system, the Administrative Reports System made great progress in three aspects.

      First, certain important auditing concepts appeared. Guan Zhong (c. 720–645 BC), a legalist chancellor, wrote in the book Guanzi Youguan, “If a country is dedicated to developing agriculture, industry and commerce, it will get rich; if a country can establish a legal system, develop common rules, scrutinize its policies, and cultivate competent officials, it will enjoy prolonged stability.” That is to say, auditing should not only verify and examine financial bookkeeping but also investigate and appraise decrees and policies.

      Second, the Law of Verifying the Properties of Government Departments and other codified laws directly related to audit supervision were formulated. During this period, audit supervision and the dispersion of the results were widely mentioned in statute laws such as the Canon of Laws by the Wei Kingdom, Law of the State of Qin by the Qin Kingdom, the Royal Orders by the Chu Kingdom, the Monograph on Criminal Law by the Han Kingdom, Law of the State by the Zhao Kingdom, and so forth. Among them, the Law of Verifying the Properties of Government Departments in the Law of the State of Qin was specifically designed for audit supervision and imposition of penalties in regard to finance, economy, and discipline. It pointed out in the “Decrees for Checking Officials in the Capital and Counties” that “The excess or shortage of supplies and properties should be subject to evaluation, and penalties imposed according to the highest value therein.”25 It also prescribed that “If any problem is discovered in properties, supplies and account books, the person in charge of administration and accounting and other involved officials involved should be liable for the indemnification against the insufficiency.”

      Third, the idea that “chaos originates from the ruler’s arbitrary listening and accounting” came into existence. Up to the middle and later period of the Eastern Zhou Dynasty (770–256 BC), slackness in the laws and disciplinaries measures led to the decay of the Administrative Reports System. The Book of Lord Shang: Interdicts and Encouragements pointed out limitations in the Administrative Reports System for local officials and the ruler’s arbitrary listening and accounting. In detail, as local officials remained far from the royal seat, they made decisions at their own discretion, which might have easily resulted in fraud, data misrepresentation, and unfaithful reporting, but the king could hardly discover the problems existing in many of the reports during the short period of the annual listening and accounting. Even if the ruler could find some problems, it was hard to investigate and make a judgment due to insufficient evidence. It was in order to solve such problems that Han Fei-tzu (280–233 BC) proposed the concept that “chaos originates from the ruler’s arbitrary listening and accounting.” He stressed that the king should rule by virtue of “Laws” and “Kingcraft” and should audit and supervise officials rather than the people. Besides, he also proposed methods such as “matching the items of accounts with real objects, collecting evidence on a wide range, and soliciting opinions from all walks of life” to address the existing problems and improve the system of “Listening and Accounting.” To sum up, audit should be conducted in such a manner as to ensure accuracy between cash in hand and the accounting ledger, and make comparison in a fair and public manner.

      (2) Censorate Auditing System during the Qin and Han Dynasties

      Following the successful national unification, the Qin Dynasty launched a centralized system under which the official ranks of Chengxiang counselor-in-chief, Taiwei commander-in-chief, and Yushi Dafu censor-in-chief were established to respectively handle administrative, military, and supervisory power, forming a political layout of separation of the three powers with mutual checks and balances. This was further consolidated during the Han Dynasty (206 BC–220 AD). As recorded in the History of the Former Han, the emperor set the official rank of Jianmu (supervisor) to supervise and detect any ministerial misconduct, and Sicha (auditor) to rectify the performance of supervision. 26 Hence, a surveillance system with full authority came into being.

      On the one hand, the Qin and Han Dynasties carried on the Administrative Reports System and formulated the Law of Administrative Reports System under which the counselor-in-chief should serve as the head of the Administrative Reports Institution; on the other hand, a censor auditing mode of “comprehensive supervision and investigation, and united supervision and examination” was developed. The Censor Prefecture and the Prefecture of Counsellor-in-chief were collectively referred to as the “Two Prefectures.” The censor-in-chief was obliged to “enforce laws, give reference, lead and supervise all officials,” and the Censor Prefecture could directly participate in administrative reporting presided over by counselor-in-chief.27 The Censor could directly exercise supervision over the site of administrative reporting, investigate the gains and losses resulting from the decrees issued by the chief, magistrate, and assistant officers, and verify whether “books of accounts” and other economic accounts were true.28 Besides, the Censor could also inspect the local government authorities at various levels and carry out on-site auditing. The Han Dynasty also successively promulgated the Nine Articles of Supervisory Censor and Six Articles for the Prefectural Governor, in which the Supervisory Censor and Prefectural Governor were authorized to supervise local officials, review the financial ledgers, and report, investigate, and impeach offenders who levied unfair taxes and engaged in corruption, according to laws.

      The auditing system was further improved during the Cao Wei Dynasties (220–265). The term audit in comtemporary Chinese first appeared in Foreword to Sun-Tzu written by Cao Cao (155–220) for annotations to The Art of War. He proposed that “Audit, as a well-planned action should be precise and profound, without any misrepresentation.” Political strategy, military stratagems, and records of finance and military supplies were covered. The opening of Chapter 2, Conducting Operations, of the Art of War, reads, “In the operations of war, where there are in the field a thousand swift chariots, as many heavy chariots, and a hundred thousand mail-clad soldiers, with army provisions enough to carry them several hundred miles, the expenditure at home and at the front, including entertainment of guests, small items such as glue and paint, and sums spent on chariots and armor, will reach the total of a thousand ounces of silver per day. Such is the cost of raising an army of 100,000 men.” In this period, the establishment of Bibu (Court of Auditors) was the most significant development, replacing the Administrative Reports System.

      (3) Bibu (Court of Auditors) Auditing System during the Tang and Song Dynasties

      In the Tang Dynasty, the auditing system was developed based on the experience of previous dynasties, and the system of “unity of special audit, concurrent audit, and internal audit by different departments respectively” was formed.

      First, Bibu – a professional audit institution – was set up. In Chinese, the character Bi means checking, examination, appraisal, evaluation, and so forth, which vividly generalizes audit work. Bibu, initiated in the Cao Wei Dynasties, was later

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