Terms of Reference and Guidance for Audits and Related Services Engagements

External Aid Context

EuropeAid implements the external aid instruments of the European Commission which are funded by the General Budget of the European Communities and the European Development Fund (‘EDF’). External aid operations usually take the form of programmes and projects. External aid projects can vary significantly in their objectives, scope and scale. Smaller projects might involve modest financial resources and last only a few months, whereas a large project might involve many millions of Euro and last for many years.

The legal and regulatory basis for external aid programmes and projects is often a Financing Agreement which is typically implemented through one or more external aid contracts (e.g. for a grant).

EuropeAid's Audit Strategy

In accordance with EuropeAid's strategy, audits of external operations and related services engagements must in principle be carried out by professional external Auditors. Auditors may be contracted on the basis of an Audit Framework Contract signed with EuropeAid or through other procedures such as a service contract for EC external actions or through local and regional framework service contracts.

EuropeAid's multi-annual audit strategy and audit plans are implemented through audits and related services engagements. The main purpose of the audits is to provide assurance on the legality and regularity of external aid operations. Assurance is essentially related to compliance with the applicable regulations and rules and it can also relate to sound financial management and the principles of economy, efficiency and effectiveness. Related services engagements are not assurance engagements. They include inter alia expenditure verifications of grant and service contracts (based on the concept of an agreed-upon procedure) and compliance analyses.

Compliance with criteria for legality and regularity is essential for all external aid projects. Compliance criteria vary with the engagement type and with the documents constituting the legal and regulatory basis for a project. The latter are typically Financing Agreements and external aid contracts.

Standard Setting Context

Auditors contracted by EuropeAid are expected to have a good understanding of and to comply with the principles of the International Framework for Assurance Engagements and the Code of Ethics for Professional Accountants issued by IFAC, the International Federation of Accountants. Auditors are also required to comply with International Standards on Auditing or International Standards for Related Services where this is specified by the terms of reference.

The above requirements apply both to Auditors who have signed an Audit Framework Contract and to Auditors contracted through other procedures!

The Guidelines for Auditors include a detailed description of the external aid context, EuropeAid's strategy and the standard setting context.

Guidelines for Auditors

The Guidelines for Auditors provide written guidance and background information to Auditors performing audits and related services engagements with regard to external aid operations. The Guidelines should be read and used in conjunction with the Terms of Reference models for audits and related services engagements.

The Guidelines are intended for use and reference by all Auditorscontracted by Commission services at EuropeAid headquarters or in Delegations to perform audits of external aid operations and related services engagements. The Guidelines are not all inclusive or restrictive and they do not relieve the Auditor from exercising due professional care and judgment in determining the type, nature and extent of audit tests and procedures. Auditors are expected to familiarize themselves with the Guidelines and to consult them on a regular basis.

Guidelines for Auditors [271 KB]

Annex 2 Financial audits – Statement of fixed assets [65 KB]

Annex 3 Financial audits – Cash and bank reconciliation [50 KB]

Annex 4 Financial audits – Representation letter [39 KB]

Annex 5 Systems audits – Internal control system [55 KB]

Annex 6 Systems audits - Representation letter [35 KB]

The Terms of Reference

EuropeAid has at its disposal various sets of terms of reference models which can be used along with the guidelines for Auditors and for Commission staff.

The terms of reference models provide options so that they can be used for Auditors who have signed an Audit Framework Contract and for Auditors to be contracted through other procedures!

The terms of reference models can be classified into 2 groups:

Audits

Terms of Reference for Financial and Systems Audits

Related Services Engagements

Terms of Reference for Compliance assessments
Terms of reference for expenditure verifications of grant and fee-based service contracts. These verifications are also related services engagements but the Auditor is contracted by the beneficiaries (not by EuropeAid) following the explicit conditions in grant and fee-based service contracts. The terms of reference are an integral part of the contract conditions and they are provided along with all the other contractual documents at Implementation on EuropeAid's website.

Glossary of Key Terms

Agreement Terms and Conditions	The terms and conditions that an Entity must comply with are set out in legal and contractual documents for the Project such as for example financing agreements, external aid contracts and programme estimates. The terms and conditions in these documents are referred to as the (applicable) Agreement Terms and Conditions.
Audit Task Manager	The audit task manager is a Commission official responsible for managing i.e. planning and monitoring audits and other engagements and for carrying out organisational, administrative and procedural tasks related to these engagements. He/she is the primary contact point for the Auditor in the Commission.
Auditor	The Auditor is the audit firm contracted for performing the engagement as specified in the terms of reference and for submitting a report to the Commission. Auditor refers in particular to the partner or other person in the audit firm who is responsible for the engagement and for the report that is issued on behalf of the firm, and who has the appropriate authority from a professional, legal or regulatory body.
Commission	The Commission is the contracting authority for the engagement and the organisation which is providing the funds for the project subject of the engagement. The Commission may be represented by a service or unit of EuropeAid Co-operation Office or a Delegation of the Commission.
Engagement	Engagement refers to an assurance engagement (e.g. a financial or a systems audit) or a related service engagement (e.g. an agreed-upon procedures engagement) carried out by an Auditor.
Engagement Context	The engagement context is set out in the terms of reference for the engagement and includes the Agreement Terms and Conditions for the Project, the characteristics of the Entity and the Project subject to audit, the subject of the audit (e.g. a financial report or the internal control system of an entity), and other information that may have a significant effect on the engagement as well as contact details and key documents.
Entity or Entity subject to the engagement	The Entity subject to the engagement is the organisation or entity in respect of which the Auditor conducts the engagement (e.g. the audit). The Entity is responsible for implementing the project and for the use of the funds for the Project and it is required to report on the Project and the use of funds.
Project or Project subject to the engagement	External aid activities usually take the form of programmes and projects. The term Project is used to refer to a series of activities set out in for example a financing agreement, an external aid contract (e.g. for works, services, supplies or grants), a programme estimate or in a series of these documents.
Subject of the engagement	The subject of the engagement is the subject matter on which the Auditor is requested to report. For example, in the case of a financial audit this is the financial report of the Project or for a systems audit it is the internal control system of the Entity. In the case of compliance assessments the Auditor will have to assess the Entity's compliance with specific criteria including for example internal control and procurement.