Project audits

Project audits

Project audits and expenditure reviews are special-purpose engagements. They examine whether funds advanced for a project or program have been accounted for in line with the financing agreement, and whether the report prepared for the funder or sponsor is fairly presented on the agreed basis.

The terms of reference are set by the donor, lender or sponsoring agency as well as by you. Those terms often specify the period, the budget lines, the eligibility rules, the currency, and the form of the auditor’s or reviewer’s report. Our work is then designed around those terms, rather than around a generic statutory-audit program.

These assignments sit naturally alongside our statutory audit practice, but they are not the same thing. A project audit may cover only the funded program, and it may use a reporting framework defined by the funder rather than full IFRS financial statements.

Who it is for

This work is for organizations that implement donor- or grant-funded programs, for project companies that must report to lenders or sponsors, and for entities whose financing agreements require an independent expenditure verification or special-purpose audit.

• Non-profit organizations and implementing partners with donor-funded programs
• Project companies and special-purpose vehicles with lender or sponsor reporting
• Entities required to submit an independent expenditure verification
• Organizations that need a report aligned to a specific financing agreement

What is included

• A reading of the financing agreement, budget and any prior auditor or reviewer reports
• Testing of reported expenditure against supporting documents and eligibility rules
• Attention to procurement, advances, counterpart funds and cutoff, where these are relevant to the terms
• Comparison of reported figures to the agreed budget and to the underlying books
• A report in the form the funder or the terms of reference require

What you receive

• The special-purpose audit or review report specified in the engagement letter
• A schedule or findings letter on exceptions, ineligible items or control observations, where applicable
• Discussion of findings with management in time for any response the funder requires

Why it matters

Funders, boards and implementing teams need to know that reported expenditure is supported and that the rules of the grant or facility have been taken seriously. An independent project report is often a condition of disbursement, close-out or continued funding.

We approach this work with the same professional scepticism we bring to statutory audits, and with close attention to the document that actually governs the funds. The report should be useful to the people who must act on it, not only filed to satisfy a clause in an agreement.

How this relates to your statutory audit

If your organization also has a statutory audit, we will explain how the project engagement and the statutory engagement interact, including the timing of fieldwork and any independence considerations. In some cases the two can be planned together; in others they remain separate assignments with separate reports.

How we work

Whether the engagement is a statutory audit or another assignment, we follow a clear sequence so that both teams know what happens next.

• Planning: Every engagement begins with planning. We take time to understand the entity or project, the applicable reporting framework, the people who will rely on the report, and the dates that matter to the board, lenders or funders. Scope, responsibilities and a realistic timetable are agreed in writing before detailed testing begins. We also agree the information we will need from management, and the points at which we will update you as work progresses. Good planning reduces last-minute pressure and helps both teams work in an orderly way.
• Risk assessment: Once we understand the entity, we assess the risks of material misstatement in the financial statements or, for a project review, in the expenditure and compliance areas covered by the terms of reference. This includes considering the business and its environment, the design of relevant internal controls, and areas that typically require judgment — such as revenue recognition, estimates, related-party transactions and going concern. The audit or review plan is then focused on those risks, so effort is concentrated where it will make the most difference rather than spread thinly across every account.
• Fieldwork: Fieldwork is the stage at which we obtain the evidence that will support our report. Depending on the engagement, this may include inquiry of management, inspection of documents, analytical procedures, confirmations, observation and substantive testing of transactions and balances. We work as far as possible from records that are already organized, and we raise questions and interim findings as they arise so that surprises are dealt with during the assignment, not in the final week. Fieldwork may take place at your premises, at our office in New York, or through a combination of on-site and remote work, agreed during planning.
• Reporting: When testing is complete, we evaluate the evidence as a whole, form our conclusions and discuss significant findings with management and, where appropriate, those charged with governance. For a statutory audit, the formal deliverable is the independent auditor’s report on the financial statements, usually accompanied by a management letter that records control observations and recommendations. For project or special-purpose work, we issue the report format required by the funder or the agreed terms of reference. We aim to explain our findings in clear language, so the report is useful as well as compliant.
• Follow-up: Issuing the report is not the end of a useful engagement. We walk management through the observations in the management letter or project report, distinguish between matters that need prompt attention and those that can be planned into the next cycle, and remain available to clarify our findings. Where we are reappointed, lessons from the current period inform planning for the next one — including information requests, cutoff procedures and any control improvements you have made. Follow-up is practical: the aim is a clearer file, fewer recurring adjustments, and a more orderly engagement the next time around.