"Public Sector Accounting Reform Project" Grant No. TF 012893 Special purpose project financial statements for the year ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017 and independent auditors' report "PUBLIC SECTOR ACCOUNTING REFORM PROJECT" GRANT NO. TF 012893 TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 AND GRACE PERIOD FROM JANUARY 1, 2017 TO APRIL 30, 2017 2 INDEPENDENT AUDITORS' REPORT 3-5 SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 AND GRACE PERIOD FROM JANUARY 1, 2017 TO APRIL 30, 2017: Statement of cash proceeds and disbursements 6 Statement of uses of funds by project components 7 Notes to the special purpose project financial statements 8-13 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 AND GRACE PERIOD FROM JANUARY 1, 2017 TO APRIL 30, 2017 The following statement, which should be read in conjunction with the independent auditors' responsibilities stated in the independent auditors' report set out on pages 3-5, is made with a view to distinguish the respective responsibilities of management and those of the independent auditors in relation to the special purpose project financial statements of the "Public Sector Accounting Reform Project", Grant No. TF 012893 (the "Project"). Management is responsible for the preparation of the special purpose project financial statements that present fairly, in all material respects, cash proceeds and disbursements and uses of funds by project components of the Project for the year ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017 in accordance with International Public Sector Accounting Standard "Financial Reporting Under the Cash Basis of Accounting" (the "IPSAS") issued by the International Public Accounting Standards Board of the International Federation of Accountants and the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities" (the "WB Guidelines"). In preparing the special purpose project financial statements, management is responsible for: * selecting suitable accounting policies and applying them consistently; * making judgments and estimates that are reasonable and prudent; * stating whether IPSAS and WB Guidelines have been followed, subject to any material departures disclosed and explained in the special purpose project financial statements; and * preparing the special purpose project financial statements on a going concern basis, unless it is inappropriate to presume that the Project will continue its activity for the foreseeable future. Management is also responsible for: * designing, implementing and maintaining effective and sound system of internal control and for revealing risks in system of internal control; * maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financial position of the Project, and which enable them to ensure that the special purpose project financial statements of the Project comply with IPSAS and WB Guidelines; * compliance with laws and regulations of the Republic of Tajikistan, accounting system of the Project and the requirements of the World Bank; * taking such steps as are reasonably available to them to safeguard the assets of the Project; and * detecting and preventing fraud and other irregularities. The special purpose project financial statements for the year ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017 were approved and authorized for issue on May 26, 2017 by the management of the Project. On b agement: ur' inzoda R. Boboev Director Project Coordinator May 26, 2017 May 26, 2017 Dushanbe, Republic of Tajikistan Dushanbe, Republic of Tajikistan 2 BAKER TILLY OF EXCELLENCE Baker Tilly Klitou and Partners SRL Trade Reg. No: J40/5434/2003 CAFR Reg. No: 384/26.05.2003 Bucharest, Romania T: +40 21 3156100 | F: +40 21 3156102 info@bakertilly.ro www.bakertilly.ro INDEPENDENT AUDITORS' REPORT To the management of the "Public Sector Accounting Reform Project" under the Ministry of Finance of the Republic of Tajikistan and the State Committee on Investments and Government Property Management of the Republic of Tajikistan: Report on the special purpose project financial statements Opinion [1] We have audited the special purpose project financial statements of the "Public Sector Accounting Reform Project" (the "Project") which comprise the statement of cash proceeds and disbursements and the statement of uses of funds by project components for the year ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017, and a summary of significant accounting policies and other explanatory information (the "special purpose project financial statements"). [2] In our opinion, the accompanying special purpose project financial statements present fairly, in all material respects, cash proceeds and disbursements and uses of funds by project components of the Project for the year ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017 in accordance with International Public Sector Accounting Standard "Financial Reporting Under the Cash Basis of Accounting" (the "IPSAS") issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, and the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities" (the "WB Guidelines"). Basis for opinion [3] We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Project in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Tajikistan, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Offices: 3 Cyprus Greece Bulgaria Romania Moldova Nicosia T: +357 22 458500 Athens, Thessaloniki Sofia T: +359 2 9580980 Bucharest T: +40 21 3156100 Chisinau T: +373 22 233003 Limassol T: +357 25 591515 T: +30 215 500 6060 Larnaca T: +357 24 663299 An independent member of Baker Tilly International Registered in Romania (RN: J40/4820/2004). List of directors can be found at the Company' s Registered Office. BAKER TILLY OFEXCE Emphasis of matter [4] Without qualifying our opinion, we draw attention to Note 2 to the special purpose project financial statements which describe the basis of accounting. These special purpose project financial statements were prepared for complying with the appropriate World Bank Guidelines and Grant agreement requirements, and therefore are not intended to be a complete presentation of the "Public Sector Accounting Reform Project" (the "Project") operations. Other matter [5] The special purpose project financial statements are prepared to assist the Project to comply with the requirements of the World Bank. As a result, the special purpose project financial statements may not be suitable for another purpose. Responsibilities of management and those charged with governance for the special purpose project financial statements [6] Management is responsible for the preparation and fair presentation of the special purpose project financial statements in accordance with International Public Sector Accounting Standard "Financial Reporting Under the Cash Basis of Accounting" (the "IPSAS") issued by the International Public Accounting Standards Board of the International Federation of Accountants, and the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities" (the "WB Guidelines"), and for such internal control as management determines is necessary to enable the preparation of the special purpose project financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibilities for the audit of the special purpose project financial statements [7] Our objectives are to obtain reasonable assurance about whether the special purpose project financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the special purpose project financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the special purpose project financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 4 BAKER TILLY OFEXC * Obtain an understanding of internal control relevant to the audit 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 Project's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the special purpose project financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Project to cease to continue as a going concern. * Evaluate the overall presentation, structure and content of the special purpose project financial statements, including the disclosures, and whether the special purpose project financial statements represent the underlying transactions and events in a manner that achieves fair presentation. [8] We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. [9] We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. Baker Tilly Klitou and Partners SRL U010To AtAD Bucharest, Romania May 26, 2017 5 z c, 2. e -ø1, Q " C n cne cr- - m r* -. - o -1 0 n-i bi- - a C4 r_ c -IT 9 2. ft 0 00 ~ e C> <D~ . «0i4 r o St - o to ap 50 3 me Øc * m _O CJ ~m g ri) tbt' nn OD CL <b -n <b oa oa > 0 22 100 g0b sn -7 3 f 0 b- 1 CL '> CD C) C>% #D <INI 0ý C0 a a 1 <b- -u ·―녹／纏―-&& "PUBLIC SECTOR ACCOUNTING REFORM PROJECT" GRANT NO. TF 012893 NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2016 AND G RACE PERIOD F ROM JAN UARY 1, 2017 TO APRIL 30, 2017 (in US Dolla s) _ I. GENERAL INFORMATION According to the Agreement between the Republic of Tajikistan and International Development Association (the "IDA") signed on October 4, 2012 the IDA, acting as administrator of grant funds provided by the Swiss State Secretariat for Economic Affairs under the Tajikistan Public Sector Accounting Reform Trust Fund, provided to the Republic of Tajikistan a Grant No. TF 012893 in the amount of 2,160,000 USD. According to the Amendment to the Agreement between the Republic of Tajikistan and the IDA signed on December 5, 2015 the IDA provided additional financing in the amount of 245,000 USD. The Grant was provided for the "Public Sector Accounting Reform Project" (the "Projeef'). Project purpose The objective of the Project is to improve the quality, reliability and consistency of the financial reporting in the public sector of the Republic of Tajikistan. The Public Sector Accounting Reform component is intended to: (1) adopt and implement the Unified Chart of Accounts (the "UCA"), (2) develop and adopt the accounting policies in the public sector; (3) strengthen the institutional and technical potcntial for the public officials in using the accounting standards in the public sector and UCA through training and peer learning; (4) capacity building of the public finance management sector heads through training and peer learning. Project management The Project is implemented by the Project Administrative Support and Procurements Group (the "PASPG") under the Ministry of Finance of the Republic of Tajikistan. Duration of the Project is from October 4, 2012 to December 31, 2016 and grace period from January 1, 2017 to April 30, 2017. 2. PRESENTATION OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTS Basis of preparation These special purpose project financial statements have been prepared in accordance with the International Public Sector Accounting Standard (the "IPSAS") "Financial Reporting under the Cash Basis of Accounting" issued by the Public Sector Committee of the International Federation of Accountants, and incorporate the following principal accounting policies, which have been consistently followed in all material respects and comply with the World Bank's Financial Management Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World Bank Financed Activities" (the "WB Guidelines"). Under the cash basis approach income (or expenditure) is recognized when cash is received (or paid) irrespective of when goods or servicesare received or provided. 8 The Project's approved budget disclosed by categories of expenses is not publicly available and as such comparison of budget and actual amounts is not presented. These special purpose project financial statements consist of: * Statement of cash proceeds and disbursements; * Statement of uses of funds by project components; * Notes to the special purpose project financial statements, including short description of main statements of accounting policy and other descriptive notes. The reporting currency of these special purpose project financial statements is US Dollars (the "USD"). 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash basis of accounting The special purpose project financial statements are prepared on a cash basis of accounting. The cash basis of accounting recognizes transactions and events only when cash (including cash equivalents) is received or paid by the Project. The special purpose project financial statements prepared under the cash basis provide readers with information about the sources of cash raised during the period, the purposes for which cash was used and the cash balances at the reporting date. The measurement focus in the special purpose project financial statements is balances of cash and changes therein, Foreign currency Operations in foreign currency initially arc counted in functional currency by the official currency exchange rate settled by the National Bank of Tajikistan (the "NBT") on a date of operation. All payments made in local currency are translated into USD at the official exchange rate defined by National Bank of Tajikistan, at the date of transaction. Monetary assets and liabilities expressed in foreign currency are converted to functional currency at official exchange rate on a date settled by the NBT. All foreign exchange differences resulted from maturity or recounting are included in statement of cash proceeds and disbursements. Non-monetary items are valued according to their historic cost in foreign currency, which are recalculated on rates of the initial operation date. Cash and cash equivalents Cash and cash equivalents include cash on hand and due from banks, which can be converted to the corresponding amount of cash in the short term. Taxes Calculation and payment of personal income tax and social security contributions from income of local staff and consultants is made in accordance with the requirements and rates of the Tax Code of the Republic of Tajikistan. Project expenses The expenses are recorded in the period when they were actually paid. Sources of funds The funds were provided by the World Bank to the Project by replenishment of special account. 9 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents as at April 30, 2017, December 31, 2016 and 2015 comprise: April 30, December 31, December 31, 2017 2016 2015 Special account in foreign currency - 89,923 71,031 Transit account in national currency I 1 - Escrow account in the National Bank of Tajikistan 8,939 8,939 - 8,940 98,863 71,031 The cash balance as at April 30, 2017 and December 31, 2016 in amount of 8,939 US dollars was temporarily transferred to the escrow account in the National Bank of Tajikistan for payment by the State Committee on Investments and Government Property Management of the Republic of Tajikistan for audit services (Note 10) and subsequent return of remaining funds to the World Bank 10 S. CUMULATIVE PROJECT EXPENDITURES Project expenditures by components are presented in the statement of funds by project components. Project expenditures on maj or categories are presented in the statement of cash proceeds and disbursements. Breakdown of project expenses by nature is presented as follows: For the grace Cumulative For the year ended Cumulative For the year ended Cumulative period from December 31, December 31, January 1, 2017 to 2016 2015 April 30, 2017 Purchase of computer equipment 89,923 89,923 - - Consultant's services - 1,373,643 149,435 1,373,643 305,894 1,224,208 Trainer's fees - 548,501 88,000 548,501 175,938 460,501 Workshops - 189,741 8,297 189,741 77,967 181,444 Salary and related taxes - 67,415 13,215 67,415 21,477 54,200 Business trip - 60,613 25,478 60,613 11,722 35,135 Audit - 31,249 7,812 31,249 23,437 23,437 Communications - 15,200 2,081 15,200 5,334 13,119 Office supplies - 7,104 912 7,104 630 6,192 Expenses for accounting software 4,200 - 4,200 - 4,200 Bank fees - 3,290 319 3,290 502 2,971 Other - 5,179 551 5,179 1,807 4,628 89,923 2,396,058 296,100 2,306,135 624,708 2,010,035 6. FUNDS RECEIVED The funds received were presented by the following reimbursement methods: For the grace Cumulative For the year ended Cumulative For the year ended Cumulative period from December 31, December 31, January 1, 2017 to 2016 2015 April 30, 2017 Financing methods: Advances received - 619,982 191,983 619,982 128,000 427,999 Reimbursement of expenses - 1,737,791 131,951 1,737,791 424,982 1,605,840 Direct payments - 47,227 - 47,227 47,227 47,227 - 2,405,000 323,934 2,405,000 600,209 2,081,066 11 7. FINANCIAL POSITION Financial position as at April 30, 2017, December 31, 2016 and December 31, 2015 comprise: April 30, December 31, December 31, 2017 2016 2015 ASSETS AND EXPENDITURES Cash and cash equivalents 8,940 98,863 71,031 Cumulative project expenditures 2,396,058 2,306,135 2,010,035 Foreign exchange difference 2 2 - TOTAL ASSETS AND EXPENDITURES 2,405,000 2,405,000 2,081,066 FINANCING Funds received 2,405,000 2,405,000 2,081,066 TOTAL FINANCING 2,405,000 2,405,000 2,081,066 8. WITHDRAWAL APPLICATIONS Withdrawal applications for the year ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017 comprise: For the year ended December 31, 2016 and grace period from January 1, 2017 to April30, 2017 Source of Appli- Dates Direct Advances Goods, Total financing cations payments received consultant's services including audit and training, and incremental operating costs Grant No. TF 012893 13 January 21, 2016 - 78,293 - 78,293 14 February 5, 2016 - - 131,951 131,951 17 December 5, 2016 - 113,690 - 113,690 - 191,983 131,951 323,934 12 9. SPECIAL ACCOUNT Special account for the year ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017 comprise: Bank National Bank of Tajikistan Currency US Dollars Bank account 22696840200067 Bank's location 107 A Rudaki str., Dushanbe, Republic of Tajikistan Description Total Balance as at January 1, 2016 71,031 Advances received 191,983 Reimbursement of expenses 131,951 Total funds received to a special account 323,934 Expenditures paid 296,100 Transfer to escrow account 8,939 Transfer to transit account Foreign exchange difference 2 Balance as at December 31, 2016 89,923 Funds received to a special account Expenditures paid 89,923 Balance as at April 30, 2017 10. COMMITMENTS In the normal course of activities, the Project concludes agreements with suppliers of goods and services in accordance with the established budget and procurement plan. As at April 30, 2017 at the expense of funds transferred to escrow account in the National Bank of Tajikistan the State Committee on Investments and Government Property Management of the Republic of Tajikistan had commitments for covering audit expenses to Baker Tilly Klitou and Partners SRIL. 11. GOING CONCERN The period of duration of the Project was completed on December 3 1, 2016 and grace period on April 30, 2017. 12. LEGAL CASES There were no any legal cases related to the Project. 13. EVENTS AFTER THE REPORTING DATE As at the date of issue of the special purpose project financial statements no significant events or transactions occurred which should be disclosed in the special purpose project financial statements. 13