"Public Sector Accounting Reform Project"Grant No. TF 012893

Special purpose project financial statementsfor the year ended December 31, 2016and grace period from January 1, 2017 to April 30, 2017

and independent auditors' report

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

"PUBLIC SECTOR ACCOUNTING REFORM PROJECT"GRANT NO. TF 012893

TABLE OF CONTENTS

Page

STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATIONAND APPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016 ANDGRACE PERIOD FROM JANUARY 1, 2017 TO APRIL 30, 2017 2

INDEPENDENT AUDITORS' REPORT 3-5

SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016 ANDGRACE 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 ANDAPPROVAL OF THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016 ANDGRACE 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 todistinguish the respective responsibilities of management and those of the independent auditors in relationto 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 thatpresent fairly, in all material respects, cash proceeds and disbursements and uses of funds by projectcomponents of the Project for the year ended December 31, 2016 and grace period from January 1, 2017 toApril 30, 2017 in accordance with International Public Sector Accounting Standard "Financial ReportingUnder the Cash Basis of Accounting" (the "IPSAS") issued by the International Public AccountingStandards Board of the International Federation of Accountants and the World Bank's FinancialManagement Sector Board's "Guidelines: Annual Financial Reporting and Auditing for World BankFinanced 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 forrevealing risks in system of internal control;

* maintaining proper accounting records that disclose, with reasonable accuracy at any time, the financialposition of the Project, and which enable them to ensure that the special purpose project financialstatements of the Project comply with IPSAS and WB Guidelines;

* compliance with laws and regulations of the Republic of Tajikistan, accounting system of the Projectand 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 periodfrom January 1, 2017 to April 30, 2017 were approved and authorized for issue on May 26, 2017 by themanagement of the Project.

On b agement:

ur' inzoda R. BoboevDirector Project Coordinator

May 26, 2017 May 26, 2017Dushanbe, 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: 384/26.05.2003Bucharest, Romania

T: +40 21 3156100 | F: +40 21 3156102info@bakertilly.ro

www.bakertilly.ro

INDEPENDENT AUDITORS' REPORT

To the management of the "Public Sector Accounting Reform Project" under the Ministry of Finance of theRepublic of Tajikistan and the State Committee on Investments and Government Property Management of theRepublic 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 ReformProject" (the "Project") which comprise the statement of cash proceeds and disbursements and the statementof uses of funds by project components for the year ended December 31, 2016 and grace period fromJanuary 1, 2017 to April 30, 2017, and a summary of significant accounting policies and other explanatoryinformation (the "special purpose project financial statements").

[2] In our opinion, the accompanying special purpose project financial statements present fairly, in all materialrespects, cash proceeds and disbursements and uses of funds by project components of the Project for theyear ended December 31, 2016 and grace period from January 1, 2017 to April 30, 2017 in accordance withInternational Public Sector Accounting Standard "Financial Reporting Under the Cash Basis ofAccounting" (the "IPSAS") issued by the International Public Sector Accounting Standards Board of theInternational 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 "WBGuidelines").

Basis for opinion

[3] We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilitiesunder those standards are further described in the Auditor's Responsibilities for the Audit of the FinancialStatements section of our report. We are independent of the Project in accordance with the InternationalEthics 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 theRepublic of Tajikistan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.

Offices: 3Cyprus Greece Bulgaria Romania MoldovaNicosia T: +357 22 458500 Athens, Thessaloniki Sofia T: +359 2 9580980 Bucharest T: +40 21 3156100 Chisinau T: +373 22 233003Limassol T: +357 25 591515 T: +30 215 500 6060Larnaca 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 financialstatements which describe the basis of accounting. These special purpose project financial statements wereprepared 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 ReformProject" (the "Project") operations.

Other matter

[5] The special purpose project financial statements are prepared to assist the Project to comply with therequirements of the World Bank. As a result, the special purpose project financial statements may not besuitable for another purpose.

Responsibilities of management and those charged with governance for the special purpose projectfinancial statements

[6] Management is responsible for the preparation and fair presentation of the special purpose project financialstatements in accordance with International Public Sector Accounting Standard "Financial Reporting Underthe Cash Basis of Accounting" (the "IPSAS") issued by the International Public Accounting StandardsBoard of the International Federation of Accountants, and the World Bank's Financial Management SectorBoard'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 thepreparation 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 financialstatements as a whole are free from material misstatement, whether due to fraud or error, and to issue anauditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with ISAs will always detect a material misstatement whenit exists. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of the special purpose project financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professionalskepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the special purpose project financialstatements, whether due to fraud or error, design and perform audit procedures responsive to thoserisks, 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 resultingfrom error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

4

BAKER TILLY OFEXC

* Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Project's internal control.

* Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates 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 orconditions that may cast significant doubt on the Project's ability to continue as a going concern. Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditor's reportto the related disclosures in the special purpose project financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor's report. However, future events or conditions may cause the Project to ceaseto continue as a going concern.

* Evaluate the overall presentation, structure and content of the special purpose project financialstatements, including the disclosures, and whether the special purpose project financial statementsrepresent 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 scopeand timing of the audit and significant audit findings, including any significant deficiencies in internalcontrol that we identify during our audit.

[9] We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

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 0n-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

<INI0ý C0a a 1

<b- -u

·�녹 ／纏�-&&

"PUBLIC SECTOR ACCOUNTING REFORM PROJECT"GRANT NO. TF 012893

NOTES TO THE SPECIAL PURPOSE PROJECT FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2016 ANDG 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 DevelopmentAssociation (the "IDA") signed on October 4, 2012 the IDA, acting as administrator of grant fundsprovided by the Swiss State Secretariat for Economic Affairs under the Tajikistan Public SectorAccounting Reform Trust Fund, provided to the Republic of Tajikistan a Grant No. TF 012893 in theamount of 2,160,000 USD. According to the Amendment to the Agreement between the Republic ofTajikistan and the IDA signed on December 5, 2015 the IDA provided additional financing in theamount 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 financialreporting 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 accountingstandards in the public sector and UCA through training and peer learning;(4) capacity building of the public finance management sector heads through training and peerlearning.

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 January1, 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 theInternational Public Sector Accounting Standard (the "IPSAS") "Financial Reporting under the CashBasis of Accounting" issued by the Public Sector Committee of the International Federation ofAccountants, and incorporate the following principal accounting policies, which have been consistentlyfollowed in all material respects and comply with the World Bank's Financial Management SectorBoard'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 assuch 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 cashbasis of accounting recognizes transactions and events only when cash (including cash equivalents) isreceived or paid by the Project. The special purpose project financial statements prepared under thecash basis provide readers with information about the sources of cash raised during the period, thepurposes for which cash was used and the cash balances at the reporting date. The measurement focusin 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 currencyexchange 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 byNational Bank of Tajikistan, at the date of transaction.

Monetary assets and liabilities expressed in foreign currency are converted to functional currency atofficial exchange rate on a date settled by the NBT.

All foreign exchange differences resulted from maturity or recounting are included in statement ofcash proceeds and disbursements.

Non-monetary items are valued according to their historic cost in foreign currency, which arerecalculated 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 thecorresponding amount of cash in the short term.

Taxes

Calculation and payment of personal income tax and social security contributions from income oflocal staff and consultants is made in accordance with the requirements and rates of the Tax Code ofthe 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 71,031Transit account in national currency I 1 -Escrow account in the National Bank ofTajikistan 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 wastemporarily transferred to the escrow account in the National Bank of Tajikistan for payment by theState Committee on Investments and Government Property Management of the Republic of Tajikistanfor 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 thestatement 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 Cumulativeperiod from December 31, December 31,

January 1, 2017 to 2016 2015April 30, 2017

Purchase of computer equipment 89,923 89,923 - -Consultant's services - 1,373,643 149,435 1,373,643 305,894 1,224,208Trainer's fees - 548,501 88,000 548,501 175,938 460,501Workshops - 189,741 8,297 189,741 77,967 181,444Salary and related taxes - 67,415 13,215 67,415 21,477 54,200Business trip - 60,613 25,478 60,613 11,722 35,135Audit - 31,249 7,812 31,249 23,437 23,437Communications - 15,200 2,081 15,200 5,334 13,119Office supplies - 7,104 912 7,104 630 6,192Expenses for accounting software 4,200 - 4,200 - 4,200Bank fees - 3,290 319 3,290 502 2,971Other - 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 Cumulativeperiod from December 31, December 31,

January 1, 2017 to 2016 2015April 30, 2017

Financing methods:Advances received - 619,982 191,983 619,982 128,000 427,999Reimbursement of expenses - 1,737,791 131,951 1,737,791 424,982 1,605,840Direct 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 EXPENDITURESCash and cash equivalents 8,940 98,863 71,031Cumulative project expenditures 2,396,058 2,306,135 2,010,035Foreign exchange difference 2 2 -

TOTAL ASSETS AND EXPENDITURES 2,405,000 2,405,000 2,081,066

FINANCINGFunds 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, Totalfinancing cations payments received consultant's

servicesincluding auditand training,

andincremental

operating costsGrant No.TF 012893 13 January 21, 2016 - 78,293 - 78,293

14 February 5, 2016 - - 131,951 131,95117 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 April30, 2017 comprise:

Bank National Bank of TajikistanCurrency US DollarsBank account 22696840200067Bank's location 107 A Rudaki str., Dushanbe, Republic of Tajikistan

Description Total

Balance as at January 1, 2016 71,031

Advances received 191,983Reimbursement of expenses 131,951

Total funds received to a special account 323,934

Expenditures paid 296,100Transfer to escrow account 8,939Transfer to transit accountForeign exchange difference 2

Balance as at December 31, 2016 89,923Funds received to a special account

Expenditures paid 89,923Balance as at April 30, 2017

10. COMMITMENTS

In the normal course of activities, the Project concludes agreements with suppliers of goods andservices in accordance with the established budget and procurement plan. As at April 30, 2017 at theexpense of funds transferred to escrow account in the National Bank of Tajikistan the StateCommittee on Investments and Government Property Management of the Republic of Tajikistan hadcommitments 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 onApril 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 ortransactions occurred which should be disclosed in the special purpose project financial statements.

13