PIFRA II FINANCIAL MANAGEMENT MANUAL SECTION 11

AUDITING ARRANGEMENTS

Introduction: The accounts and financial statements of the Project for the fiscal year ending June
30, will be audited by the private auditors, a firm of Chartered Accountants under the terms of
reference given below.

Terms of Reference for the external auditors

• Objective: The objective of the audit of the Project Financial Statements (PFS) is to enable
the auditor to express a professional opinion on the financial position of the Project at the
end of each fiscal year and of the funds received and expenditure for the fiscal year ended
June 30, 20xx as reported in the PFS, as well as an opinion on the Statement of
Expenditures and operations of the Designated Account.

• The Project Accounts (books of accounts) provide the basis for preparation of the PFS and
are established to reflect the financial transactions in respect of the Project.

• Scope: The audit will be carried out in accordance with the Public Standards of Auditing of
INTOSAI and will include such tests and control, as the auditor considers necessary under
the circumstances. In conducting the audit, special attention should be paid to the following:

(a) All external funds have been used in accordance with the conditions of the
relevant financing agreements, with due attention to economy and efficiency, and
only for the purposes for which they were provided; the relevant financing
agreement is Development Credit Agreement (Cr. _____dated ____).
(b) Counterpart funds have been provided and used in accordance with the
relevant financing agreements, with due attention to economy and efficiency, and
only for the purposes for which they were provided;
(c) Goods, civil works and services financed have been procured in accordance
with the relevant financing agreement;
(d) All necessary supporting documents, records, and accounts have been
adequately kept including expenditures reported IFRs. Clear linkages should exist
between the books of account and reports presented to the World Bank.
(e) Where Special Accounts have been used they have been maintained in
accordance with the provisions of relevant financing agreement.
(f) (f) As an annex to the Project Financial Statements, the auditor should
prepare a reconciliation between the amounts shown as “received by the project
from the World Bank” and that shown as being disbursed by the Bank.
(g) The Project accounts have been prepared in accordance with consistently
applied International Public Sector Accounting Standards (IPSAS) and give a true
and fair view of the financial situation of the project at 30 June, and resources and
expenditures for the year ended on that date.
(h) The Audit Report (model) are attached to this Section.

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PIFRA II FINANCIAL MANAGEMENT MANUAL SECTION 11

Management Letter

In addition to the audit reports, the auditor will also submit a "management letter" in which the
auditor will:

(a) give comments and observations on the accounting records, systems, and internal controls
that were examined during the course of the audit;
(b) identify specific deficiencies and areas of weakness in systems and controls and make
recommendation for their improvement;
(c) report on the degree of compliance of each of the financial covenants on the financing
agreement and give comments, if any, on internal and external matters affecting such
compliance;
(d) communicate matters that have come to attention during the audit which might have a
significant impact on the implementation of the Project; and
(e) bring to the borrower's attention any other matters that the auditor considers pertinent. The
auditor's findings should be summarized to show the value of:

• Ineligible expenditure under

Fraud and corruption

Other ineligible expenses

• Internal Control weaknesses

For each questioned cost, the auditor should provide the following;

• criteria which the cost does not meet

• effect on the Project
• whether the cost has been reimbursed by the Bank
(providing reference of WA No. and extent claimed from the
Bank)
• recommended action
• management's response and plan of action
• status of prior years' recommendations/observations

11.8 General

11.8.1 The auditor shall be given access to all legal documents, correspondence, and
any other information associated with the Project and deemed necessary by the
auditor. Confirmation should also be obtained of amounts disbursed and
outstanding at the World Bank. The World Bank's Task
Manager/Disbursement Section can assist in obtaining these confirmations.

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PIFRA II FINANCIAL MANAGEMENT MANUAL SECTION 11

Time Bound Action Plan for External Auditors

Actions Target date

• Submission of financial statements to the year ended June September 30
30 to external auditor
• Completion of audit field work and draft audit paras November 10
• Arrangement of Exit Conference by Implementing Agency November 20
• Submission to WB/IDA, auditors’ report and audited On or before
financial statements along with management letter December 31

The implementing agency must ensure that the audited financial statements for the year
ended June 30th reach IDA on or before December 31of the year-end.

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