Audit Report 2022 PACIFIC AVIATION SAFETY OFFICE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 PO Box 139 Port Vila Contents Page General Manager’s Report 2 Auditor’s Report 4 Statement of Profit or Loss and Other Comprehensive Income 6 Statement of Changes in Equity 7 Statement of Financial Position 8 Statement of Cash Flows 10 Notes to the Financial Statements 12 - 19 Auditor’s Disclaimer 20 Detailed Income and Expenditure Statement - Consolidated 21 Auditor’s Report – Reform Project 22 Detailed Income and Expenditure Statement – Reform Project 23-24 1 PACIFIC AVIATION SAFETY OFFICE GENERAL MANAGER'S REPORT TO THE COUNCIL OF DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2022 The General Manager presents this report on the financial statements of the Organisation for the year ended 31 December 2022. The following held offices in the Council of Representatives during the financial year and at the date of this report: Resigned/ State Delegate Position Appointed Retired Samoa Magele Hoe Viali Chairperson 2019 2022 Samoa Fui Tupai Mau Simanu Chairperson 2022 Cook Islands John Hosking Deputy Chairperson 2018 Niue Bill MacGregor Deputy Chairperson 2006 PASO Andrew Valentine General Manager 2016 Australia Jim Wolfe Member 2019 Australia Jeff Street Alternate Member 2021 Cook Islands Dennis Hoskins Alternate Member 2017 2022 Cook Islands Donald Guinea Alternate Member 2022 Fiji Jan Sherani Member 2017 Fiji Alumita Lagicere Alternate Member 2018 Kiribati Mitateti Mote Member 2018 Kiribati Aako Teikake Alternate Member 2016 Nauru Nodel Neneiya Member 2019 Nauru Dominic Tabuna Alternate Member 2019 New Zealand David Weinstein Member 2018 New Zealand Daniel Toga Alternate Member 2021 2022 Niue Andre Siohane Member 2015 Niue Sonya Talagi Alternate Member 2015 Papua New Guinea Benedict Oraka Member 2021 Papua New Guinea Michael Terim Alternate Member 2016 Samoa Yvonne Mariner-Viliamu Alternate Member 2019 Samoa Ueta Solomona Alternate Member 2022 Solomon Islands Moses Virivolomo Member 2015 Solomon Islands Brian Halisanau Alternate Member 2017 Tonga Lopeti Heimuli Member 2020 Tonga John Wycliffe Havea Alternate Member 2018 2022 Tonga Vinolia Salesi Alternate Member 2022 Tuvalu Vavau Fatuuga Member 2021 Tuvalu Uinga Paelate Alternate Member 2011 Vanuatu Johnson Binaru Iauma Member 2021 Vanuatu Jackie T Langati Alternate Member 2019 2022 Vanuatu Grace Naparau Alternate Member 2022 2 PACIFIC AVIATION SAFETY OFFICE GENERAL MANAGER'S REPORT TO THE COUNCIL OF REPRESENTATIVES FOR THE YEAR ENDED 31 DECEMBER 2022 [cont’d] State of affairs The result of the Organisation's operations for the financial year is a surplus of AUD 327,113 (2021: surplus AUD 11,913). Activities The principal and continuing activity of the Organisation is the conduct of aviation oversight and safety in the Pacific Region. Property, plant and equipment During the financial year, World Bank Reform Project did not transfer assets to PASO (2021: Nil). Events subsequent to balance date At the date of this report, the Organisation has no other contingent liabilities or any charge on its assets securing the liability of any other parties since 31 December 2022. No contingent or other liability has become enforceable on or before the date of this report which, in the General Manager's opinion, will or may substantially affect the ability of the Organisation to meet its obligations as and when they fall due (2021: Nil). Loan and Grant covenants The following have been produced in accordance with: (i) Section 4.02 of the ADB Loan Agreement (ii) Section 3II .B. 3 of the WB Financing Agreement IDA-H883 (iii) Article 24 of the Government Hosting Agreement (iv) Dedicated Bank accounts (a) In USD Dollars for WB Grant funds (v) Audited financial statements have been furnished to World Bank no later than 6 months following the end of the financial year; and (vi) Furnish ADB such other information concerning such accounts and financial statements and the audit thereof. Other circumstances At the date of this report, the General Manager is not aware of any circumstances that would render any amount stated in the accounts misleading. Place of business The Pacific Aviation Safety Office is a non-profit International Organisation set up under the Pacific Islands Civil Aviation Safety and Security Treaty and operated for the benefit of member states. PASO is currently headquartered in Port Vila, Vanuatu. Distributions Any surpluses are used in the furtherance of its objectives and no distributions are made to members. Signed on behalf of the Council of Representatives, General Manager 27 June 2023 .............................................. .............................................. .............................................. Mr Andrew Valentine Position Date Chairman 27 June 2023 .............................................. .............................................. .............................................. Mr Fui Tupai Mau Simanu Position Date 3 Independent Auditor’s Report To the Council Representatives of Pacific Aviation Safety Office We have audited the accompanying financial statements of Pacific Aviation Safety Office which comprise the statement of financial position as at 31 December 2022, the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes set out on pages 12 to 19. Council of Representatives’ responsibility for the financial statements The Council of Representatives of the Organisation are responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (IPSAS 1). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the Organisation’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements have been properly prepared in accordance with the provisions of the Charitable Associations (Incorporation) Act [CAP 140] and give a true and fair view of the financial position of the Organisation as at 31 December 2022, and of its financial performance and its cash flows for the year then ended in accordance with International Public Sector Accounting Standards. Port Vila, 30 June ______/_____________/2023 AJC Chartered Professional Accountants (Qualified auditors under Section 130 of the Companies Act No.25 of 2012 of the Republic of Vanuatu) 4 PACIFIC AVIATION SAFETY OFFICE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 INDEPENDENT AUDIT REPORT TO THE MEMBERS Audit Findings In addition to our opinion on the statutory audit, as auditors of Pacific Aviation Safety Office (herein – PASO) we are required to form an opinion for the following items: (a) Repayment of ADB Loan Funds In our opinion, PASO fully utilised ADB funds for purposes as indicated in the loan agreement, as at 31 December 2022 and currently conforms to the repayment schedule. (b) Compliance with Specific and Financial ADB Covenants In our opinion, PASO has complied with the Particular Covenants set out in Article IV of the loan agreement. In our opinion, PASO has adhered to the requirements of the Financial Covenants in Schedule 5 paragraphs 13, 15, 17 - 19 of the loan agreement, however attention is drawn to paragraph 21 of the loan agreement which requires PASO to ensure its member countries provide, in a timely manner, all necessary counterpart funds and in-kind contributions for successful project implementation. This remains a challenge to PASO as it continues to strive to ensure that members of PASO meet their financial obligations in the required timeframe, however sometimes delays occur due to factors outside of PASO’s control. (c) Utilisation of Designated Funds under the WB Grant Funds In our opinion, PASO was compliant with the operation of the Designated Account as indicated in the Finance Agreement. (d) Statement of Expenditure Procedures We are unable to form an opinion on the Statement of Expenditure (SOE) Procedures, as they are not currently applicable to PASO. (e) Conformity with WB Procurement Guidelines In our opinion, PASO adhered to the WB Procurement Guidelines. 5 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars 2022 World Bank MFAT DFAT Note Operations Consolidated Project Project Project Revenue Operating revenue 1,104,184 1,816,933 1,802,735 1,093,322 5,817,174 Interest received 1 - - - 1 Other 6,537 - - - 6,537 Total revenue 3 1,110,722 1,816,933 1,802,735 1,093,322 5,823,712 Expenses Operating expenses 3 783,609 1,816,933 1,802,735 1,093,322 5,496,599 Net surplus 327,113 - - - 327,113 2021 Note Operations World MFAT DFAT Consolidated Bank Project Project Project Revenue Operating revenue 1,043,298 915,067 1,506,188 1,204,235 4,668,788 Interest received 2,763 - - - 2,763 Other 48,901 - - - 48,901 Total revenue 3 1,094,962 915,067 1,506,188 1,204,235 4,720,452 Expenses Operating expenses 3 1,083,049 915,067 1,506,188 1,204,235 4,708,539 Net surplus 11,913 - - - 11,913 The statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to and forming part of the financial statements as set out on pages 12 to 19. 6 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars 2022 Note Operations World MFAT DFAT Consolidated Bank Project Project Project Accumulated deficit at the beginning of the financial year (698,162) - - - (698,162) Net surplus for the financial 327,113 - - - 327,113 year Accumulated deficit at the end (371,049) - - - (371,049) of the financial year 2021 Note Operations World MFAT DFAT Consolidated Bank Project Project Project Accumulated deficit at the beginning of the financial year (710,075) - - - (710,075) Net surplus for the financial 11,913 - - - 11,913 year Accumulated deficit at the end (698,162) - - - (698,162) of the financial year The statement of changes in equity is to be read in conjunction with the notes to and forming part of the financial statements as set out on pages 12 to 19. 7 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022 Expressed in Australian dollars 2022 Note Operations WB MFAT DFAT Consolidated Project Project Project ASSETS Current assets Cash and cash equivalents 4 562,341 68,002 1,930,871 13,357 2,574,571 Receivables 5 - - - 4,627 4,627 Other assets 6 30,023 1,289 - - 31,312 592,364 69,291 1,930,871 17,984 2,610,510 Non-current assets Property, plant and equipment 7 163,919 - - - 163,919 163,919 - - - 163,919 TOTAL ASSETS 756,283 69,291 1,930,871 17,984 2,774,429 LIABILITIES Current liabilities Payables 8 30,219 - 931 8,878 40,028 Prepaid subscriptions 9 43,750 - - - 43,750 Other creditors 10 14,100 - 6,922 545 21,567 Borrowings 11 82,800 - - - 82,800 Provisions 12 17,418 - 16,375 697 34,490 Deferred revenue 13 139,256 - - - 139,256 327,543 - 24,228 10,120 361,891 Non-current liabilities Borrowings 11 733,206 - - - 733,206 Provisions 12 66,583 - 42,527 7,864 116,974 Revolving fund 14 - 69,291 1,864,116 - 1,933,407 799,789 69,291 1,906,643 7,864 2,783,587 TOTAL LIABILITIES 1,127,332 69,291 1,930,871 17,984 3,145,478 EXCESS OF LIABILITIES (371,049) - - - (371,049) OVER ASSETS Accumulated deficit at the (698,162) - - - (698,162) beginning of the financial year Net surplus for the financial year 327,113 - - - 327,113 TOTAL ACCUMULATED (371,049) - - - (371,049) .............................................. .............................................. Mr Andrew Valentine Mr Fui Tupai Mau Simanu General Manager Chairman 27 June 2023 27 June 2023 .............................................. .............................................. Date Date The statement of financial position is to be read in conjunction with the notes to and forming part of the financial statements as set out on pages 12 to 19. 8 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021 Expressed in Australian dollars 2021 Note Operations WB MFAT DFAT Consolidated Project Project Project ASSETS Current assets Cash and cash equivalents 4 678,017 341,653 1,979,051 795,718 3,794,439 Receivables 5 - - - - - Other assets 6 8,974 - - - 8,974 686,991 341,653 1,979,051 795,718 3,803,413 Non-current assets Property, plant and equipment 7 128,004 - - - 128,004 128,004 - - - 128,004 TOTAL ASSETS 814,995 341,653 1,979,051 795,718 3,931,417 LIABILITIES Current liabilities Payables 8 5,340 - - - 5,340 Prepaid subscriptions 9 141,940 - - - 141,940 Other creditors 10 8,024 - - - 8,024 Borrowings 11 83,021 - - - 83,021 Provisions 12 31,313 - - - 31,313 Deferred revenue 13 364,139 - - - 364,139 633,777 - - - 633,777 Non-current liabilities Borrowings 11 801,209 - - - 801,209 Provisions 12 78,171 - - - 78,171 Revolving fund 14 - 341,653 1,979,051 795,718 3,116,422 879,380 341,653 1,979,051 795,718 3,995,802 TOTAL LIABILITIES 1,513,157 341,653 1,979,051 795,718 4,629,579 EXCESS OF LIABILITIES (698,162) - - - (698,162) OVER ASSETS Accumulated deficit at the beginning of the financial year (710,075) - - - (710,075) Net surplus for the financial year 11,913 - - - 11,913 TOTAL ACCUMULATED (698,162) - - - (698,162) DEFICIT The statement of financial position is to be read in conjunction with the notes to and forming part of the financial statements as set out on pages 12 to 19. 9 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars 2022 Note Operations WB MFAT DFAT Consolidated Project Project Project Cash flows from operating activities Cash receipts in the course of operations 1,039,113 1,605,643 1,746,298 940,000 4,877,353 Cash payments in the course of operations (977,405) (1,879,294) (1,794,478) (1,722,361) (5,919,838) Interest received 1 - - - 1 Interest paid (13,283) - - - (13,283) Net cash used in operating activities 15 (b) 48,425 (273,651) (48,180) (782,361) (1,055,767) Cash flows from investing activities Purchase of property, plant and equipment (94,758) - - - (94,758) Proceeds on sale from property, plant and equipment 1,486 - - - 1,486 Net cash used in investing activities (93,272) - - - (93,272) Cash flows from financing activities Movement in borrowings (68,223) - - - (68,223) Net cash used in financing activities (68,223) - - - (68,223) Effect of foreign exchange rate changes (2,606) - - - (2,606) on cash and cash equivalents Net decrease in cash and cash (115,676) (273,651) (48,180) (782,361) (1,219,868) equivalents Cash and cash equivalents at the 678,017 341,653 1,979,051 795,718 3,794,439 beginning of the financial year Cash and cash equivalents at the end of 15 (a) 562,341 68,002 1,930,871 13,357 2,574,571 the financial year 2022 The statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements as set out on pages 12 to 19. 10 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2021 Expressed in Australian dollars 2021 Note Operations WB MFAT DFAT Consolidated Project Project Project Cash flows from operating activities Cash receipts in the course of operations 1,468,202 915,067 1,506,188 1,204,234 5,093,691 Cash payments in the course of operations (900,461) (943,208) (1,405,010) (1,208,469) (4,457,148) Interest received 2,763 - - - 2,763 Interest paid (14,552) - - - (14,552) Net cash provided by/(used in) 15 (b) 555,952 (28,141) 101,178 (4,235) 624,754 operating activities Cash flows from investing activities Purchase of property, plant and equipment (76,116) - - - (76,116) Proceeds on sale from property, plant and equipment 26,338 - - - 26,338 Net cash used in investing activities (49,778) (49,778) Cash flows from financing activities Movement in borrowings (82,817) - - - (82,817) Net cash used in financing activities (82,817) - - - (82,817) Effect of foreign exchange rate changes (9,149) - - - (9,149) on cash and cash equivalents Net increase/(decrease) in cash and cash 414,208 (28,141) 101,178 (4,235) 483,010 equivalents Cash and cash equivalents at the 263,809 369,794 1,877,873 799,953 3,311,429 beginning of the financial year Cash and cash equivalents at the end of 15 (a) 678,017 341,653 1,979,051 795,718 3,794,439 the financial year 2021 The statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements as set out on pages 12 to 19. 11 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars 1. Statement of significant accounting policies Pacific Aviation Safety Office (herein – the Organisation) is a non-profit International Organisation set up under the Pacific Islands Civil Aviation Safety and Security Treaty and operated for the benefit of member states. The significant policies which have been adopted in the preparation of these financial statements are: (a) Statement of compliance The financial statements of the Organisation are drawn up in accordance with International Public Sector Accounting Standards (IPSAS 1) adopted by the International Public Sector Accounting Standards Board (IPSASB) and the requirements of the Charitable Associations (Incorporation) Act [CAP 140]. (b) Basis of preparation They are prepared on the basis of historical costs and do not take into account changing money values or, except where stated, current valuations of non-current assets. The financial statements are presented in Australian dollars (AUD). The accounting policies are consistently applied and, except where there is a change in accounting policy, are consistent with those of the previous year. There were no changes in accounting policies during the current financial year. (c) Revenue recognition Grant revenue Grants are recognised in the income statement principally on an accrual basis. Grants that compensate the Organisation for expenses paid are recognised as revenue in the income statement in the same periods in which the expenses are incurred. Service revenue Incomes from services are recognised in the income statement upon completion of the service. (d) Foreign currencies Transactions in currencies other than the Organisation’s functional and presentation currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. 12 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars (e) Cash and cash equivalents The Organisation’s policy is to disclose bank balances under cash and cash equivalents, including bank overdrafts with balances that fluctuate frequently from being positive to overdrawn and temporary investments with a maturity period of three months or less from the date of acquisition. (f) Property, plant and equipment Acquisitions Items of property, plant and equipment are recorded at cost and depreciated as outlined below. Disposal of assets The gain or loss on disposal of assets are calculated as the difference between the carrying amount of the assets at the time of disposal and the proceeds on disposal and is included in the result in the year of disposal. Depreciation Depreciation is charged on a straight-line basis and the following rates are used: ● Office furniture 20% ● IT and office equipment 20% ● Motor vehicles 20% ● IT and communications equipment 33% Assets are depreciated from the date of acquisition. (g) Employee entitlements Wages, salaries and annual leave The provision for employees’ entitlements to wages, salaries and annual leave represents the amount that the Organisation has a present obligation to pay resulting from employees’ services provided up to balance date. The provision has been calculated at nominal amounts based on current wage and salary rates and includes related on-costs. Severance allowance Severance allowance is calculated at the rate of a month’s salary for each year of service. It is assumed that employees will remain in the Organisation employment for the period necessary to qualify for the respective entitlements. Vanuatu National Provident Fund Contributions to the Vanuatu National Provident Fund are recognised as an expense in the income statement in the period in which they are incurred. (h) Receivables Receivables are stated at nominal values, less write-downs for any amounts expected to be irrecoverable. (i) Value Added Tax (VAT) Under the Host State Agreement between the Government of the Republic of Vanuatu and the Organisation, its assets, income and property, owned or occupied in Vanuatu shall be exempt from all forms of taxation including Customs duties and Value Added Tax. 13 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars (j) Impairment The carrying amounts of the Organisation’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. (k) Comparatives Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. When possible, 2021 comparative figures were reclassed to present the same classification as 2022 regarding Operations, DFAT, MFAT and WB transactions. 2. Going concern The financial statements of the Organisation have been prepared on a going concern basis, which assumes continuity of normal business activities and the settlement of liabilities in the ordinary course of business. The Council representatives consider the going concern principle to be applicable in the preparation of these financial statements given the ongoing financial support provided by the Organisation’s aid donors and member nations’ utilisation of its services in generating income as well as yearly subscriptions of each member nations. 3. Net surplus 2022 2021 Net surplus has been arrived at after including: Operating revenue Service revenue 54,957 270,118 Member’s subscriptions 497,200 497,450 Grant Income – Vanuatu government hosting 268,481 275,730 Grant Income – World Bank 1,816,933 915,067 Grant Income – MFAT NZ 1,802,735 1,506,188 Grant Income – DFAT 1,093,322 1,204,235 Grant Income – PIFS 46,693 - General Funds 236,853 - 5,817,174 4,668,788 Interest income 1 2,763 Other 6,537 48,901 5,823,712 4,720,452 Operating expenses Depreciation 57,357 34,090 Staff related costs 395,560 398,762 Other operating expenses 330,692 650,197 World Bank Project expenses 1,816,933 915,067 MFAT Project expenses 1,802,735 1,506,188 DFAT Project expenses 1,093,322 1,204,235 5,496,599 4,708,539 Net surplus 327,113 11,913 14 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars 2022 2021 4. Cash and cash equivalents (a) PASO Operation Petty cash 250 244 Cash in bank – AUD Subscriptions account - 255 Cash in bank – AUD Service Fee account - 232 Cash in bank – Vatu account - 5,446 Cash in bank – AUD Operations account (ANZ) 389,134 508,057 Cash in bank – Vatu account (ANZ) 166,588 163,783 Cash in Bank - Escrow Vatu account (ANZ) 1,865 - Cash in Bank - Visa Card account (ANZ) 4,504 - 562,341 678,017 (b) World Bank Project Cash in bank – USD account (ANZ) 68,002 341,653 68,002 341,653 (c) MFAT Project Cash in bank – NZD account - 184 Cash in bank – NZD account (MFAT 1 – ANZ) 121,091 455,932 Cash in bank – NZD account (MFAT 2 – ANZ) 1,809,780 1,522,935 1,930,871 1,979,051 (d) DFAT Project Cash in bank – AUD account - 8 Cash in bank – AUD account (ANZ) 13,357 795,710 13,357 795,718 2,574,571 3,794,439 5. Receivables Contribution from member states - 36,360 Sundry debtors 4,627 - Less: Provision for doubtful debts - (36,360) 4,627 - 6. Other assets Bonds 11,793 5,608 Prepayments 6,872 3,365 Intercompany transfers 12,647 - 31,312 8,974 15 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars 7. Property, plant and equipment 2022 2021 Office furniture At cost 65,101 28,175 Less: Accumulated depreciation (22,936) (22,041) 42,165 6,134 IT and office equipment At cost 192,349 149,984 Less: Accumulated depreciation (120,858) (93,391) 71,491 56,593 Motor vehicles At cost 76,438 76,165 Less: Accumulated depreciation (26,175) (10,888) 50,263 65,277 Total property, plant and equipment - at net book 163,919 128,004 value Movement in property, plant and equipment Opening net book value 128,004 51,888 Additions 94,760 110,207 Disposal (1,488) (48,995) Depreciation (57,357) 14,904 Closing net book value 163,919 128,004 8. 8. Payables Trade creditors 40,028 5,340 40,028 5,340 9. Prepaid subscriptions Government of Australia 43,750 141,940 43,750 141,940 10. Other creditors Accrued expenses 11,031 8,024 Wages payable 10,536 - 21,567 8,024 11. Borrowings Current Loan – Asian Development Bank 82,800 83,021 Non-current Loan – Asian Development Bank 733,206 801,209 816,006 884,230 16 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars Bank loan details The loan from Asian Development Bank is for a Special Project, the objective of which is to ensure that the Pacific Aviation sector meets all international requirements for safety and security regulation and oversight. An interest rate of 1.5% per annum is charged on the outstanding amount on the loan account. In accordance with the updated loan schedule, the date of the final payment is 15 January 2033. 11. 12. Provisions – for Employee’s entitlements 2022 2021 Current Operations 17,418 31,313 MFAT 16,375 - DFAT 697 - 34,490 31,313 Non-current Operations 66,583 78,171 MFAT 42,527 - DFAT 7,864 - 116,974 78,171 13. Deferred Revenue a. Work Plan Percentage Model (WPPM) 94,266 133,294 b. Vanuatu Government / Hosting - 13,003 c. Commitments not completed - 220,000 d. Special projects 7,135 (2,161) e. Deferred income 37,855 - 139,256 364,136 a. The WPPM model introduced in 2020 has been affected by the travel restrictions due to the pandemic, the unutilized number of prepaid days has been deferred to 2023. 14. Revolving fund 2022 WB MFAT DFAT Movement in revolving fund Operation Project Project Project Consolidated Opening balance - 341,653 1,979,051 795,718 3,116,422 Add: Receipts (increase) - 1,605,643 1,746,298 940,000 4,291,941 Less: Funds utilised during the - (1,816,933) (1,861,233) (1,093,322) (4,771,488) year (decrease) Less: Return of unspent funds - (61,072) - (642,396) (703,468) Closing balance - 69,291 1,864,116 - 1,933,407 2021 WB MFAT DFAT Movement in revolving fund Operation Project Project Project Consolidated Opening balance - 367,851 1,823,180 799,953 2,990,984 Add: Receipts (increase) - 888,869 1,662,059 1,200,000 3,750,928 Less: Funds utilised during the - (915,067) (1,506,188) (1,204,235) (3,625,490) year (decrease) Closing balance - 341,653 1,979,051 795,718 3,116,422 17 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars a. In 2021, a new funding MFAT PASO Agreement was signed for NZD 9,100,000 over 5 years to support the implementation of the Pacific Regional Aviation Safety and Security project. The first tranche of NZD 1,750,000 has been received in 2021. The second tranche of NZD 1,875,000 was received in 2022. The unspent portion of the grant is treated as revolving funds in the balance sheet of the Organisation. b. In 2021, the DFAT COVID 19 PASO Agreement second tranche was received, with a balance of AUD 795,718 deferred to 2022. This amount was fully utilised in 2022. c. The World Bank Project, which has been ongoing since 2014 came to a conclusion on 31 December 2022. The unspent amount of AUD 69,691 is due to be refunded to the World Bank early 2023. 15. Notes to the statement of cash flows - Operations (a) Reconciliation of cash and cash equivalents - Operations For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and at bank, net of outstanding bank overdrafts. Cash and cash equivalents as at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the balance sheet as follows: 2022 2021 Cash in bank and on hand 562,341 678,017 (b) Reconciliation of net surplus to net cash provided by operating activities - Operations Net surplus 327,113 11,913 Non-cash items - Depreciation 57,357 34,090 - Gain on disposal of assets (1,779) (26,338) - Unrealised FX loss/(gain) 15,582 (20,326) Net cash provided by operating activities before change 398,273 (661) in assets and liabilities Change in assets and liabilities during the financial year Decrease in receivables - 435,825 Increase in other assets (21,049) (3,731) Increase/(decrease) in payables 24,879 (7,104) (Decrease)/increase in prepaid subscriptions (98,190) 98,354 (Decrease)/increase in deferred revenue (236,081) 679 Increase in other creditors 6,076 - (Decrease)/increase in provisions (25,483) 32,590 (349,847) 556,613 Net cash provided by operating activities 48,425 555,952 18 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars 16. Principal activities Pacific Aviation Safety Office’s primary activity is providing technical services for aviation safety in compliance with international requirements for safety and security regulation and oversight within the 13 member South Pacific nations. The Organisation receives income as follows: (a) Annual subscription fees from member nations and income from services rendered to various Civil Aviation Authorities. (b) Grants from the Government of Vanuatu, the New Zealand Ministry of Foreign Affairs and the Australia Ministry of Foreign Affairs and Trade and World Bank. 17. Contingent liabilities The Council of Representatives are aware of no contingent liabilities as at the date of signing the General Manager’s report (2021: Nil). 18. Subsequent events The worldwide coronavirus pandemic continued to impact the global aviation industry and as a result reduced the scale and scope of the Organisation’s regular inspections and other activities. However, the latter half of 2022 saw most Member’s borders reopen, and the ability to commence returning to normal operations. The Council of Directors and the Organisation’s management continue to closely monitoring its operations, liquidity, and capital resources, however it is expected that 2023 will return to a somewhat traditional year of operations. In early January 2023, a new funding arrangement was signed with DFAT under the PASO 2023 Pacific Safety Compliance. An initial amount of AUD 1,066,000 has been provided and will be used to continue to support Members for their ICAO Aerodromes compliance and audit and inspection programs in the 2023 financial year. Further additional funding will also be requested for other activities in the second quarter of 2023. 19. Employees The number of full-time permanent employees as at 31 December 2022 was 20 (2021: 16). 19 PACIFIC AVIATION SAFETY OFFICE AUDITOR’S DISCLAIMER The additional financial data presented on pages 21 to 23 are in accordance with the books and records of the Organisation which have been subjected to the auditing procedures applied in our audit of the Pacific Aviation Safety Office for the year ended 31 December 2022. It will be appreciated that the additional financial data is provided for management information purposes only and does not form part of the audited financial statements presented on pages 6 to 19. Accordingly, we do not express an opinion on the additional financial data. 30 June Port Vila, ______/__________/2023 AJC Chartered Professional Accountants (Qualified auditors under Section 130 of the Companies Act No.25 of 2012 of the Republic of Vanuatu) 20 PACIFIC AVIATION SAFETY OFFICE DETAILED INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars and United States dollars 2022 2021 Income Members subscriptions 497,200 497,450 Service revenue 54,957 270,118 Grant Income –Vanuatu Government 268,481 275,730 Grant income – New Zealand 1,802,735 1,506,188 Grant income - World Bank 1,816,933 915,067 Administration Contributions - 69,176 Grant income Australia 1,093,322 1,204,235 Grant Income PIFS 46,693 - General Funds 236,853 - Other income 6,537 (20,275) Interest received 1 2,763 Total Income 5,823,712 4,720,452 Expenditures Inspection fees 7,125 208,579 Travel operation expenses 170,015 61,187 Salaries and wages - Administration 954,225 818,663 Salaries and wages - Operations 420,060 362,980 Severance 38,963 16,539 Council expenses 29,266 644 Rent 48,911 63,841 Staff recruitment and relocation 34,902 89,462 Interest paid 13,283 14,552 Depreciation 57,357 34,090 Staff entitlements – operations - 730 ICT support 29,987 50,423 Light and power 17,606 12,472 Office expenses 13,616 18,349 Auditor's remuneration 10,253 8,024 Telephone and internet expenses 36,242 30,025 Insurance 8,683 4,722 Bank charges 13,793 14,377 Printing and stationery 6,589 1,448 Annual leave 2,861 18,513 Motor vehicle expenses 2,336 3,560 Office relocation expense 155,619 - Miscellaneous expenses 185 218,268 Net foreign exchange loss/(gain) 18,188 (11,509) Entertainment expenses 3,994 4,298 Postage and freight - 82 Consultancy fees 1,619,319 1,708,818 World Bank project expenses 1,816,933 915,067 Accounting fees 2,648 3,975 Provision for doubtful debts (36,360) 36,360 Total expenses 5,496,599 4,708,539 Net Surplus 327,113 11,913 21 Independent Auditor’s Report To the Council of Representatives of the Pacific Aviation Safety Office We have audited the statement of income and expenditures (herein - the financial statements) for the Pacific Aviation Safety Office Reform Project (herein - the Project) as set out on page 22, for the year ended 31 December 2022. These financial statements are the responsibility of the Council of Representatives. Council of Representatives’ responsibility for the financial statements The Council of Representatives of the Organisation are responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (IPSAS 1). This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the Organisation’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Unqualified Opinion In our opinion: • The financial statements present fairly, in all material respects, the actual expenditure incurred, and funds received by the Project for the period 1 January 2022 to 31 December 2022 in conformity with the applicable contractual conditions; and • The funds provided by the World Bank have, in all material respects, been used in conformity with the applicable contractual conditions. 30 June Port Vila, ______/___________/2023 AJC Chartered Professional Accountants (Qualified auditors under Section 130 of the Companies Act No.25 of 2012 of the Republic of Vanuatu) 22 PACIFIC AVIATION SAFETY OFFICE DETAILED INCOME AND EXPENDITURE STATEMENT – REFORM PROJECT FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars and United States dollars 2022 2021 2022 2021 AUD AUD USD USD Income Grant income – World Bank 1,816,933 915,067 1,256,219 663,440 Total Grant Income 1,816,933 915,067 1,256,219 663,440 Expenditure Component A A04 – Financial Audits - 1,952 - 1,415 A07 – Training 33,167 20,289 22,931 14,710 A08.3 – Project IOC 61,587 13,299 42,581 9,642 A08.3.3 – Project IOC – IDA AF - 46 - 33 A11.3 Strategic Planning 104,647 59,877 72,353 43,412 A11.4 – Stakeholder Engagement AF2 20,913 5,039 14,459 3,654 A11.5 – Stakeholder Engagement 146,859 - 101,537 - A12 – PAIP Program Manager 25,088 51,430 17,346 37,287 A13 – PAIP Finance Manager 45,788 22,655 31,658 16,426 A14 – Procurement Specialist 79,595 62,900 55,032 45,604 A15 – Economist & Financial Specialist - 17,688 - 12,824 A16 – Aviation Specialist – Legal 46,309 42,645 32,018 30,918 A17 – IT adviser 14,524 163,453 10,042 118,506 A18 - Communications Advisor 90,521 62,770 62,586 45,509 A20 Graphic Designer 33,858 - 23,409 - A21 Quality Assurance Specialist 38,618 58,480 26,700 42,400 A22 - Business Analyst 27,842 - 19,250 - A23 - GASOS Safety Advisor 63,353 - 43,802 - A24 - Legal Specialist 73,336 - 50,704 - A25 - Project Manager 131,279 - 90,766 - A26 - WB Training Coordinator 54,238 - 37,500 - A27 - GASOS Air/w. Technical Writer 82,442 - 57,000 - A28 Air Navigation Technical Writer 58,549 - 40,480 - A29 Regional Aviation Strategy 360,146 - 249,003 - A30 - RSOO Funding Model 41,715 - 28,842 - A32 - PEL Ops Technical Writer 60,606 - 41,903 - A33 - Financial Audit 1,887 - 1,304 - 1,696,867 582,523 1,173,206 422,340 Component B B.04 Training PASO Inspectors 17,411 5,066 12,038 3,673 B05 – Training for CAAs 7,452 6,018 5,152 4,363 B06 – Training for Council Members 84,830 - 58,651 - B07 – USOAP/USAP Advisor - 78,274 - 56,750 109,693 89,358 75,841 64,786 23 PACIFIC AVIATION SAFETY OFFICE DETAILED INCOME AND EXPENDITURE STATEMENT – REFORM PROJECT FOR THE YEAR ENDED 31 DECEMBER 2022 Expressed in Australian dollars and United States dollars Component C C03.5 IT Equipment 10,373 41,271 7,172 29,922 10,373 41,271 7,172 29,922 Component D D04.2 – RPAS Consultancy - 201,915 - 146,392 - 201,915 - 146,392 Total Expenses 1,816,933 915,067 1,256,219 663,440 Net Surplus - - - - Note: Transactions in USD are recognised at the rates of exchange prevailing at the dates of the transactions. 24