External Audits of Microfinance Institutions: A Handbook (Technical Tool Series No. 03)
CGAP
Publication Date: Dec 1998
Published by: Consultative Group to Assist the Poor (CGAP)
Document Type: Toolkit
What is there to know about external auditors and external auditing for the microfinance sector?
The handbook is divided into two volumes, for two distinct audiences. Volume 1 is primarily for clients of external audits?including boards, managers, and staff of MFIs, as well as outside investors, especially donors. Volume 2 is for external auditors
Topics covered in Volume 1 include: - What to expect?and what not to expect?from external audits
- The relationship between internal and external audit functions
- The different products that external auditors can be asked for, including special purpose audits and agreed-upon procedures
- How to commission an audit, including writing terms of reference and selecting the auditor
- Special issues associated with MFIs? loan portfolios
- How audits are conducted
- How audit reports should be interpreted
Volume 2 provides an overview of the microfinance industry?general concepts that must be supplemented by a thorough education in the business and methodology of the MFI being audited. Volume 2 also provides guidance on a range of audit issues that are specific to MFIs. External auditors should review volume 1 as well, especially chapter 4 (which guides clients in defining the scope of work they require) and chapter 5 (which describes the challenges posed by microfinance portfolios)
Both volumes may be of interest to government regulators and supervisors. As the microfinance industry grows, banking authorities in many countries are being forced to confront the issue of supervising MFIs. Experience has made it clear that efficient supervision of MFIs requires some adjustment in the regulations and examination procedures applied to more conventional financial inter-mediaries
This handbook is not an examination manual, but its contents might be useful in the preparation of such a manual. In any event, supervisors responsible for overseeing MFIs may wish to refer them and their auditors to this handbook
A set of annexes illustrates material in both volumes.
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