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p. 98 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 : 5.4. Auditing Standards and Auditor Engagement

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5.4.2. ADB Requirements

5.4.2.1. ADB requires the borrower and the project EA to have the required financial statements for each year audited by an independent auditor acceptable to ADB, and in accordance with standards on auditing that also are acceptable to ADB. An audit of such financial statements includes: (i) an assessment of the adequacy of accounting and internal control systems with respect to project expenditures and other financial transactions, and to ensure safe custody of project financed assets, (ii) a determination as to whether the borrower and project implementing entities have maintained adequate documentation on all relevant transactions, (iii) confirmation that expenditures submitted to ADB are eligible for financing and identification of any ineligible expenditures, and (iv) compliance with loan covenants and ADB's requirements for project management.

5.4.2.2. ADB recognizes ISAs, promulgated by IFAC and the auditing standards of the INTOSAI. ISAs are widely adopted by the international accounting profession and many national professions. They form the benchmark for standards on auditing acceptable to ADB for audits in the public and private sector. Many Auditors-General and their equivalents use INTOSAI auditing standards.

5.4.2.3. ADB prefers that auditors conform to ISAs, but recognizes that in some countries auditors are expected to apply generally accepted auditing standards which may not conform to these Guidelines but that have been prescribed by a country's law, or that have been adopted by public accountants or associations of public accountants in the country concerned.¹⁸

5.4.2.4. Supplementary auditing and reporting procedures may be requested by ADB, if necessary, to confirm accountability and financial performance in cases where ADB considers local standards need to be supplemented. In addition, ADB would expect auditors to indicate in their report the extent of differences, and the impact on the audit, of use of local auditing standards compared to the application of ISAs.

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¹⁸ Financial Analysts have discretion to agree alternative arrangements (see paragraph 2.4.3).

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