Terms of Reference for Selection of Auditors Audit Reports and Audit Review


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  • Centre International de Formation de l'OIT
  • Terms of Reference for Selection of Auditors Audit Reports and Audit Review

    1. 1. Terms of Reference for Selection of Auditors Audit Reports and Audit Review
    2. 2. Audits <ul><li>Audits purpose </li></ul><ul><ul><li>Provide assurance of accountability </li></ul></ul><ul><ul><li>Give credibility to financial statements </li></ul></ul><ul><ul><li>Identify weaknesses in internal controls and financial systems </li></ul></ul><ul><ul><li>Verify compliance with loan covenants relating to financial matters </li></ul></ul><ul><ul><li>Make recommendations for improvement </li></ul></ul>
    3. 3. Assessment of the Auditor’s capacity <ul><li>Preferably during appraisal phase, attention given to: </li></ul><ul><ul><li>Overall status of the accounting and auditing profession </li></ul></ul><ul><ul><li>Competence and independence of the national Supreme Audit Institution (SAI) </li></ul></ul><ul><ul><li>Selected auditor’s adherence to acceptable standards of accounting and auditing </li></ul></ul>
    4. 4. <ul><li>Borrower’s obligation </li></ul><ul><li>Timing indicated in the Loan Agreement </li></ul><ul><li>Deadlines for submission of audit reports usually found in Article B of project loan agreement </li></ul><ul><li>TOR and audit arrangements usually agreed prior to loan negotiation (minimum requirements in Annex III of IFAD Guidelines on Project Audit) </li></ul><ul><li>Contracting as management consultant to be avoided (risk of conflict of interest) </li></ul><ul><li>No-objection on TOR of CI or IFAD required </li></ul>Appointment of the Auditor
    5. 5. <ul><li>Audit report to be submitted normally six months after the end of borrower’s fiscal year </li></ul><ul><li>Audit report package should include </li></ul><ul><ul><li>Audited financial statements </li></ul></ul><ul><ul><li>Auditor’s opinion (included SOEs and SAs) </li></ul></ul><ul><ul><li>Management letter detailing shortcomings in project’s internal controls, procedures and practices and relevant recommendations </li></ul></ul><ul><ul><li>Special reports if required </li></ul></ul>Audit Report review and follow-up
    6. 6. <ul><li>Upon report receipt, CI shall ensure that audit report is in line with IFAD’s requirements </li></ul><ul><li>Audit report review to be carried out by CI within 30 days of receipt </li></ul><ul><li>If any irregularities have been found or there are not any recommendations for improvement, the audit report is considered as unqualified , therefore no further action is required from CI </li></ul>Audit Report review and follow-up (cont.)
    7. 7. <ul><li>When the audit report reveals irregularities, CI shall advise the borrower and inform IFAD within 45 days from receipt </li></ul><ul><li>Audit reports containing qualified opinion , an adverse opinion or a disclaimer of opinion indicate problems in project implementation </li></ul><ul><li>CI should advise the borrower to seek for explanation in response to issued raised in the report </li></ul><ul><li>CI shall follow-up on a regular basis the submissions of financial statements by the PCU </li></ul>Audit Report review and follow-up (cont.)
    8. 8. <ul><li>Provisions for non-compliance are contained in the Loan Agreement </li></ul><ul><li>Applicable sanctions are provided for in the General Conditions, article XII, through suspension by the Fund (in whole or in part) </li></ul>Non-compliance with IFAD’s audit covenants
    9. 9. Selection of Auditors <ul><li>IF the country’s SAI is proposed as auditor, CI and IFAD shall collect general and specific (previous similar project audits) information of the SAI (Annex II of IFAD Guidelines on project audit provides a checklist for capacity assessment, selection and appointment of auditor) </li></ul><ul><li>If the proposed auditor is a private firm, CI and IFAD shall check if the competitive selection process has been transparently conducted (list of qualified firms, past experience and acceptable performance, etc.) </li></ul>
    10. 10. Selection of Auditors (cont.) <ul><li>Many auditors provide their letter of engagement, containing: </li></ul><ul><ul><li>Acceptance of appointment, with reference to TORs </li></ul></ul><ul><ul><li>Auditor responsibilities </li></ul></ul><ul><ul><li>Access to client’s premises, staff and records </li></ul></ul><ul><ul><li>Form of audit reports </li></ul></ul><ul><ul><li>Involvement of internal or other external auditors </li></ul></ul><ul><ul><li>Report timing </li></ul></ul><ul><ul><li>Fees: computation, mode of payment </li></ul></ul>
    11. 11. Selection of Auditors (cont.) <ul><li>Three things are generally required by the auditor: </li></ul><ul><ul><li>Opinions on: </li></ul></ul><ul><ul><ul><li>Annual financial statement of entire project (sources and application of funds, balance sheet, etc.) </li></ul></ul></ul><ul><ul><ul><li>SOE summary </li></ul></ul></ul><ul><ul><ul><li>SA statement </li></ul></ul></ul><ul><ul><li>A management letter </li></ul></ul><ul><ul><li>Coverage of all project expenditures, not just those financed by the Bank </li></ul></ul>
    12. 12. Monitoring of Audit Reports <ul><li>FC/Loans is the focal point for all information related to audit reports. Audit reports are received by the central information resource centre, and reviewed by CPM and loans officer. </li></ul><ul><li>CI send to the borrower (copy to IFAD) three months prior to Year End. </li></ul><ul><li>The borrower confirms to CI 30 days prior to Year End that an auditor is appointed </li></ul><ul><li>CI sends reminder letter to the borrower 90 days prior to due date of audit report </li></ul>
    13. 13. Monitoring of Audit Reports Remedial Actions.. <ul><li>If audit report is past due by 90 days, a legal notice is sent to borrower </li></ul><ul><li>Non receipt of audit report after 60 days will trigger the process of suspension of disbursement. </li></ul><ul><li>Past due of 180 days and without satisfactory response from the borrower, FC/Loans prepares a President’s notice for suspension. Must be cleared by the office of the General Counsel. </li></ul>
    14. 14. Monitoring of Audit Reports <ul><li>Upon receipt of audit report, CI shall promptly notify the borrower (cc to IFAD), noting that any issues will be communicated later to the borrower. </li></ul><ul><li>CI desk review covers the audit report and the management letter. </li></ul><ul><li>IFAD had developed comprehensive guidelines for the desk review of audit reports to assist CI in their desk reviews. </li></ul>
    15. 15. IFAD Guidelines for Desk Review of Audit Reports Note date of receipt of the audit report Ensure auditor is acceptable to CI/IFAD Ensure audit TORs agreed to IFAD approved TORs. Verify audit report is in accordance with the covenant of the Loan agreement including SOE, SA, etc.
    16. 16. IFAD Guidelines for Desk Review of Audit Reports Ascertain compliance with all special covenants in the loan agreement or special conditions (e.g, financial targets for revenue-earning entity, or parallel financing, percentage of completion, exchange rate loss, etc). ENSURE ACCURATE SDR WITHDRAWAL In case of incomplete submission by the borrower, the CI (or IFAD) should communicate this to the borrower and follow up as appropriate till full submission is achieved.