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p. 105 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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5.4.9. International Standards on Auditing

5.4.9.1. The International Auditing Practices Committee (IAPC) of IFAC promulgates ISAs and International Auditing Practice Statements (IAPSs). The latter offer advice and guidance on the practical application of ISAs.

5.4.9.2. ADB expects auditors to conform to the ISAs and related auditing practices recommended in the IAPS. However, in some countries, the auditing profession may be required to comply with generally accepted local auditing standards prescribed either by law or by the national body of accountants.

5.4.9.3. Auditors when compiling their opinions and reports, often use the term "generally accepted auditing standards". These standards differ from country to country, but are intended by the accounting profession to imply the highest standards of auditing practice. These standards are likely to be those adopted by professional accountants or associations of accountants, or standards prescribed by law, governments, or bodies responsible for regulating national financial reporting.

5.4.9.4. Although ISAs and IAPSs are widely recognized, it should not be assumed that these have been adopted by national accounting professions or governments, and are therefore automatically applicable to audits and auditors of project entities. Local standards may not conform partially or completely with international guidelines.

5.4.9.5. Therefore at project identification, or during project preparation, analysts are required to accurately determine the auditing standards that will be applied by an auditor of annual financial statements of a borrower. If these do not correspond to ISAs and IAPS, the analyst must determine the extent and impact of variances in application of the local standards.

5.4.9.6. In the event that the impact of variances is sufficient to give rise to concerns for the adequacy and veracity of an audit, the analyst must request the EA to have the auditor adopt ISAs and IAPS for the audit of the ADB-financed project and the project entity. Where applicable, an auditor who would adopt ISAs and IAPS may be engaged.²⁰

5.4.9.7. Failure by an EA to meet such requests must be reported in the Aide Memoire and the fact-finding BTOR. If agreement is not obtained by project appraisal, an Issues Paper should be prepared so that management can give guidance. The BTOR and the RRP should include confirmations of the acceptable auditing standards that will be used.

5.4.9.8. Where necessary, the EA should also be requested to ensure that auditors be required by their terms of reference to indicate in their opinions and report, the extent of any differences, and the impact on the audit, by their use of local auditing (or other) standards compared to the use of the ISAs.²¹ For an example, see box that follows.

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²⁰ Financial Analysts have discretion to agree alternative arrangements (see paragraph 2.4.3).
²¹ Financial Analysts have discretion to agree alternative arrangements (see paragraph 2.4.3).

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