URBAN DEVELOPMENT PROJECT IDA CREDIT NUMBER 5762-KG IDA GRANT NUMBER D101-KG IMPLEMENTED BY COMMUNITY DEVELOPMENT AND INVESTMENT AGENCY SPECIAL PURPOSE FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT For the year ended 31 December 2018 BISHKEK April 2019 URBAN DEVELOPMENT PROJECT IDA CREDIT NUMBER 5762-KG IDA GRANT NUMBER D101-KG TABLE OF CONTENTS Page STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS 3 INDEPENDENT AUDITOR'S REPORT 4-5 SPECIAL PURPOSE FINANCIAL STATEMENTS For the year ended 31 December 2018: Statement of cash receipts and payments 6 Statement of expenditures per components 7 Notes to the special purpose financial statements 8-15 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE ARIS AND DISBURSED BY THE WORLD BANK 16 2 STATEMENT OF MANAGEMENT'S RESPONSIBILITIES FOR THE PREPARATION AND PRESENTATION OF THE SPECIAL PURPOSE FINANCIAL STATEMENTS The management of the Community Development and Investment Agency (hereinafter: ARIS) is responsible for the preparation of the special purpose financial statements of "Urban Development Project" ("Project") financed by Financing Agreement IDA Credit Number 5762-KG and IDA Grant Number D101-KG dated 25 April 2016 that present fairly the Project's cash receipts and payments, and expenditures per components for the year ended 31 December 2018, in accordance with the International Public Sector Accounting Standard: Financial Reporting under the Cash Basis of Accounting, ("IPSAS-Cash Basis") issued by the International Public Sector Accounting Standards Board ("IPSASB") within the International Federation of Accountants ("IFAC") and the Financial Management Manual for World Bank Financed Investment Operations (WB Guidelines). In preparing the special purpose financial statements, ARIS's management is responsible for: * Property selecting and applying accounting policies; * Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; * Providing additional required disclosures for the year ended 31 December 2018. ARIS's Management is also responsible for: * Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Project; * Maintaining adequate accounting records that are sufficient to show and explain the Project's transactions, and which enable them to ensure that the special purpose financial statements of the Project comply with IPSAS - Cash Basis and the WB Guidelines; * Taking such steps that are reasonably available to them to safeguard the assets of the Project and to affirm that funds received have been used in accordance with the Financing Agreement IDA Credit Number 5762-KG and IDA Grant Number D101-KG dated 25 April 2016, and World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; and * Preventing and detecting fraud and other errors. The special purpose financial statements for the year ended 31 December 2018 were authorized for issue on 5 April 2019 by the ARIS's Management. On behalf of the 's ent: Bekzhan Supanatiev Ulanbek-faypiov Executive Director Financial Manager 3 INDEPENDENT AUDITOR'S REPORT To the management of the Community Development and Investment Agency Opinion We have audited the special purpose financial statements of "Urban Development Project" ("Project") financed by Financing Agreement IDA Credit Number 5762-KG and IDA Grant Number D101-KG dated 25 April 2016 ("Financing Agreement"), and implemented by Community Development and Investment Agency ("ARIS"), which comprise the statement of cash receipts and payments and the statement of expenditures per components for the year ended 31 December 2018, and notes to the special purpose financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the cash flows for the year ended 31 December 2018 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis of Accounting, (IPSAS-Cash Basis). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). 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 and of the ARIS in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled out other ethical requirements in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter-Slow progress of the Project implementation Without qualifying our opinion, we draw your attention to Note 7.2 of these special purpose financial statements disclosing slow progress in the Project implementation. Emphasis of Matter- Cash Basis of Accounting We draw attention to Note 2 to the financial statements, which describes that financial statements are prepared in accordance with cash basis framework, as a result, they may not be suitable for another purposes. Our opinion is not modified in respect of this matter. Responsibilities of the Management for the Financial Statements Management of the ARIS is responsible for the preparation and fair presentation of the special purpose financial statements in accordance with IPSAS-Cash Basis issued by the International Public Sector Accounting Standards Board (IPSASB) of the IFAC and Financial Management Manual for World Bank Financed Investment Operations ("WB Guidelines"), and for such internal control as management determines is necessary to enable the preparation of special purpose financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility for the Audit of the Special Purpose Financial Statements Our objectives are to obtain reasonable assurance about whether the special purpose 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 high level of assurance, but is not a guaranty that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements arise from fraud and 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 these special purpose financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the special purpose 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 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 internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Evaluate the overall presentation, structure and content of the special purpose financial statements, including the disclosures, and whether the special purpose 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. Report on Other Legal Requirements To comply with the terms of the Financing Agreement, the ARIS management shall insure that: 1. funds have been used in accordance with the conditions of the Financing Agreement concluded between the International Development Association (IDA) and the Kyrgyz Republic, and WB Guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 2. supporting documents, records and accounts have been maintained to support claims for reimbursement of expenditures incurred. Expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the Financing Agreement; Interim Unaudited Financial Statements (IFSs) issued by ARIS during the Reporting year are in agreement with the underlying books of account; 3. The Designated account used has been maintained in accordance with the provision of the Financing Agreement, and World Bank related guidelines; 4. Goods and Services financed have been procured in accordance with the Financing Agreement and World Bank related guidelines. In our opinion, the ARIS management has complied with the above requirements for the year ended 31 December 2018. 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