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Terms of Reference for Financial and Systems Audits

Financial audits of external aid operations focus on historical financial information and on compliance with contractual conditions. Financial audits become useful in an advanced stage of project implementation and when a significant amount of funds have been spent.

Introduction

Systems audits focus on the design and operating effectiveness of an entity's internal control system. Systems audits can be useful before the start of a project, at the early stages of project implementation and sometimes at mid-term. In these cases system audits can make an impact through the Auditor's analysis of the internal control systems and through subsequent recommendations for improvements.

Purposes

The objectives of a financial audit are to enable the Auditor to express an opinion on whether:

  • the Financial Report presents fairly, in all material respects, the actual expenditure incurred and the revenue received for the Project for the period from [date] to [date] in conformity with the applicable Contractual Conditions; and
  • the Project funds provided by the European Commission have, in all material respects, been used in conformity with the applicable Contractual Conditions.

The objective of a systems audit (design and operating effectiveness of the internal control system) is to enable the Auditor to express an opinion on whether the Internal Control System set up and operated by the Entity for the purpose of managing risks to the achievement of the objectives of the Project, was suitably designed and operated effectively in the period from [date] to [date].

The objective of a systems audit (design of the internal control system) is to enable the Auditor to express an opinion on whether the Internal Control System set up by the Entity for the purpose of managing risks to the achievement of the objectives of the Project and which existed at [date], was suitably designed.

 The Terms of Reference

Financial audits and systems audits must be carried out in accordance with the model terms of reference ('ToR') models established by DG Delopment and Cooperation - EuropeAid. The ToR models include an introduction (with definitions), the audit objectives, standards and guidance, requirements for the Auditor, audit scope, audit procedures and other matters. The models provide fully standardized descriptions and at the same time flexibility and options. Thus they can be easily adapted to the specific requirements of the engagement context and project or action specific information can be added on a case-by-case basis.

  • Annex 1 of the models is a checklist which provides key information including the reason for the audit, logistics, the Contractual Conditions for the Project, the Entity and the Project subject to audit, other information, contact details and key documents. This checklist must be completed by the audit task managers or other Commission staff on a case-by-case basis.
  • Annex 2 includes guidance for the Auditor with regard to the audit procedures (i.e. audit documentation and evidence, planning, conduct and reporting).
  • Annex 3 is a model audit report for use by the Auditor.

 

Terms of Reference for a Financial Audit
 
Terms of Reference for a Systems Audit (design and operating effectiveness of the Internal Control System)

 

Terms of Reference for a Systems Audit (design of the Internal Control System)

 

Terms of Reference for a Financial & Systems audit
 
Last update: 17/02/2012 | Top