Audit roles and categories in China.

Audits are a core part of financial compliance in China, yet the distinctions between different audit types and their practical purposes are not always well understood.

This guide explains what an audit is, outlines the main categories businesses encounter in China and clarifies when each type applies.

What is an audit?

Audits are impartial reviews of financial accounts. When businesses are audited, they are reviewed by an impartial auditor, whose responsibility is to examine all financial statements to make sure that all financial records are fair, accurate and true. An auditor can be an employee of the business conducting an internal audit, or the work can be outsourced to a Certified Public Accountant (CPA) firm for statutory and compliance purposes.

Audit categories in China

China recognises three principal categories of audit: external, internal and government. Each serves a distinct function, and the type that applies to a business will depend on its structure, ownership and circumstances.

External audit

External audits guarantee that all the necessary laws, regulations and policies are being applied in the financial statements of the business while following strict accounting standards.

External auditors must come from CPA firms as they are all obliged by law to hold a CPA qualification to conduct fair, accurate and true audit reports. As a rule, businesses should outsource auditors as they will not be subject to bias when reviewing the business’ financial records. This is part of a broader framework around understanding China’s statutory audit requirements.

Businesses that conduct an external audit effectively receive assurances that their operations are not at risk legally and confirm that the internal controls are working correctly. If there are issues, competent auditors will provide practical solutions to make sure the business is following the proper laws and regulations.

Internal audit

An internal audit is used to analyse and evaluate the internal structures and procedures of a business affecting the efficiency of its operations and risk management capabilities. While it is possible to have an employee of the business conduct the internal audit, it is also recommended to outsource the auditor to remove any bias or to have an external second opinion.

Typically, internal audits are used to offer the managers, directors and stakeholders an overview of the business’s internal controls and how they can improve them to reduce risks such as fraud or non-compliance. Such audits can also be focused on a particular aspect of the business that managers are unsure of how to tackle, and practical solutions for it. Building a successful internal audit function requires careful consideration of structure, scope, and independence.

Government audit

Government audits refer to the inspection, examination and supervision of the State authorities, administrative institutions and state-owned enterprises in the implementation of government budgetary income, expenditure and accounting materials following relevant laws and regulations.

In addition to special audit institutions (such as the National Audit Office), government audit institutions also include financial, tax, customs, the people’s bank or professional banks and other professional audit institutions.

When an external audit is required

Understanding when a statutory audit report is required helps businesses plan ahead and avoid compliance gaps. The requirements vary depending on a business’s size, structure and activities, though the following situations commonly apply.

Under China’s Company Law, foreign-invested enterprises (FIEs) are generally required to submit audited financial statements as part of their annual compliance obligations. This includes the statutory audit report, which forms the basis for corporate income tax reconciliation and annual reporting filings made through the National Enterprise Credit Information Publicity System. These requirements commonly apply to:

• wholly foreign-owned enterprises and joint ventures
• representative offices
• limited liability companies and joint stock limited companies

Audit reports may also be required outside the annual statutory process, particularly during significant corporate events such as restructurings, mergers and acquisitions or liquidation. Audit reports may also be requested for public bidding, financing applications and internal control management purposes. The extent of audit requirements for foreign-invested companies imposed by tax and other government authorities often depends on the size, substance and nature of the business, so companies should confirm their obligations with a qualified adviser.

Personal information protection compliance audits

A further category of audit has become relevant for businesses that process personal data in China. The Measures for Personal Information Protection Compliance Audits, issued by the Cyberspace Administration of China, took effect on 1 May 2025. These measures require personal information processors subject to China’s Personal Information Protection Law (PIPL) to conduct regular compliance audits of their data processing activities. Businesses handling the personal information of more than one million individuals face additional obligations, including the appointment of a dedicated data protection officer. This is a separate requirement from the financial audit process and is overseen by data regulators rather than accounting authorities.

Responsibilities of an independent auditor

An independent auditor carries out a range of verification and investigative tasks to form an objective view of a company’s financial position. These typically include:

• Counting and certifying inventory and fixed assets
• Visiting production facilities, workshops or construction sites
• Conducting interviews and verification with key customers, suppliers, accountants, banks and legal advisers
• Inspecting supporting materials such as vouchers, invoices, accounting books, contracts and certificates
• Reviewing the operational processes of the client
• Providing recommended adjustments to accounts based on findings, particularly where significant fluctuations or regulatory non-compliance are identified

Conclusion

Understanding the different types of audits and when they apply is an important part of managing compliance in China. Whether a business faces a statutory external audit, wants to strengthen its internal controls or needs to prepare for a significant corporate transaction, selecting the right audit approach at the right time supports sound governance and reduces risk. For foreign-invested enterprises in particular, staying ahead of audit obligations across both financial and data compliance requirements is a practical necessity rather than a procedural formality.

How Acclime can help with audits in China

Acclime provides audit and financial advisory services for businesses operating in China, including statutory external audits conducted by qualified CPAs, internal audit engagements and support for businesses navigating specific compliance requirements. Acclime also offers assurance services to improve the quality and context of financial information for decision-makers, risk management reviews to identify the probability of misstatement in financial documentation, and internal controls assessments to evaluate the effectiveness of adopted policies and procedures.

Contact Acclime to discuss your audit and compliance requirements in China.