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p. 96 of 203 BACK | NEXT Foreword 1. Introduction to the Guidelines 2. User Instructions 3. Preparing and Appraising Investment Project 4. Financial Management of Executing Agencies 5. Reporting and Auditing 5.1. Financial Reporting and Auditing Overview 5.2. Accounting Standards and Policies 5.3. Financial Reporting 5.4. Auditing Standards and Auditor Engagement 5.4.1 Introduction 5.4.2. ADB Requirements 5.4.3. Auditing Procedures 5.4.4. Auditor Selection and Appointment 5.4.5. Issues in Auditor Selection 5.4.6. Selecting Auditors 5.4.7. Terms of Reference for an Auditor 5.4.8. Contract or Engagement Letter of Auditor 5.4.9. International Standards on Auditing 5.4.10. Government Auditors 5.5. Reviewing Financial Reports 5.6. Reviewing Auditors' Reports 6. Financial Institutions 7. Knowledge Management

Financial Management and Analysis of Projects : 5. Reporting and Auditing

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5.4 Auditing Standards and Auditor Engagement

5.4.1 Introduction

5.4.1.1. An audit's overall objective is for the auditor to express an opinion as to whether the financial statements present a true and fair view of the project(s) and, where applicable, of the EA, or are similarly presented fairly in all material respects, in conformity with IAS or other standards acceptable to ADB, and applied on a basis consistent with that of the preceding year.¹⁷

5.4.1.2. The auditor's opinion is necessary to establish the credibility, or otherwise, of the financial statements of an EA. The examination should be of such scope and depth to allow the auditor to give an opinion and make a report on the veracity, accuracy, and fairness as regards the presentation of the financial statements of an EA or a defined part thereof (such as a project, a project unit, or a department or division). These financial statements may be annual, periodic, or ad hoc (i.e., relating to special reports).

5.4.1.3. The auditor's examination should include an evaluation of the systems and operating procedures for accounting, custody of assets, control of environment and internal financial control, financial reporting, and related systems. An analysis of explanations submitted to the auditor, and all information necessary to support the auditor's opinion and to construct the report of the auditor, should be provided.

5.4.1.4. Financial analysts, however, cannot assume that the auditor's opinion is an assurance as to the future viability of an entity or as to the efficiency or effectiveness with which management has conducted the affairs of the entity.

5.4.1.5. During project identification and preparation, analysts should become familiar with the existing laws, regulations and rules of the country and the EA that govern financial reporting and auditing requirements. It is essential to identify incompatibilities between ADB and local legal requirements for auditing and to resolve these before appraisal.

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¹⁷ Financial Analysts have discretion to agree alternative arrangements (see paragraph 2.4.3).

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