This paper presents a constructive analysis and a forward-looking enhancement framework for the Economic Responsibility Audit (ERA) system as applied to leading cadres of local state-owned enterprises (LSOEs) in China. As a distinctive and integral component of China’s state assets supervision mechanism, the ERA plays a crucial role in ensuring accountability and promoting the healthy development of the state sector. Focusing on LSOEs, which serve as key instruments for regional development under the socialist market economy, this paper explores pathways to refine the ERA’s effectiveness in line with the national objectives of deepening reform and modernizing state asset governance. We propose a strategic evolution from a primarily compliance-focused audit towards a more comprehensive, value-oriented “governance – value audit” model. This paper introduces an innovative, five-pillar framework: (1) Strengthening institutional design and developing differentiated audit standards responsive to the diverse missions of LSOEs. (2) Expanding the audit scope to a holistic assessment integrating strategic decision-making quality, innovation drivers, and Environmental, Social, and Governance (ESG) performance. (3) Modernizing methodologies through risk-based planning and data analytics. (4) Institutionalizing consequential and constructive utilization of audit findings within cadre management and governance improvement processes. (5) Fostering professional audit capacity building. By aligning contemporary performance audit principles with the specific context of China’s state-owned economy, this framework aims to enhance the ERA’s role in safeguarding state assets, guiding sound decision-making, and fostering sustainable, high-quality development of LSOEs, thereby contributing to the broader national governance framework.
References
[1] Wu, Y., Chen, W., Yan, H. (2024) The accountability system for operation and investment and audit quality of state-owned enterprises. International Review of Financial Analysis, 96, 103680.
[2] Zhytar, M., Kazak, O., Yurchenko, O., Bezverkhyi, K., Parasii-Verhunenko, I., Poddubna, N. (2024) Conceptual basis of anti-corruption audit. Financial and Credit Activity: Problems of Theory and Practice, 6 (59), 77-89.
[3] Jensen, M. C., Meckling, W. H. (2019) Theory of the firm: managerial behavior, agency costs and ownership structure. Corporate Governance, 77-132.
[4] Byrnes, P. E., Al-Awadhi, A., Gullvist, B., Brown-Liburd, H., Teeter, R., Warren Jr, J. D., Vasarhelyi, M. (2018) Evolution of auditing: from the traditional approach to the future audit. Continuous Auditing: Theory and Application, 285-297.
[5] Hazaea, S. A., Zhu, J., Al-Matari, E. M., Senan, N. A. M., Khatib, S. F., Ullah, S. (2021) Mapping of internal audit research in China: a systematic literature review and future research agenda. Cogent Business & Management, 8(1), 1938351.
[6] Mahajan, R., Lim, W. M., Sareen, M., Kumar, S., Panwar, R. (2023) Stakeholder theory. Journal of Business Research, 166, 114104.
[7] Zhou, C., Zhang, W., Richardson-Barlow, C. (2025) Navigating ecological civilisation: polycentric environmental governance and policy regulatory framework in China. Energy Research & Social Science, 128, 104347.
[8] Ogunsola, K. O., Balogun, E. D., Ogunmokun, A. S. (2021) Enhancing financial integrity through an advanced internal audit risk assessment and governance model. International Journal of Multidisciplinary Research and Growth Evaluation, 2(1), 781-790.
[9] Zahid, R. A., Saleem, A., Maqsood, U. S. (2023) ESG performance, capital financing decisions, and audit quality: empirical evidence from Chinese state-owned enterprises. Environmental Science and Pollution Research, 30(15), 44086-44099.
[10] Chen, K., Cheng, H., Qin, Q. (2024) Assessing the impact of environmental accounting message disclosure quality on financing costs in high-pollution industries. Journal of Cases on Information Technology (JCIT), 26(1), 1-18.
Share and Cite
Li, G. (2025) Deepening Economic Responsibility Auditing of Local State-owned Enterprise Leaders: A Strategic Framework for Governance Modernization and Sustainable Value Creation. Hong Kong Financial Bulletin, 1(5), 53-58. https://doi.org/10.71052/hkfb2025/VSUE9985