Audit Discussion (mfg-audit@microfinancegateway.org)

Mubumbyi,

Although the context is helpful in determining exactly what others mean when
they talk about a 'due diligence audit', I believe they may be referring to
a non-financial statement audit where a group of transactions are selected
for examination and an opinion rendered on how well the MFI has performed in
following their own policies and procedures.

Specifically, an audit firm may be directed to select 100 loan files and
examine them for evidence of how the MFI followed its documented processes.
Is the appropriate documentation in the file? Is there are a credit
application? Is it approved by an appropriate manager? Is evidence of
collateral found in the file? (etc.)

These types of audits are only done under specific circumstances, such as
support in a portfolio sale (securitization type of transaction). A
financial statement audit is preferable in 99% of all audits performed.

Hope that makes sense in the contest in which the question arose. If not,
feel free to ask again.

Later,

-howard

Howard Brady
hbrady@mficonsulting.com
tel [USA] 206 440 8962
fax [USA] 509 753 7098
www.mficonsulting.com