AUDIT REPORT ON SPECIAL-PURPOSE ANNUAL FINANCIAL REPORT OF THE PROJECT FOR COMPETITIVENESS AND EXPORT READINESS FOR THE PERIOD 1 JANUARY UNTIL 31 DECEMBER 2020 Prishtina, August 2021 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE TABLE OF CONTENT 1 Audit Opinion 2 Audit Scope and Methodology Annex I: Explanation of the Different Types of Opinion Applied by NAO Annex II: Letter of Confirmation 2 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE To: Rozeta Hajdari, Minister Address: Rr.”Muharrem Fejza”, p.n Lagjja e Spitalit, Prishtinë, Republika e Kosovës 1 Audit Opinion This report summarises the key issues arising from our audit of special-purpose financial statements of the Project for Competitiveness and Export Readiness for the period 1 January 2020 until 31 December 2020, which determines the Opinion of the Auditor General on Annual Financial Statements. Examination of special-purpose financial statements for the audit period has been carried out in accordance with the International Standards of Supreme Audit Institutions (ISSAIs). Our audit approach included tests and procedures we deemed necessary to provide a basis for our opinion on the financial report. Issues related to management reporting, controls, and implementation of recommendations are presented in the Management Letter attached to the audit report. 1.1 Audit Opinion on annual financial statements of the project for competitiveness and export readiness Our audit of special-purpose annual financial statements considers compliance with reporting requirements under the agreement and the quality and accuracy of information presented in the financial statements. Unmodified Opinion We have audited the special-purpose financial statements of the project funded by World Bank, for the period 1 January 2020 until 31 December 2020, which involves a summary of funds resources and expenditures incurred, statement of application for withdrawal of funds and disclosures. In our opinion, the special-purpose annual financial statements of the Project for Competitiveness and Export Readiness, for the period 1 January 2020 until 31 December 2020, give a true and fair view in all material respects, in accordance with reporting requirements agreed by both parties and in accordance with the principles of cash based accounting. Basis for opinion Our audit was conducted in accordance with International Standards of Supreme Audit Institutions (ISSAIs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the AFS section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 3 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Emphasis of Matter – Basis of accounting 1 We would like to draw your attention to the fact that the financial statements have been prepared in compliance with special-purpose framework. As a result, they cannot be used for any other purposes. Our audit opinion was not modified in this respect. Responsibility of Management and those charged with governance The Management is responsible for the preparation of true and fair special-purpose financial statements in accordance with the Agreement entered into between the Government of Kosovo, represented by the Minister of Finance, and International Development Association. Cooperation Agency. This information consist of the Statement of Funds and their Use and the Statement of Funds Withdrawal. The Minister is responsible to ensure the oversight of the financial reporting process in the Ministry of Trade and Industry. Auditor General’s Responsibility for the audit We have carried out the audit in accordance with the Law on National Audit Office and INTOSAI Framework of Professional Pronouncements (IFPP). This law and these standards require that we honour the ethical criteria and we plan and carry out the audit to obtain reasonable assurance that financial statements are free from material misstatements. The audit involves performing procedures to obtain audit evidence about the financial records and disclosures in the financial statements. The selected procedures depend on the auditor’s judgment, including the assessment of the risks of material misstatement in the AFS, whether due to fraud or error. The audit also includes assessing the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management, as well as assessing the presentation of the financial statements. In making those risk assessments, we consider the internal control system relevant to the entity’s preparation of the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control . However, we will communicate in written any significant shortcoming in internal control relevant to the audit of financial statements that we have identified during the audit. 4 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE 2 Audit Scope and Methodology Based on the agreement/contract entered into with the World Bank, the National Audit Office (NAO) is responsible to carry out regularity audit. This audit involves the examination and evaluation of financial statements and other financial records, as well following: • Whether the special-purpose financial statements give a true and fair view of the accounts and financial affairs for the audit period; • Whether the financial records, systems and transactions comply with applicable laws and regulations; • Whether the financial records, systems and transactions comply with laws and regulations applicable for funds allocated by the World Bank; • Whether financial statements comply with the requirements of the agreement concluded between the Republic of Kosovo, represented by the Minister of Finance, and the International Development Association; • Appropriateness of internal control functions; and • All matters arising from or related to the audit and additional tasks according to procedures agreed. Our audit was focused on risk assessment. We have analysed the operations of the Project Implementation Unit and the extent the management controls could be relied to in order to determine the level of in-depth testing required to obtain evidence supporting the Auditor General’s opinion. Our procedures have included a review of internal controls, accounting systems and interrelated substantive tests, as well as related governance arrangements to the extent considered necessary for the effective conduct of audit. Audit findings should not be considered as a comprehensive overview of weaknesses that may exist or of all improvement that can be made to the systems and procedures applied. The report shall include the findings that are part of the opinion on the financial statements. Whilst findings related to financial management, internal control function, and compliance issues will be summarised in the Management Letter. 5 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Vlora Spanca, Auditor General Arvita Zyferi, Assistant Auditor General Florim Beqiri, Head of Audit Shpresa Zenelaj, Team Leader Antigona Çitaku, Team member Mimoza Morina, Team member 6 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Annex I: Explanation of the Different Types of Opinion Applied by NAO (extract from ISSAI 200) Form of opinion 147. The auditor should express an unmodified opinion if it is concluded that the financial statements are prepared, in all material respects, in accordance with the applicable financial framework. If the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement, or is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement, the auditor should modify the opinion in the auditor’s report in accordance with the section on “Determining the type of modification to the auditor’s opinion”. 148. If financial statements prepared in accordance with the requirements of a fair presentation framework do not achieve fair presentation, the auditor should discuss the matter with the management and, depending on the requirements of the applicable financial reporting framework and how the matter is resolved, determine whether it is necessary to modify the audit opinion. Modifications to the opinion in the auditor’s report 151. The auditor should modify the opinion in the auditor's report if it is concluded that, based on the audit evidence obtained, the financial statements as a whole are not free from material misstatement, or if the auditor was unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement. Auditors may issue three types of modified opinions: a qualified opinion, an adverse opinion and a disclaimer of opinion. 7 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Determining the type of modification to the auditor’s opinion 152. The decision regarding which type of modified opinion is appropriate depends upon: • The nature of the matter giving rise to the modification – that is, whether the financial statements are materially misstated or, in the event that it was impossible to obtain sufficient appropriate audit evidence, may be materially misstated; and • The auditor’s judgment about the pervasiveness of the effects or possible effects of the matter on the financial statements. 153. The auditor should express a qualified opinion if: (1) having obtained sufficient appropriate audit evidence, the auditor concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the financial statements; or (2) the auditor was unable to obtain sufficient appropriate audit evidence on which to base an opinion, but concludes that the effects on the financial statements of any undetected misstatements could be material but not pervasive. 154. The auditor should express an adverse opinion if, having obtained sufficient appropriate audit evidence, the auditor concludes that misstatements, individually or in the aggregate, are both material and pervasive to the financial statements. 155. The auditor should disclaim an opinion if, having been unable to obtain sufficient appropriate audit evidence on which to base the opinion, the auditor concludes that the effects on the financial statements of any undetected misstatements could be both material and pervasive. If, after accepting the engagement, the auditor becomes aware that management has imposed a limitation on the audit scope that the auditor considers likely to result in the need to express a qualified opinion or to disclaim an opinion on the financial statements, the auditor should request that management remove the limitation. 156. If expressing a modified audit opinion, the auditor should also modify the heading to correspond with the type of opinion expressed. ISSAI 170519 provides additional guidance on the specific language to use when expressing a modified opinion and describing the auditor’s responsibility. It also includes illustrative examples of reports . 8 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Emphasis of Matter paragraphs and Other Matters paragraphs in the auditor’s report 157. If the auditor considers it necessary to draw users’ attention to a matter presented or disclosed in the financial statements that is of such importance that it is fundamental to their understanding of the financial statements, but there is sufficient appropriate evidence that the matter is not materially misstated in the financial statements, the auditor should include an Emphasis of Matter paragraph in the auditor’s report. Emphasis of Matter paragraphs should only refer to information presented or disclosed in the financial statements. 158. An Emphasis of Matter paragraph should: • be included immediately after the opinion; • use the Heading “Emphasis of Matter” or another appropriate heading; • include a clear reference to the matter being emphasised and indicate where the relevant disclosures that fully describe the matter can be found in the financial statements; and • indicate that the auditor’s opinion is not modified in respect of the matter emphasised. 159. If the auditor considers it necessary to communicate a matter, other than those that are presented or disclosed in the financial statements, which, in the auditor’s judgement, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report, and provided this is not prohibited by law or regulation, this should be done in a paragraph with the heading “Other Matter,” or another appropriate heading. This paragraph should appear immediately after the opinion and any Emphasis of Matter paragraph. 9 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Annex II: Letter of Confirmation 10 ZYRA KOMBËTARE E AUDITIMIT - NACIONALNA KANCELARIJA REVIZIJE - NATIONAL AUDIT OFFICE Financial Statements for the year ended December 31, 2020 11