Chinese Institute of Certified Public Accountants

In China there are three bodies involved in conducting quality assurance (QA) reviews: the Ministry of Finance (MoF), the Chinese Securities Regulatory Commission (CSRC) and CICPA. The MoF, CSRC, and CICPA are all tasked with carrying out QA reviews for auditors and firms of listed companies. CICPA indicates that it cooperates with the MoF and CSRC in order to avoid duplication of work. To achieve this, the three entities have established a (i) an information-sharing mechanism to exchange relevant issues identified within the inspection progress; (ii) a joint-training mechanism to reduce the workload of firms and effectively manage time; and (iii) a joint investigation and verification mechanism to deal with firms or CPAs that have received complaints and/or ceased to undertake audits of listed entities; and ( = 4 \* roman iv) a coordination mechanism to develop and revise related laws and regulations. CICPA states that the QA systems established by the MoF and CSRC are in line with the requirements of SMO 1 based on available information.

To comply with its respective mandate, CICPA reports that its established QA review procedures covers audits of listed companies while the local CPA institutes, which are overseen by CICPA’s Beijing headquarters and operate in different provinces in China, conduct reviews for audits of non-listed entities following CICPA’s guidance. Throughout 2011, CICPA detailed that it was focusing its efforts on (i) strengthening the assessment of audit firms’ internal quality control system, (ii) establishment of a team of qualified inspectors; and (iii) enhancing the use of information technology in inspections and dissemination of the QA review results. These were part of its overall reform to update its QA review system in order to further align it with the requirements of revised (2012 revised) SMO 1.

CICPA reported in 2015 that it was working to further enhance the implementation of its revised QA system, evaluate the system’s effectiveness, and make improvements as necessary. In 2016, CICPA evaluated the effectiveness of the reformed quality assurance system and reports that the current QA system is in line with the 2012 requirements of SMO 1. Furthermore, given that the local CPAs replicate CICPA’s QA review system, QA review systems throughout China are also aligned with SMO 1. Each year, CICPA organizes the unified implementation of the quality assurance reviews by determining the focus of the inspection, setting the basic requirements, training all the inspectors, and reviewing the inspection results of the local CPA institutes.

In 2017, CICPA plans to carry out reviews for five listed companies and their branches and the local CPA institutes would cover over 1,400 firms auditing non-listed companies.

Finally, CICPA is also undertaking multiple activities to educate its members on quality control standards and QA reviews. The institute makes the inspection results public to ensure the members understand the practice and importance of quality assurance. Based on the results and findings of the inspection, CICPA prepares sample audit cases for the CPAs to learn from and include curricula on quality control systems into the CPD programming.

CICPA also holds an annual training course for the CEO and partners in charge of quality control in accounting firms conducting audits of listed entities, focusing on the common and major problems found in the daily inspections of the CSRC and CICPA. This enables firms to target particular areas that require improvements and focus resources on the potential, major risk areas in the annual audit of the year.

Current Status: Sustain

The Law of the People’s Republic of China on Certified Public Accountants of 1993 establishes initial professional development (IPD) requirements for all Certified Public Accountants (CPAs) in China. CICPA administers the CPA examination process. CICPA, under the Ministry of Finance’s oversight, and is also responsible for establishing continuing professional development (CPD) requirements for its members. The institute indicates both IPD and CPD requirements are in line with the IES and that it monitors new and revised standards and incorporates necessary changes to education and examination requirements in order to ensure its CPD system and examination continue to be aligned with the requirements of the IES. Along with monitoring any changes, the institute also states that it submits comments to papers and publications issued by the IAESB.

CICPA has published its CPD regulations along with several guidance pieces around its requirements and developing the skills and competencies of CPAs. In 2011, CICPA developed and began implementing its Five-Year Plan on Talent Cultivation of the Chinese Accountancy Profession (2011–2015). The objective of this plan was to improve the quality of professionals, as well as increase the growth of audit firms in the country. Over the next few years, CICPA implemented a number of initiatives under the plan. In 2012, CICPA examinations became computer-based. The accompanying upgrades and reforms helped to improve the security, efficiency and quality of the examinations. Subsequently, in 2013, the institute added courses related to professional judgment and ethics in its training. Members are now required to complete at least four hours of ethics training each year. In 2014, it outlined specialized curriculum and training programs for members based on their qualification.

Recently, in 2016, the institute released the Development Plan of the Accounting Sector in China (2016–2020) as a continuation of its Five-Year plan that ended in 2015. It aims to promote the accounting sector to seize future opportunities and achieve sustainable and healthy development in a comprehensive manner. The Plan outlines objectives related to accountancy education such as reforming and advancing the examination to be more career-oriented and principles-based and strengthening CPD.

As part of the 2016–2020 Development Plan, CICPA is encouraged to report if it plans to conduct a review of the revised (2015) IES and promote their incorporation into China’s educational requirements. The revised IES are more principles-based and competencies-focused and a review of the standards may facilitate CICPA’s examination reform. It is also recommended that CICPA provide examples on the types of CPD it offers to its members, such as workshops, seminars, etc. within its Action Plan and confirm if local CPA institutes offer CPD programming to their respective members.

Current Status: Review & Improve

CICPA is legally responsible for drafting of auditing standards which are then approved by the Ministry of Finance (MoF). Since 2006, CICPA has been working to converge the Chinese Standards on Audit (CSA) with ISA. The CSA were updated and converged with the 2010 ISA in light of the IAASB Clarity Project. In December 2016, the CICPA completed a revision of certain auditing standards in order to incorporate the new and revised auditor reporting standards released by the IAASB, and these standards were approved by the MoF. Additionally of note, the institute indicates that an initiative is underway to converge with ISA 610.

The institute states that it uses information obtained from the quality assurance reviews to prepare materials and guidance in order strengthen members’ compliance with the standards and improve audit quality. CICPA also prepares and publishes guidance, such as the Guide to Prepare Working Papers for Audits of Financial Statements and Guide to Prepare Working Papers for SME Audits, in the CICPA Journal and on its website to raise awareness on CSA.

CICPA is encouraged to continue converging the CSA to align with the most recent version of ISA with acceptable modifications and indicate actions it is undertaking to achieve this objective in its Action Plan. Overall, the institute is encouraged to update the SMO 3 section of its SMO Action Plan following the guidance provided by IFAC staff in order to provide examples of how it is updating its curriculum and continuing professional development training given the effective date of the latest ISA. CICPA could also clarify if it participates in the international standard-setting process by providing comments on exposure drafts issued by the IAASB.

Current Status: Review & Improve

CICPA is responsible for adopting ethical requirements for its members, and established a China Ethics Standards Board for CPAs (CESB) to issue such requirements. The CESB formulated the CICPA Code of Ethics which is aligned with the 2009 IESBA Code of Ethics. In 2017, CICPA advised that it utilizes an extensive comparison chart to detail the differences between the CICPA Code of Ethics and the IESBA Code, which CIPA reports are more stringent than the IESBA Code. For example:

• the definition of immediate family which is broader than the IESBA Code of Ethics to align with national Chinese legislation;
• key audit matter rotation which in the CICPA Code of Ethics is five years on, two years off as opposed to seven years on, two years off in IESBA Code; and
• CICPA’s Code states that an auditor cannot accept any gift.

Throughout 2010–2014, the institute reported a variety of activities in this area such as translating the 2012 IESBA Code of Ethics into Mandarin and developing guidance and material on frequently asked questions to better assist members with understanding and implementing ethical standards. Additionally, in regards to its practitioner members, CICPA notes that it examines compliance with ethical standards as part of the quality assurance review process to improve compliance.

CICPA also participates in the international ethics standard-setting process. The institute collects any comments from its members and collates them when submitting feedback to IESBA-issued exposure drafts.

Finally, looking ahead to 2018, the CICPA plans to update its Code of Ethics in accordance with the 2016 IESBA Code. This will include incorporating the new NOCLAR standard and Structure of the Code.

CICPA is encouraged to update the SMO 4 section of its Action Plan following the guidance and comments provided by IFAC staff. In particular, the institute should indicate if topics on ethics are incorporated into its initial and continuing professional development programming and include current examples that demonstrate the types of trainings it offers and how it disseminates information amongst its members. This is especially relevant given the upcoming revision to the CICPA Code to align with the 2016 IESBA Code of Ethics.

Current Status: Execute

The Ministry of Finance (MoF) is responsible for the adoption of public sector accounting standards, which are reportedly accrual-basis, and CICPA’s involvement in this area revolves around promoting the adoption of IPSAS. The institute states that it provides research support to the MoF’s work program and tries to identify other opportunities to assist with the convergence process. No further details and/or more recent information have been provided by CICPA as of the date of this assessment.

Within the SMO 5 section of its Action Plan, CICPA is encouraged to provide more specific details on its efforts and activities as part of participation in the MoF’s work program. CICPA is also encouraged to consider providing CPD on the public sector accounting standards if it has members that work in the public sector.

Current Status: Execute

Under the Law of the People’s Republic of China on Certified Public Accountants of 1993 (CPA Law), the local CPA institutes may revoke CPA Certificates due to serious professional misconduct. The law also states that the Ministry of Finance may issue disciplinary warnings, fines, and suspensions in the cases of non-compliance with regulations. Further, under the same law the CICPA is responsible for establishing professional rules and standards for CPAs and may draw up a CICPA Charter to reflect these resulting regulations. Pursuant to the CPA Law and CICPA’s Charter, CICPA issued Disciplinary Measures for Non-compliance Activities Conducted by Members of CICPA.

In 2011, CICPA states that it updated the abovementioned disciplinary procedures using the SMO 6 requirements as guidance. Under these changes, the Disciplinary Committee is responsible for issuing sanctions or other disciplinary actions which may be appealed to an Appeals committee. In 2017, CICPA evaluated its I&D system against the SMO 6 requirements and indicates that its system continues to be in line with the SMO 6 best practices.

Local CPA institutes either follow the I&D system established by CICPA or develop their own system that is based on CICPA’s I&D system and must report their I&D cases and results to CICPA on an annual basis. Over the past three years, CICPA and local CPA institutes have taken disciplinary actions involving 273 accounting firms and 661 CPAs.

Lastly, CICPA details that members of the Chinese Securities Regulatory Commission (CSRC)—which may sanction auditors of listed entities—and the MoF participate on the Disciplinary and Appeals Committees of CICPA to ensure cooperation and coordination. The three entities have established an investigation and verification mechanism to conduct joint investigations of firms and/or individual auditors that audit listed entities and that have received complaints.

Current Status: Sustain

The Ministry of Finance (MoF) collaborated with the IASB over the last decade to converge its corporate accounting standards with the IFRS and the entities issued a joint statement indicating their continued cooperation toward convergence in 2015. The applicable standards—Accounting Standards for Business Enterprises (ASBE)—are substantially converged with the IFRS. For its part, CICPA reports that it participates in the MoF’s consultative standard-setting process by providing feedback when standards are revised.

The institute states that it primarily focuses on supporting the implementation of standards through the training programs and awareness-raising activities that it provides on IFRS. The institute also indicates that it disseminates pronouncements issued by the IFRS to members via its website.

CICPA is encouraged to update the SMO 7 section of its Action Plan following the guidance and comments provided by IFAC staff to demonstrate the activities and educational material that it offers to members in its initial and continuing professional development programming to enhance its members’ understanding and knowledge of the standards. CICPA is also encouraged to consider how it may further support the convergence process so that the ASBE reflect the currently effective IFRS and material differences are eliminated.

Current Status: Review & Improve