Catalog

	Table of Contents
p. 198 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 6. Financial Institutions 7. Knowledge Management 7.1. Useful Websites 7.2. Operations Manual (OM) 7.3. Project Administration Instructions (PAIs) 7.4. International Standards 7.5. International Accounting and Auditing Architecture 7.6. Financial Review Checklist for RRPs 7.7. Appraisal Checklist: Nonrevenue-Earning Project 7.8. Appraisal Checklist: Revenue-Earning Project 7.9. Appraisal Checklist: Private Sector Project 7.10. Appraisal Checklist: Financial Institution 7.11. Undertaking Sensitivity and Risk Analyses 7.12. Model Operating Covenants 7.13. Model Capital Structure Covenants 7.14. Model Liquidity Covenants 7.15. Commonly Used Ratios 7.16. Model Financial Statements: Service Organization 7.17. Model Financial Statements: Manufacturing Organization 7.18. Model Terms of Reference for an Auditor 7.19. Audit Report Questionnaire Addendum I. Model TOR for PPTA Financial Consultants: Revenue-Earning Project II. Model TOR for PPTA Financial Consultants: Nonrevenue-Earning Project III. Financial Management Assessment IV. Financial Management Internal Control and Risk Assessment (FMICRA) V. Financial Management Assessment Report Template VI. Auditor Terms Of Reference: Annual Financial Statements VII. Auditor Terms Of Reference: Annual Project Accounts VIII. Auditor Capacity Assessmen: Private Sector Auditor IX. Auditor Capacity Assessment: Supreme Audit Institution X. Sample Project Monitoring Report (PMR) Formats: Non Revenue-Earning Project XI. Guidelines' Compliance Assessment XII. Review of Auditor's Report and Audited Project Accounts XIII. Review of Auditor's Report and Audited Financial Statements

Financial Management and Analysis of Projects : 7. Knowledge Management

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Auditor Capacity Assessmen: Private Sector Auditor

Guidelines for the Preparation of External Auditor Capacity Assessments
Private Sector Auditor's Capability

Background

1.   Standard wording in MDB loan agreements (including ADB) includes a requirements that the auditor appointed by the borrower must be acceptable to the MDB. Determination of the acceptability of an auditor has been decided at a project level with some inconsistency in the criteria used to make the determination. In some cases a private sector firm that has been found acceptable to one MDB has not been acceptable to another. In addition, inconsistencies have been noted in the practice of some audit firms operating in more than one country.

2.   The MDB Harmonization Technical Working Group (TWG) reached agreement in March 2002 to develop common diagnostic tools to assess the audit capacity of external auditors. In addition, agreement was reached to share information about external auditor's performance.

Private Sector Auditor's Capabilities

3.   Private sector external auditor capabilities vary considerably between countries and within individual countries. Development of a strong external audit profession will make a positive contribution to good governance in general and to corporate good governance in particular. Steps to address strengthening a national external audit profession will flow from the above diagnostic tools and is not the subject of these guidelines.

4.   The attached Private Sector Auditor's Capacity Assessment Questionnaire (Attachment 1) will be used to gather information regarding private sector external audit firms' acceptability as auditors for MDB programs/projects in a particular country. Individual firm's assessments will be summarized in the attached Private Sector Audit Firm Capacity Assessment form (Attachment 2). The assessment will be based upon the checklist provided (Attachment 3). The review is country specific and therefore a firm operating in more than one country will be considered on the basis of that firm's national practice. The development of the external audit profession in an individual country will vary over time therefore an assessment of the profession in an individual country would be undertaken on a regular interval or when a significant change in the professions level of practice is observed. The interval would be approximately every 3 years but not more than 5 years. Assessments of individual firms that wish to be considered for selection as auditors of MDB supported program/project loans or grant operations will be discussed in detail with the firm to assure accuracy of the assessment. Other firms may apply to be assessed between country assessments and may be added to the list of firms found to be acceptable. Firms that are not found to be acceptable may undertake revisions in their practices and may be reconsidered for acceptability, although reconsideration would not be undertaken for at least 6 months to ensure the revisions have been completely implemented.

5.   Where more than one MDB operates in an individual country the above private sector assessments will be undertaken jointly and the eligibility of private sector firms will be agreed jointly.

Attachment 1

Private Sector Audit Firm
Capacity Assessment Questionnaire

Basic Information:

1.	Legal Name of Firm
2.	Street and Postal
	Address of Firm
3.	Telephone (include country and area code)
4.	Fax (include country and area code)
5.	Email address
6.	Address and Telephone of Branch Offices (use attachment if necessary)

 

Branch Name	Address and Telephone	Officer in Charge

 

7.	Practice license or permit number
8.	Date of license/permit issuance
9.	Expiry date of license/permit
10.	Name of licensing/permit agency
11.	State the legal nature of the firm

 

12.	Fully describe the ownership structure and management structure of the firm
The Firm’s Independence
13.	Does the firm have a written independence and/or conflict of interest policy? (If yes provide a copy). Are all professional staff members provided training in the firm's independence and/or conflict of interest policies? Have staff members attended training courses in professional ethics, including training in IFAC's International Professional Practice Statements and/or Code of Ethics for Professional Accountants?
14.	Does the firm provide consulting services involving accounting or internal control matters to audit clients?
15.	Has the firm, any partners of the firm or any staff of the firm ever been subject to disciplinary action by any national accounting body to which the firm or its partners belong? If so, please indicate the nature of the disciplinary action and the reasons for it.
16.	Has the firm, any partner of the firm or any staff of the firm ever been subject to a court order involving the provision of professional services? If so, please indicate the nature of the court order and the reasons for it.
17.	Has the firm, any partner of the firm or any staff of the firm ever been barred from auditing firms listed on any securities exchange or otherwise been subject to sanction or penalty by any securities exchange?
18.	Are the firm's partners and/or staff members allowed to hold shares or other investments in audit clients?
Affiliations with Other Firms:
19.	Does the firm have an affiliation or association with any other foreign or local professional firm(s) such as accountants, auditors, consultants, or lawyers etc.? If so, please provide the following:

Firm Name	Legal Address	Home Country	Contact Person

 

20. (a)	Please describe the general nature of the affiliation(s), as follows: Are any partners of the firm also domestic or international partners of the affiliated firm?
(b)	Does your firm or any partner of the firm share in the profits and/or liability exposure of the affiliate?
(c)	Does the affiliate provide training courses for the firm’s staff?
(d)	If the firm is affiliated with a foreign accounting/audit firm does the foreign firm have an audit manual/guideline, and does the firm have access to and use of that manual/guideline? Does the firm use it exclusively in relation to audits resulting from the foreign affiliation or does the firm also use it in relation to audits that do not result from the affiliation?
(e)	Other important matters
Firm's Professional Orientation
21.	Indicate which of the following services are provided by the firm and show the share of each service in relation to the firm's last complete year's total fee income. Please separate any income derived from a foreign accounting/auditing firm affiliation.

 

Nature of Income	Derived from  Foreign Account/Audit Affiliate(s)	National  Income	Total Fee Income
Auditing ·         In accordance with ISA ·         In accordance with National standards	% %	% %	% %
Accounting ·         In accordance with IAS ·         In accordance with National standards	% %	% %	% %
Consulting Services	%	%	%
Other Fee Income	%	%	%
Total Fee Income	100 %	100 %	100 %
IAS -- International Accounting Standards ISA -- International Standards on Auditing

 

22.	Indicate the percentage of the firm's last complete year's total fee income attributable to foreign aid/funding agreements with international agencies, bilateral aid agencies or other sources.

 

Nature of Income	ADB	IMF/World Bank	Bilateral Aid Agencies	Other Int’l Agencies	Private Sector	National Gov’t	Total Fee Income
Auditing ·        In accordance with ISA ·        In accordance with National standards	% %	% %	% %	% %	% %	% %	% %
Accounting ·         In accordance with IAS ·         In accordance with National standards	% %	% %	% %	% %	% %	% %	% %
Consulting Services	%	%	%	%	%	%	%
Other Fee Income	%	%	%	%	%	%	%
Total Fee Income	100 %	100 %	100 %	100 %	100 %	100 %	100 %

 

23.	Does the firm use an audit procedures manual or guideline for staff?  If so, when was it last updated?  How does the firm ensure that staff adheres to the audit manual/guidelines, at all times?  (Please attach a copy of the manual/guideline).
24.	Is the firm aware that various multilateral and bilateral agencies have guidelines covering accounting and auditing for projects they fund?  If so, please list the guidelines the firm has.
25.	Discuss the firm’s quality assurance program. Does the firm participate in a peer review program on a national basis and has the firm ever participated in a peer review as a result of an affiliation with a foreign accounting/audit firm?  If so, what were the results of the last national/foreign peer review(s)?
26.	Describe the firm’s utilization of information technology, i.e. software tools and computer-assisted audit techniques to support auditing assignments.
Professional Services Liability Insurance Coverage
27.	Has the firm ever directly settled a claim involving professional services, with or without utilizing liability insurance coverage? If so please state the main issues involved in the settlement and the amount of the settlement.

Name	Member of Professional Body*/Year of Qualification	With Relevant Audit Experience In
		Public Sector	Construction Contracts	Cash Accounting Systems	Other
Partners/Associates
Managers
*Refers to a member currently in good standing with the named IFAC member accounting body.

 

29.	For each person listed in item 28 above, provide a separate attachment with a brief summary of their qualifications and professional experience, including: ·        Academic or other qualifications; ·        Membership of foreign professional bodies; ·        Details of professional audit and accounting experience, stating relevant industry(ies), including experience in the public sector, construction contracts and cash accounting systems, separating domestic and foreign experience; and ·        Mother tongue and any other languages with written and spoken fluency.
30.	What has been the turnover rate of the firm’s partners and managers during the last 5 years?
Staff Training
31.	Briefly state the firm’s training philosophy.
32.	Indicate post qualification training or professional education courses taken, year taken and total hours by each senior staff category in the last three years, as follows:

Category	Training/Courses/Year/Total Hours
	IAS*	ISA+	National Standards	Other Courses
Partners/Associates
Managers
*International Accounting Standards +International Standards on Auditing

33.	Does the firm have a professional training manual, and is a copy provided to each professional staff member?
34.	Indicate types of training and number of hours of training by staff category, provided by any affiliate firm over the last three years, as follows: (Attach a schedule if necessary).

 

Staff Category	Training Year/Total Hours
	In Country	Out of Country
Partners/Associates
Managers
Supervisors
Seniors
Other Professional Staff

Certification

I certify the above information is true and correct

Signed
Position
Date
The firm should feel free to submit any additional information that further describes the firm.

Attachment 2

Private Sector Audit Firm
Capacity Assessment

This evaluation is intended to be used to assess the capacity of private sector firms in a country for engagement as auditors on MDB funded projects. Total evaluation points are set at 1,000. The weighting of evaluation points between major categories may vary between countries because of local conditions. However, the allocation should be kept constant within one country. The three major categories are: 

	Suggested Weighting
Independence of the firm	300
Experience	400
Personnel and training	300
Total Points	1,000

 These major categories should be broken down to provide guidance to staff in assessing and allocating points. Local conditions may influence the weighting of points across various subcategories, but it is important to maintain a consistent allocation when applying them to firms under consideration.

Independence of the firm

·         Written policy on independence/conflict of interest                            
·         Regular training in independence
·         Firm does not provide consulting services to clients
·         No partner or staff subject to sanctions by professional body
·         No partner or staff subject to penalties by court/securities exchanges
·         Investments in clients disallowed

Total points                                                                              300 pts

Experience

·         Firm experience with ISA/INTOSAI audit standards
·         Firm experience with National audit standards
·         Firm experience with IAS accounting standards
·         Firm experience with National accounting standards
·         Firm experience with public sector accounting standards
·         Firm experience with audit of MDB/Bilateral funded projects
·         No settlements paid directly or under liability insurance                                     

Total points                                                                               400 pts

  Personnel and Training

·         Academic and professional qualifications
·         Training in ISA/INTOSAI Standards
·         Training in IAS Standards
·         Training in National Accounting/Auditing Standards
·         Established training program for all staff                                              

Total points                                                                              300 pts

Total of all Categories                                                                 1,000 pts

All evaluation processes include an element of subjectivity. Consistency in the evaluation process is important to treating all firms equally. A minimum of 600 pts. is suggested for determining eligibility for engagement as an auditor of an MDB project, subject to a minimum of 50% in each category.

Attachment 3

Checklist for Reviewing Private Sector Audit Firms 

Firm Name:
Date of Review:

 

ADMINISTRATIVE AND REPORTING 

Management Structure

Management Structure – firm (verification and clarification)

Ownership of firm
Legal Structure
Insurance and liability
Claims to date?
Affiliations – legal arrangements – impact on firm

Management Structure – staff supervision

Management Structure – review of staff

Personnel files
Staff appraisals
Staff development plans
Staff confidentiality agreements
Staff independence 

Capacity Of Firm

Capacity:  (verification and additional info)

Gross income – (review F/S if necessary)
Staff size
Staff composition and Professional designations
Specialization of staff
Net billable per staff
Charge out % per staff
Key staff – extent of broad base of expertise 

Firm Expertise

IAS expertise review/confirm
ISA expertise – review/confirm
Training programs – verify and review
Laws and Regulations – 250
          Legal counsel – staff or firm
          Legal database 

Firm Reports

Initial Engagements – 510

Use of engagement letters
Use of prior years audit figures
Issues re Fraud and Corruption - in engagement letter

Auditors Report on Financial Statements – 700

          Firm template
          Review examples for compliance with ISA
          Decision process re opinion
          Process of partner review
          Signatory to opinion 

Comparatives – 710

          Use of previous auditor’s work
Independence of Firm
Management Rep Letters
Fraud and Error – detection and reporting
Corruption and Ethics – firm safeguards
Management Letters – 1007
          Process of compilation

ISSUES ARISING FROM PRIOR ENGAGEMENTS
Issues:	Firm Response:
1.
2.
3.
4.
5.
SUMMARY AND CONCLUSION
Recommendations
Follow-up tasks:
Completed by:	Date: