HST General Partnership Ethio-China Avenue; Wollo Sefer Mina Building 5h Floor P.O. Box 1608 Addis Ababa Ethiopia Chartered Certified Accountants and Authorized Auditors Tel: +251 115 527666/67 Fax: +251 115 528384 ftoo'thife-PYA1 hPtPF ?+#£Af M.(ofwww.hist-et.com FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF TRANSPORT FEDERAL TRANSPORT AUTHORITY COMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP) INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 07 JULY 2019 3.1 INDEPENDENT AUDITORS' REPORT Opinion We have audited the accompanying financial statements of Federal Transport Authority (FrA)- Transport Systems Improvement Project (TRANSIP) financed by International Development Association (IDA) set out on pages 7 to 11, which includes the Statement of Financial Position, Statement of Receipts and Expenditure and the Summary of Activity in the Designated Account for the year ended 07 July 2019 and the related notes to the financial statements, including summary of significant accounting policies. In our opinion, the accompanying financial statements give a true and fair view of the fund balance as at 07 July 2019 and the receipts and expenditure and summary of activity of designated account of the Federal Transport Authority - Transport Systems Improvement Project for the year ended 07 July 2019 in accordance with the Project's accounting policies and the funding agreement between ETA and International development association. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Project in accordance with the ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Managements' responsibilities for the project financial statements Management are responsible for the preparation and fair presentation of the financial statements in accordance with the Project's accounting policies and the funding agreement between FTA and International Development Association and for such internal control as management determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The management of FTA are responsible for overseeing the Project's financial reporting process. Auditors' responsibilities for the audit of the project financial statements Our objectives are to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 based on these financial statements. Audit Tax Consulting Learning Solution Partners: Tekeste Gebru: Solomon Gizaw: Getu Jemaneh: Yonas Harun: Solomon Melaku 3.1 INDEPENDENT AUDITORS' REPORT (Continued) Auditors' responsibilities for the audit of the project financial statements (continued) As part of an audit conducted in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit, We also: . Identify and assess the risks of material misstatement of the 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. . Obtain an understanding of internal control relevant to the audit to design audit procedures that are appropriate in the circumstances, but not for 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 the management. . Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with Management 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. This is a report sent to FTA and International Development Association and is intended solely for their use and information. The engagemdnt partner on the audit resulting in this independent auditors' report is Yonas Harun. Yon6s Harun Partner Registered Auditor HST General Partnershi p Chartered Certified Accountants and Authorized Auditors (Auditors of FTA - TRANSIP, Financed by IDA Addis Ababa, Ethiopia 8 January 2020 FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF TRANSPORT FEDERAL TRANSPORT AUTHORITY - FTA COMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP) 3.2 STATEMENT OF RECIEPT AND EXPENDITURE FOR THE YEAR ENDED 07 JULY 2019 2019 2018 ETB ETB FUND RECIEPT Notes Fund receipts during the year 3.5.3 55,574,258 3,752,055 Other income 3.5.4 2,294,168 10,612,208 57,868,426 14,364,263 EXPENDITURE Total expenditure during the year 3.5.5 (45,270,880) (12,117,529) Excess of receipt over expenditure 12,597,546 2,246,733 Fund balance at 8 July 71,273,619 69,026,886 Fund balance at 7 July 83,871,165 71,273,619 7 FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF TRANSPORT FEDERAL TRANSPORT AUTHORITY COMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP) 3.3 STATEMENT OF FINANCIAL POSITION AS AT 07 JULY 2019 2019 2018 Notes ETB ETB ASSETS CURRENT ASSETS Receivables 3.5.6 873,947 10,559,841 Cash at bank 3.5.7 83,121,891 60,752,848 83,995,838 71,312,689 FUND BALANCE AND LIABILITIES Fund balance 3.5.8 83,871,165 71,273,619 Tax payables 3.5.9 124,673 39,070 Total liabilities and fund balance 83,995,838 71,312,689 The financial statements on pages 7 to 11 were approved by the FTA management on B January 2020 and signed on its behalf by: Abdisa Yadeta 4 Almaz Negash Director General \ Finance, Procurement and Budget Directorate Director 8 FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF TRANSPORT FEDERAL TRANSPORT AUTHORITY - FTA CCMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP) 3.4 SUMMARY OF THE ACTIVITY IN THE DESIGNATED ACCOUNT FOR THE YEAR ENDED 07 JULY 2019 USD Bank account (a/c # 0100721300008): 2019 2019 2018 2018 USD ETB USD ETB Opening Bank Balance 2,191,783 59,806,302 2,548,803 58,951,003 ADD: Receipts Fund received from IDA 3.5.2.2 1,944,631 55,574,258 137,789 3,752,055 Gain on exchange rate fluctuation ) 3.5.2.7 - 2,294,168 - 10,612,208 Funds available for use 4,136,414 117,674,728 2,686,592 73,315,266 Less: Transfers and Expenditures/payments Transfer to ETB Account (1,500,000) (41,392,500) - - Expenditures/advance payments 3.5.2.3 (55,475) (1,597,863) (494,809) (13,508,964) Sub total (1,555,475) (42,990,363) (494,809) (13,508,964) Closing Balance 2,580,939 74,684,365 2,191,783 59,806,302 ETB Bank account (a/c # 0100721040018): Opening Bank Balance 946,547 10,075,883 ADD: Receipts Cash transfer from USD Account 41,291,512 - Collected from Prepayments 25,243 Less: Expenditure/payments (33,825,775) (9,129,336) Closing Balance 8,437,526 946,547 Total bank balance as at 7 July 83,121,891 60,752,849 9 FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF TRANSPORT FEDERAL TRANSPORT AUTHORITY - FTA COMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 7 JULY 2019 3i.5.1 INTRODUCTION 3.5.1.1 Project objectives The Project Development Objective (PDO) of TRANSIP is to improve mobility along selected corridors in Addis Ababa and the effectiveness of road safety compliance systems throughout Ethiopia. 3.5.2 BASIS OF PREPARATION The financial statements have been prepared on modified cash basis of accounting. 3.5.2.1 Budget The budget is developed on the same accounting basis (modified cash basis), same classification basis, and for the same period as for the financial statements. The budget was approved as required by the standard conditions of the credit agreement and work-plan 3.5.2.2 Funds Receipt Fund receipt is recognized to the extent of credit extended by the Bank to the project's designated account. Funds received during the period are as follows: Date Received Confirmed (USD) (USD) 26-Sep-18 383,264 383,264 17-Apr-19 218,068 218,068 30-May-19 1,343,299 1,343,299 1,944,631 1,944,631 3.5.2.3 Expenditure Expenditure represents amounts disbursed and costs incurred denominated in ETB. 3.5.2,4 Foreion currency transactions Cash receipts and payments arising from transactions in a foreign currency are recoded in the financial statements using the actual rate of exchange applicable on date of transactions. Foreign currency denominated monetary assets and liabilities are translated using exchange rates applicable at year-end. 3.5.2.5 Non-current assets In accordance with lender's requirements, purchase of fixed assets is expensed on acquisition. The Project maintains an asset register that tracks all project fixed assets. 3.5.2.6 Currency The financial statements are presented in Ethiopian Birr ( ETB ). 3.5.2.7 Foreign Exchange Gain (Loss) Foreign Exchange Gain (Loss) represents realized and unrealized gain (loss) from transaction in foreign currency and translation of foreign currency denominated monetary assets and liabilities to the reporting currency using exchange rates applicable at year-end. 10 FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA MINISTRY OF TRANSPORT FEDERAL TRANSPORT AUTHORITY - FTA COMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PRO3ECT (TRANSIP) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 7 JULY 2019 2019 2018 3,5.3 RECIEPTS ETB ETB Fund Transfer from IDA 55,574,258 3,752,055 55,574,258 3,752,055 3.5.4 Other Income Realized foreign exchange gain 132,769 1,499,432 Unrealized foreign exchange gain 2,161,399 9,112,776 2,294,168 10,612,208 3.5.5 Expenditure Vehicle 36,719,622 104,957 Local training expenses 3,981,750 4,886,221 Salary and benefits 2,316,253 1,099,080 Professional services 1,181,155 2,407,546 Foreign training expenses 485,683 3,427,466 Entertainment 307,428 35,703 Fees and charges 126,099 39,516 Advertisement 83,046 5,087 Communications 37,200 75,029 Office supplies 32,644 12,069 Miscellaneous - 20,424 Fuel and lubricants - 1,680 Transport and perdiem - 2,751 45,270,880 12,117,529 3.5.6 RECIEVABLES Sundry 576,559 65,724 Prepayments 297,389 10,494,117 873,947 10,559,841 3.5.7 BANK BALANCES ETB account 8,437,527 946,546 USD account 74,684,364 59,806,302 83,121,891 60,752,848 3.5.8 FUND BALANCE Balance at 8 July 71,273,619 69,026,886 Change during the year 12,597,546 2,246,734 Balance at 7 July 83,871,165 71,273,619 3.5.9 TAXES PAYABLES Income tax 79,227 26,650 Pension 44,602 12,420 Value Added Tax 744 - Withholding tax 100 - 124,673 39,070 11