How to Choose a Grant Auditor: Donor Requirements and Questions to Ask

An independent audit clause appears in almost every grant agreement above the amount the donor considers significant. Sometimes the donor appoints the auditor itself, but more often the choice is left to the organisation and the donor simply approves the candidate. This is exactly where NGOs go wrong: they choose whoever is closest and fastest, and then discover that the report does not match the donor’s terms of reference, is written only in Ukrainian, or is signed by a firm that is not on the register.

In this article we have collected the requirements donors most often impose on grant auditors, explained how to verify them, and compiled a list of questions to ask an audit firm before signing an engagement letter. MK Audit has performed audits of grants and donor-funded projects since 2000, so the list is based on real terms of reference we work with.

What donors require from an auditor

The wording varies from donor to donor, but the substance comes down to a few points:

• the auditor must be independent of the organisation and its management;
• the auditor or audit firm must be licensed to perform audits in the country where the project is implemented, which in Ukraine means being entered in the official register;
• the engagement is performed under international standards: an audit under ISA 800/805 (for special purpose financial statements or a single financial statement) or agreed-upon procedures under ISRS 4400;
• the report is delivered in the format and language specified in the donor’s terms of reference, most often English;
• some donors additionally require membership of an international network or prior experience with that donor’s projects.

Before looking for an auditor, re-read the audit clause of the agreement and the annex with the terms of reference. The ToR defines the type of engagement, the sample size, the report format and the deadlines, and the auditor’s proposal must match it.

The Ukrainian audit register

In Ukraine, audit activity is governed by Law No. 2258-VIII “On the Audit of Financial Statements and Audit Activity”. Under this law, the Audit Public Oversight Body (known in Ukrainian as OSNAD) maintains the Register of Auditors and Audit Entities. Only firms and auditors entered in this register may provide audit services in Ukraine.

Checking takes a few minutes: find the firm by name or number in the register section of the oversight body’s website and make sure the entry is current. Donors usually ask for the registration number to be quoted in the proposal or in the report itself. For reference, MK Audit is entered in the register under number 4624.

Also check whether the firm has a functioning quality management system: since the transition to the International Standards on Quality Management (ISQM) this is mandatory for audit entities, and donors increasingly ask about the results of quality inspections.

Experience with donor-funded projects

A grant audit differs from the audit of a company’s financial statements. The auditor must know the specific donor’s cost eligibility rules, typical procurement requirements, approaches to indirect cost allocation and currency conversion. A firm that has never worked with donors will spend your time learning the basics and risks producing a report in the wrong format.

What to ask:

• which donors and types of organisations the firm has worked with in recent years (international foundations, UN agencies, embassies, private foundations);
• which types of engagement it has performed: audits under ISA 800/805, agreed-upon procedures under ISRS 4400, expenditure verification using the donor’s template;
• whether a donor has ever rejected one of its reports and how that was resolved;
• who exactly will do the work and what experience those people have.

It is also worth checking whether the auditor understands NGO accounting: restricted funding, non-profit status, limits on the use of funds. Firms that provide accounting for non-profit organisations alongside audit usually spot problems at the planning stage rather than after the fact.

An English-language report

Most international donors accept reports only in English or require a bilingual version. It is important to distinguish two things: a translation of a finished Ukrainian report, and a report drafted in English by the auditor. The former often contains imprecise terminology (for example, loosely translated names of standards or forms of opinion), and the donor may send it back for revision.

Ask the firm for a sample English report (with client data removed) and clarify whether a management letter with recommendations is included in the scope. Donors often ask for it specifically, to understand what systemic issues the organisation has.

Membership of an international network

Some donors expressly require the auditor to belong to an international network of audit firms; for others it is an advantage that settles the question of quality. Network membership means the firm undergoes periodic quality reviews under the network’s standards, uses shared methodologies and can involve colleagues in other countries if the donor requests confirmation from abroad.

MK Audit is a member of DFK International, a network of independent audit and consulting firms in dozens of countries. For a donor this is a clear reference point: the network is known to its headquarters, and a report bearing that name needs no further explanation.

Comparison of engagement types

Engagement type	Standard	What the donor receives	When it is used
Audit of the project financial report	ISA 800 / ISA 805	An audit opinion on the fairness of the report	Large grants, assurance required
Agreed-upon procedures	ISRS 4400	A report of factual findings for a list of procedures	Expenditure verification under donor ToR
Review	ISRE 2400	Limited assurance	Rarely, on specific request

The type of engagement is set by the donor in the terms of reference. If the ToR does not refer to a standard, ask the donor which form of report it needs before signing with the auditor.

Questions to ask an auditor

1. Under what number is the firm entered in the Register of Auditors and Audit Entities?
2. How many donor-funded projects has the firm audited in the last three years, and for which donors?
3. Do you draft the English report yourselves or through a translator?
4. Under which standard will the engagement be performed, and does that match our ToR?
5. Who will be the engagement partner and what are their qualifications?
6. What is the turnaround time from receipt of documents to signing the report?
7. Does the proposal include a management letter with recommendations?
8. Is the firm a member of an international network, and which one?
9. Do you have any conflict of interest with our organisation, its management or the donor?
10. How do you interact with the donor during the engagement: do you send the report directly or through the organisation?

Get the answers in writing: they will form part of the justification for your choice of auditor, which the donor may request together with the proposals from other firms.

If you need a grant auditor who meets your donor’s requirements, send us a request. We will review the terms of reference, prepare a commercial proposal and respond within 1 day.