CHAPTER 2
Audit Function

FUNCTION REFERS TO THE SPECIFIC properties of an object that can meet certain demands while maintaining a relatively stable and independent mechanism. Audit function refers to the capability and effect of auditing revealed in an economic and social operation. Such capability and effect are delivered through audit activities. Based on audit activities, one can judge and measure the capability and effect of auditing, which can be improved through enhanced audit efforts.

I. General Cognition of the Government Audit Function

According to the functionalist theory in sociology, any social phenomenon has its own important functions. Auditing, as an important part of the national political system, must have its functions to meet national governance and social needs. Audit function reflects audit essence (nature of the audit) with its own intrinsic characteristics. Like other social systems, audit essence is closely linked with the function of economic and social operation. Audit function not only can directly reflect the audit essence, but also can explain the development and changes of auditing. Following the order of objective demand of social economy–structural function–structural form, we can find the most basic relationship between auditing and social economy.

The function, duty, and role of auditing are closely related. Audit function is achieved through audit supervision, certification, and evaluation. Audit function and duty often do not have any strict distinction, but the audit function and the audit role do have some obvious differences. Audit function is the ability the audit has to create a certain impact. Audit role refers to the actual impact produced. Audit function is a prerequisite for performing the audit role. The latter is the external manifestation of audit function, as well as the objective effect generated while auditing is conducted.

To some extent, the nature of auditing can be explained by the audit function. According to the functionalist theory, the audit function depends on the nature of the audit structure itself. If the nature of auditing itself changes, its function of maintaining overall economic and social development will naturally change accordingly. Auditing exists as part of the social life structure because it has a specific function.

Scholars have yet to reach a unified cognition of audit function due to differing ideas about the nature of auditing. For example, some scholars emphasize that the basic function of auditing is economic supervision (i.e., achieving the purpose of maintaining economic order, improving economic management, and strengthening macrocontrol by conducting such supervision). The scholars advocating the “economic cybernetics” theory believe that the audit function is to conduct control, meaning that audit institutions not only can identify problems but also can directly correct them. In practice, different views on audit function lead to different ways of using audit results. When audit results are used to address and punish violations of laws and regulations, improve relevant systems, deter or correct wrongful behaviors, people often believe supervision is the main audit function. When audit institutions conduct objective comprehensive evaluation of the auditee’s duty performance according to certain criteria, issue or publish audit results to discharge accountability and win public trust, there is a belief the function of auditing is mainly to conduct evaluation or certification. For example, such accountability audit projects as the Beijing Olympics Games, Shanghai World Expo, and local government debt are all considered evaluation and certification audit projects.

There are generally two factors affecting the functioning of auditing: (1) the objective demand by national governance and (2) the subjective initiative of auditing itself. Demand by national governance provides the basis for the existence of audit function and represents the ability to satisfy the objective needs of national governance. The embodiment of audit function depends on the specific audit work (audit behavior). To what extent the audit work itself can perform its function depends on the audit adaptability to the surrounding environment and creativity of audit work. The need for national governance and economic society for audit is objective, and can be accurately understood and managed. Through continuous improvement of audit work itself, the subjective initiative of auditing to meet the objective needs of national governance can be achieved, and the function of audit can be fully played.

II. “Immune System” Function of Government Auditing

The immune system is the important defense force in the human body against viruses and bacteria. Survival and maintenance of proper health in a lifetime depend on this strong defense system. If the immune system is not working properly, the result can be devastating. Therefore, many physicians describe the immune system as “an element of body and soul,” “defender of life,” “lifeguard,” bodily “fighting force,” and so forth.

A country is like a living organism. Through theoretical analysis of national organization, structure, function, and behavior characteristics, as well as integrated application of theory and method of system science, organizational behavior, political science, sociology, economics, medical science, and other disciplines, the complex organizational system—namely, the country with its life characteristics—can be resolved into the metabolic, immune, nervous, and behavioral systems. The immune system is a complex subsystem defending against natural, economic, social, and other risks, and is also the barrier1 behind which the country can be run in an orderly, coordinated, and safe way. To maintain a good national economic and social order, each part of the country needs to perform its functions and duties in a harmonious and unified way.

In the living organism of a state, the government audit system is equivalent to the immune system. The two have a high degree of similarity, manifested in the following four aspects: The government audit as an important part of the national political system, like the human immune system, has an endogenous nature; the value of the government audit is to protect the country’s economic and social operations, which is similar to the value of the body’s immune system safeguarding human health; government auditing is indispensably responsible for defending national economic and social operations, just like the human body’s immune system; and government auditing is professional. Audit institutions effectively play their role through coordination with other departments, very much like the mechanisms of the immune system.

According to medical immunology, the immune system has three basic functions:2 immune defense, mainly referring to the body’s immune protection against foreign antigen (e.g., microorganisms and toxins) attack; immune homeostasis, which is a physiological function wherein the immune system can promptly identify and remove the body’s damaged or aging cells, without attacking any normal cells, in order to maintain a stable internal environment; and because of immune surveillance, while various factors in vivo and in vitro cause normal individual tissue cells to constantly mutate, the immune system can identify copying errors or mutant cells and clear them out in a timely manner.

According to a comprehensive study and analysis of government audit history and reality, the government audit as the “immune system” of a healthy national economic and social operation has three functions: prevention, exposure, and resistance.

It should be pointed out that the audit “immune system” function is nothing new, but rather reflects people’s growing understanding from the macro-, continuity, and development perspectives in the process of economic and social development. Audit institutions of various countries adopt a similar approach to their work; however, due to differences in historical development, cultural traditions, and political systems, the focal point of the “immune system” function has a different emphasis in terms of its role and fields. For example, the U.S. GAO3 focuses on public policy formulation and implementation and offering suggestions for improvement; the National Audit Office of China directly investigates and punishes violations of the laws and regulations, while, through uncovering and analyzing outstanding contradictions and major problems in the policy implementation process, offering targeted audit recommendations on reforming and improving macroeconomic policies.

The immune system function of government auditing can be studied in the following two aspects.

1. Government auditing, above all, is “the immune system” ensuring the healthy operation of the national economy and society. As an important part of national politics, government auditing belongs to the supervisory control system of national governance. Unlike other supervision functions derived from the specific management functions, government audit supervision is independent, full-time, and professional behavior conducted by specialized agencies and professionals, and is thus an endogenous “immune system” of the national governance system, with prevention, exposure, and resistance functions safeguarding national economic and social health. As the endogenous “immune...