Selection of Auditorsand

Auditor Terms of Reference

Selection of Auditors...

4The Loan Agreement requires that the auditor be acceptable to the Bank

l Can be Private or Governmental, but must:» Be independent» Comply with international auditing standards

– Or national standards, if established and at least as stringent as international standards

Selection of Auditors

To be acceptable to Bank, the auditor should:l Be experienced in the audit of development

projectsl Be acceptable to other international donors

(e.g. USAID & IDB)l Have the capacity and resources to carry

out the proposed workl Be able to comply with other requirements

of the Bank

Other Requirements of the Bank

l That the auditors be willing to:» Comply with their terms of reference» Respond to a desk review of the audit

report and its results» Accept Quality Control Reviews (QCRs)

Terms of Reference

4All Audits of projects financed by the Bank should be carried out in accordance with the Terms of Reference approved by the Bank

l Some of the information provided can be included in the Audit Report

Terms of Reference: Components

l I. Basic Considerationsl II. Background of the Projectl III. Background of the Auditl IV. Title of the Audit Reportl V. Audit Objectivesl VI. Procedures and Scopel VII. Other Responsibilities of the Auditor

Terms of Reference: Components

l VIII. Audit Reportsl IX. Review and Acceptance of the

Audit Work and the Audit Reportl X. Relationships and Responsibilitiesl XI. Terms of Performance of the Work

I. Basic Considerations

l Provides general information regarding the financial statements which are to be prepared by the project implementing agency and reviewed by the auditors

l States that the auditors should familiarize themselves with: » The FARAH » The Minimum Guidelines for Audits (FMs)

II. Background of the Project

Provides general information about the project (which is also useful to write the audit report) including, but not limited to:

l Descriptionl Amounts involved, including budgetsl Componentsl Implementing agenciesl Amount and volume of the transactions to

be audited

III. Background of the Audit

Provides information regarding the Bank’s audit requirements, including whether the project has been audited before

Provides information regarding the Bank’s audit requirements, including whether the project has been audited before

IV. Title of the Report

“Audit of the Resources Managed during the period from ---- to ----- by

[implementing agency] under the project [name of the project], partially financed by World Bank loan [loan or

credit number]”

Indicate if this is IBRD or IDA

V. Audit Objectives...

General:l Financial Audit of the Project, orl Financial Audit of the Project and the

Implementing AgencySpecific:l Of the Entityl Of the Project

V. Specific Objectives of the Audit...

For the implenting agency:l To issue an opinion as to the

reasonableness of the basic financial statements

l To issue an opinion as to the reasonableness of the supplementary financial information

V. Specific Objectives of the Audit......

For the Project:l To issue an opinion on:

» The reasonableness of the project financial statements and the supplementary financial information

» The adequacy of the internal control structure of the project

» The entity’s compliance with the terms of the Loan Agreement, and the applicable laws and regulations

V. Specific Objectives of the Audit

l To issue an opinion on: » The reasonableness and eligibility of SOE

expenditures, the procedures followed in their preparation, and whether the associated expenditures were consistent with the project’s objectives

» The reasonableness of the Special Account Statement

VI. Procedures and Scope of the Audit

l Discusses general considerations for the performance of the audit

l Will not include everything» Should not limit the auditors as to their level

of testing, nor exempt them from exercising due care and professional judgement

VII. Other Responsibilities...

l Entrance and Exit Conferencesl Planning and Interim Reviewl Referencing of the Reportl Obtaining a Management

Representation Letter

VII. Other Responsibilities

Referencing of the Reportl The Referencer, independent of the audit team,

reports to the partner-in-charge of the audit, and:» Ties all amounts, dates, and assertions

contained in the report to the audit workpapers

» Assures the quality of the evidence, that the conclusions are logical, and that the recommendations can be implemented

» Leaves evidence of the referencing process

VIII. The Audit Report ...

l Should be delivered to the implementing agency, and directly to the Bank if required, by the stipulated deadline

l The report should contain:» A section on Background and Results of the

Audit» Opinion as to the financial statements of the

project and the related supplementary information

VIII. The Audit Report ...

» Opinion with respect to the internal control structure of the Project, including all key findings

» Opinion with respect to compliance with the terms of the Loan Agreement and all applicable laws and regulations

» Opinion as to the SOE Statement

VIII. The Audit Report

l Opinion on the Special Account Statement

l Report on the follow-up of recommendations made in prior audits

l If required, an opinion on the Entity’s Financial Statements and Supplementary Information

IX. Review and Acceptance of the Report

l Normally a Desk Review of the report will be performed in order to verify compliance with the Bank’s formal requirements and with the Terms of Reference

l In some instances, a Quality Control Review of the audit workpapers will also be performed

X. Relationships and Responsabilities

l The client is the Implementing Agency, but the Bank can monitor the work, participate in the entrance and exit meetings, and comment on drafts of the report

l The entity should prepare the Financial Statements in a timely manner and send the Audit Reports to the Bank

l The auditor must mantain and file the workpapers, and provide them to the Bank when requested to do so

XI. Terms of Performance of the Work

l Performance of interim workl Dates for issuing draft reports and

the final report l Form of payment for the auditing

services provided