A report on Auditing and Ethical Practices in China and Australia Essay

Australia had experienced major prostration of two large companies that is HIH and One Tel due to inadequate audit quality. This has brought attending of the regularity governments for the importance of audit quality. Emphasis has put on professional moralss and scrutinizing criterions to better the audit quality. China and Australia had different experiences due to scrutinize failure cause by deficiency in audit quality. This treatment put light on current regulative, ethical and quality environment for hearers in China and its comparing with the scenario in Australia. First, the treatment focuses on comparing of regulative environment such as Corporations Law and stock exchanges naming regulations, scrutinizing criterions and internationalization of scrutinizing criterions in China and Australia. Second, treatment compares the ethical and professional environment in both states by comparing Code of Ethics. Last but non least overall scenario of audit quality and experiences has been discussed and compare for China and Australia.

Legal and Regulatory Comparsion

DeFond et Al ( 2000 ) , suggest that Ministry of Finance ( MOF ) and National People ‘s Congress ( NPC ) are responsible issuing authorization for Chinese auditing criterions. Harmonizing to Lin and Hung Chan ( 2000 ) , Company Law of China came into being into 1993, and it regulates the auditing criterions. Chinese auditing criterions are known as General Auditing Standards and these are controlled by CPA ‘s Law every bit good. Besides, scrutinizing criterions ordinances are in line with accounting criterions which are controlled by accounting jurisprudence in China. DeFond et Al ( 2000 ) propose that stock exchange ordinances in China are based on two stock exchanges that are Shanghai Stock Exchange and Shenzen Stock exchange, with different types of portions which are A portions and B portions. These portions can be classified as state-owned, province establishment owned and persons owned. SSE and SZSE have Listing regulations related to corporate administration. Basically there is political touch in the ordinances of listing regulations. Hence state-owned endeavors do non necessitate to run into the standards and they do non necessitate independent hearer to scrutinize them. Harmonizing to Schipan and Junhai ( 2001 ) China has got another jurisprudence known as Securities Law which works with Corporations Law. This jurisprudence is formed fundamentally for the portion holder to protect them and to give them rights. Rights such as voting right, legal rights such claim for the loss and action the direction for false information, embezzlement of assets and deceptive information provides some base to modulate the quality of the audit.

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Comparing with Australia it can be found as cited by Arens et Al ( 2010 ) , that Australia has Corporations Law 2001 and ASX that is Australia Stock Exchange Listing regulations. Corporations Law 2001 provides and ordinances for the auditing criterions publishing authorization that is AuASB in Australia. Under the way of FRC, CLERP 9 reforms resulted in reconstitution of AuASB as statutory organic structure. It gave force of jurisprudence under the Corporations Act to the auditing criterions. Hearers are required to carry on audits and reappraisals of fiscal studies harmonizing to scrutinizing criterions under S 307A of Corporations Act 2001, which should be prepared under Part 2M. 3. All auditing criterions must follow with these ordinances. ASX listing regulation are responsible for proper corporate administration for the listed companies. In 2003, Principles of Good Corporate Governance and Best Practices Recommendations came into being when ASX ‘s Corporate Governance Council issued these rules. These rules apply to all listed companies with ASX and it is compulsory for them to follow with these rules, neglecting to make so necessitate account. These rules were incorporated with CLERP 9 reforms excessively. These rules help in maintain audit quality by safeguarding the unity of fiscal coverage. ( Arens et al, 2010 )

Comparison of Auditing Standards

Harmonizing to Hua et Al ( 2010 ) , Chinese auditing criterions are known as General Auditing Standards. China adopted these criterions in 1995 based in International Standards of Accounting. Lin and Hung Chan ( 2000 ) , suggest that General Auditing Standards in China has divided into three sub sets and these are ( I ) Specific Standards ( two ) Practice dictums and ( three ) Implementation Guidelines. First bomber set is all about audit planning, audit sampling, engagement missive, audit groundss internal controls, working documents, fraud and mistake, audit processs utilizing work of others and related parties. Practice dictums have the guideline for the confirmation of capital part, direction letters, little concerns audit, particular purpose audit studies and scrutiny of net income prognosis. Implementation guidelines provide guidelines for application above twp bomber sets that is specific criterions and pattern dictums and Chinese Institute of Certified Public Accountants ( CICPA ) is responsible for publishing these guidelines.

Harmonizing to Arens et Al ( 2010 ) , Australian auditing criterions that are ASA are issued bu AuASB. These are based to reexamine battles, confidence battles and related service. ASA are divided into 7 classs which are ASA 100-199, ASA 200-299, ASA 300-399, ASA 400-499, ASA 500-599, ASA 600-699, ASA 700-799 and ASA 800-899. These criterions are concerned with introductory affairs, general rules and duties, hazard appraisal and response to buttockss hazard, scrutinizing groundss, utilizing the work of others. Audit decision and coverage and specialised countries severally. AuASB adopted these criterions in 2006 and all these are based on ISAA issued by IFA. Besides in July 2004 CLERP 9 resulted in reinstitution of AuASB.

Comparison of ethical and professional ordinances

Ethical criterions are meant to guarantee the quality of the audit and refer to CPA ‘s competence, professional unity, duty etc. Professional comptrollers are supposed to run into the ethical criterions those are objectivity, competency confidentiality and conservativism of the audit while the audit period. In China these ethical criterions are enforced by MOF that is Ministry of Finance and CICPA is responsible for acceptance of Code of Ethics. Furthermore these criterions are enforced by jurisprudence in China. Failing to follow with these criterions can ensue in punishments and even imprisonment excessively. ( Lin and Hung Chan, 2000 )

In Australia there is APES 110 Code of Ethics for Professional Accountants. This is enforceable by jurisprudence and by some professional organic structures such as Institute ‘s Supplement Royal Charter 1988 and CPA Australia. APES 110 gives five cardinal rules of professional moralss to keep the quality of the audit and these rules are unity, objectiveness, professional competency and due attention, confidentiality and professional behavior. Auditor is supposed to follow with these criterions at the clip of audit battle and during the engagement period. The intent of the APES 110 is to supply precautions from unacceptable menaces, struggle declaration and to keep the independency of the hearer during the engagement period, so that indifferent sentiment should be issued. This helps in keeping the audit quality. Besides ASA 220 refers to the quality control for hearers by following processs while engagement period. ( Gay and Simnett, 2007 & A ; Arens et Al 2010 )

Overall Comparison of Audit Quality and Experience

As discussed above in China Ministry of Finance is responsible for issue of General Auditing Standards and National People ‘s Congress is responsible for issue and ordinance of Company Law, CPA ‘s Law in China, which controls and regulates the General Auditing Standards as stated by DeFond, Wong and Li ( 2000 ) . Overall it has been commented by Lin and Hung ( 2000 ) , which China is relatively new in following scrutinizing criterions based on international auditing criterions. There is demand of betterments in the Chinese auditing criterions ordinances. China lacks in professional instruction for CPA ‘s which consequence in less competitory professionals. Though China has Code of Ethics for professionals, yet it is non applicable as coveted. Hua et Al ( 2010 ) province this is because China has strong sense of belonging to each other. For most of the corporations it is mandatory to follow the Guanxi Code of behavior. The ground for this is most of the recognition determinations are based on Guanxi Code instead on other facts. For Chinese houses net income statements play more of import function. That why they are least concerned about quality of audit studies. Simultaneously this creates a job in low quality of audit. MOF has enforced codification of moralss by jurisprudence. All professional comptrollers need to follow with this codification of moralss. If they fail to make so, they can be penalised and even can ensue in imprisonment excessively. Still independency of hearer has been scarified in China resulted in low quality audit studies. Harmonizing to Lin and Hung Chan 2000, this has resulted in shuting down of many CPA houses. Data shows that in 1998 344 CPA houses closed down and more than 1500 were penalised and many other had cancellation of their licences. Harmonizing to Chow et Al ( 1995 ) , audit studies in China do non supply much information about inside informations on makings, which reflects a conservative civilization. Hence it becomes bit hard to understand the company ‘s place which finally affects the quality of the audit. Hatherly and Skuse ( 1991 ) suggest that give voicing used in Chinese audit studies is non standardised. It creates job in understanding and can make confusion in the audit studies. Besides Lin and Hung Chan 2000 suggest that political intervention in audit in China has besides affected the quality of the audit for illustration it is non compulsory to hold a independent hearer for state-owned endeavors.

Situation is opposite in Australia. Harmonizing to Arens et Al, ( 2010 ) Australian auditing criterions are issued by AuASB and Corporations Law 2001 and ASX Listing Rules take attention of ordinance of these criterions. APES 110 Code of Ethics for Professional Accountants provides rules for professional ethical behavior. Harmonizing to Robins ( 2007 ) , Australia had bad experience of large corporate failures that are HIH and One Tel due to scrutinize failure. After this there disciplinary step were taken topographic point to better the quality of the audit in Australia. CLERP 9 reforms, which made the amendments in Corporations Law 2001, came into image after these corporate failures. Besides, enforcement of the ethical criterions in Australia is more important. Auditor need to follow with the ethical rules while engagement period to keep the audit quality. AuASB has put much accent on hearer independency excessively after the prostrations. To keep the hearer independency AuASB has put some AIDSs such as audit commission, hearer rotary motion and protection of working documents by doing them confidential. If hearer is non following with these criterions, can ensue into expiration of the licence and even imprisonment. Hearer can be held reprehensively apt in worst instances.

Hence Australia is making better than China in keeping the audit quality and enforcement of the ordinance. China needs to do betterments in its regulative environment and enforcement of the ordinance.


In short, it can be summarised that Chinese and Australian auditing criterions are based on International Standards on Auditing. China has Company Law, CPA ‘s Law and Accounting Law to modulate the auditing criterions, where Australia has Corporations Act 2001. Stock exchange listing regulations in China are non much strong as compared to Australia. Unlike Australia ‘s ASX Listing Rules provides rules for good patterns for corporate administration, Chinese listing regulations do non supply such rules. They merely provide footing for corporate administration construction. Besides execution of ethical criterions in China is non up to the grade as compared to Australia. Though China has Code of Ethics for Professional Accountants similar to ISA 220, but there are mistakes in enforcement of this codification because of Chinese civilization. There is a major job of hearer independency in China making low quality audit. This is fundamentally because of guanxi codification and political intervention. China has less competent professionals because of deficiency in quality instruction. All these factors contribute to miss in quality of audit in China. Situation is different in Australia as Australia has taken major stairss to keep the quality of audit by conveying CLERP 9 reforms, APES 110 and auditor independency clause in engagement missive. China is still bettering its regulative, ethical and professional environment for hearers.


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