External Audits of Microfinance Institutions: A Handbook, Volume 1

CGAP has produced this handbook to help audit customers - meaning the boards of directors and managers of MFIs, donors, creditors, and investors - contract for audits that are more responsive to their needs, and to help audit firms deal with some of the unique issues presented by microfinance operations. Microfinance differs in crucial respects from commercial banking and other businesses with which auditors are more familiar.

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. 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.