P.O. Box 1608Addis AbabaEthiopia

Chartered Certified Accountants and Authorized Auditors Tel: +251 115 527666167

?touAhtM½m ?'LA41 fy,)vrtsJE ?±L4$4@m hg . Fax: +251 115 528384

www hst-etcom

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

MINISTRY OF TRANSPORTFEDERAL TRANSPORT AUTHORITYCOMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP)INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 07 JULY 2018

3.1 INDEPENDENT AUDITORS' REPORT

Opinion

We have audited the accompanying financial statements of Federal Tranport Authority (FTA)- Transport SystemsImprovement Project (TRANSIP) financed by International Development Association (IDA) set out on pages 7 to11, which includes the Statement of Financial Position, Statement of Receipts and Expenditure and the Summaryof Activity in the Designated Account for the year ended 07 July 2018 and the related notes to the financialstatements, 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 July2018 and the receipts and expenditure and summary of activity of designated account of the Federal TranportAuthority - Transport Systems Improvment Project for the year ended 07 July 2018 in accordance withInternational Public-Sector Accounting Standards (IPSAS) and the funding agreement between FTA andInternational development association.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities underthose standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statementssection of our report. We are independent of the Project in accordance with the ethical requirements that arerelevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities inaccordance with these requirements. We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

Management's responsibilities for the project financial statements

Management are responsible for the preparation and fair presentation of the financial statements in accordancewith International Public-Sector Accounting Standards (IPSAS) and the funding agreement between FTA andInternatioanal Development Association and for such internal control as management determines is necessary toenable the preparation of financial statements that are free from material misstatement, whether due to fraud orerror.

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 auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an aud in accordance

with ISAs will always detect a material misstatement when it exists. Misstateme d or error

and are considered material if, individually or in the aggregate, they could re qn I , - te fluence

the economic decisions of users taken based on these financial statements.

Partners: Tekeste Gebru; Solomon Gizaw; Getu Jemaneh; Yonas Harun; Solomon Melaku

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

I 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 maintainprofessional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud orerror, design and perform audit procedures responsive to those risks, and obtain audit evidence that issufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement 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 areappropriate in the circumstahces, but not for expressing an opinion on the effectiveness of the Project'sinternal control.I Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated 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 thatachieves fair presentation.

We communicate with Management regarding, among other matters, the planned scope and timing of the auditand significant audit findings, including any significant deficiencies in internal control that we identify during ouraudit.

This is a report sent to FTA and International Development Association and is intended solely for their use and

I information.

The enga ment partner bI the audit resulting in this independent auditor's report is Tekeste Gebru,

Ik NV ITeg st G torI ~~~Man4giM -Regist 64 ti to~r18 Decet~ 4l-ST General Parship, Chartered Certified Accountants and Authorized Auditors

(Auditors of FTA - TRANSIP, Financed by IDA)Addis Ababa

IIIIII

I 6

U

I

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIAMINISTRY OF TRANSPORTFEDERAL TRANSPORT AUTHORITY

I COMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP)

3.2 STATEMENT OF FINANCIAL POSITIONAS AT 07 JULY 2018

I2018 2017

Notes ETB ETB

ASSETSCURRENT ASSETS

Receivables 3.5.3.3 10,559,841 -

Cash at bank - ETB 946,546 10,075,883Cash at bank - USD 59,806,302 58,951,003

71,312,689 69,026,886

LIABILITIES AND FUND BALANCE

Fund Balance 3.5.3.4 71,273,619 69,026,886

Tax payables 3.5.3.5 39,070 -

71,312,689 69,026,886

The financial statements on pages 7 to 11 were approved by the FTA management on 18 December 2018 and signedon its behalf by:

Abdisa Yad a I1;S 7 Zrt: Almaz Negash* Director neral Finance, Procurement and Budget

2. Directorate Director

III 7

U

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIAMINISTRY OF TRANSPORTFEDERAL TRANSPORT AUTHORITY - FTACOMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP)

3.3 STATEMENT OF RECIEPT AND EXPENDITUREFOR THE YEAR ENDED 07 JULY 2018

2018 2017ETB ETB

FUND RECIEPT Notes

Fund receipts during the year 3.5.3.1 3,752,055 68,191,566

Other income (gain on exchange rate fluctuation) 3.5.3.2 10,612,208 2,186,504

EXPENDITURE 14,364,253 70,378,070

Total expenditure during the year 3.5.3.3 (12,117,529) (1,351,184)

Gain (loss) on translation of ET to USD -

(12,117,529) (1,351,184)

Excess (deficit) of income over expenditure 2,246,734 69,026,886

Fund balance brought forward 69,026,866 -

Fund balance carried forward 71,273,619 69,026,886

II

I

I

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIAMINISTRY OF TRANSPORTFEDERAL TRANSPORT AUTHORITY - FTACOMPONENT C OF TRANSPORT SYSTEMS IMPROVEMENT PROJECT (TRANSIP)

I 3.4 SUMMARY OF THE ACTIVITY IN THE DESIGNATED ACCOUNTFOR THE YEAR ENDED 07 JULY 2018

USD Bank account (a/c # 0100721300008):

2018 2018 2017 2017USD ETB USD ETB

Opening Bank Balance 2,548,803 58,951,003 - -ADD: Receipts

Fund received from IDA 3.5.2.2 137,789 3,752,055 3,050,636 68,191,566Others (Gain on exchange rate difference 3.5.2.7 10,612,208 - 2,186,504

Funds availble for use 2,686,592 73,315,266 3,050,636 70,378,070Less: Transfers and Expenditures/payments

Transfer to ETB Account - - 498,750 11,355,740Expenditures/advance payments 3.5.2.3 494,809 13,508,964 3,083 71,327

Sub total 494,809 13,508,964 501,833 11,427,067Closing Balance 2,191,783 59,806,302 2,548,803 58,951,003

ETB Bank account (a/c # 0100721040018):Opening Bank Balance 10,075,883ADD: Receipts

Cash transfer from USD Account - 11,355,740Less: Advance and Expenditure/payments

Expenditure/payments (9,129,336) (1,279,857)Closing Balance 946,547 10,075,883

Total bank balance as at 7 July 60,752,849 69,026,886

I

IIIII

I919

I 3.5 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 7 JULY 2018I 3.5.1 INTRODUCTION

3.5.1.1 Background

Transport Systems Improvement Project (TRANSIP) is a seven year project with a credit extension of USD 300 Million byInternational Development Association - IDA (World Bank) to the Federal Democratic Republic of Ethiopia with an objectiveto improve mobility along selected corridors in Addis Ababa and the effectiveness of road safety compliance systemsthroughout Ethiopia,

The project consists of three components. Component A: Traffic Management and Road Safety in the city of Addis Ababa;Component B: Improvement of Integrated Urban Planning and Transport System; and Component C: Road SafetyInterventions and Institutional Strengthening of Selected Federal Transport Institutions. Project execution is carried out bytwo implementing agencies, namely, Addis Ababa Road and Transport Bureau (AARTB) and Federal Transport Authority(FTA), on behalf of themselves and several beneficiary entities.

3.5.1.1 Project objectives

The Project Development Objective (PDO) of TRANSIP is to improve mobility along selected corridors in Addis Ababa andthe effectiveness of road safety compliance systems throughout Ethiopia.

The audited project is for the year ended 07 July 2018.

3.5.2 BASIS OF PREPARATION

The financial statements have been prepared on modified cash basis of accounting.

j 3.5.2.1 Budget

The budget is developed on the same accounting basis (modified cash basis), same classification basis, and for the sameperiod as for the financial statements. The budget was approved as required by the standard conditions of the creditagreement 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 receivedduring the period are as follows:

Date Received (USD) Confirmed(USD)

7-Oct-17 8,659 8,65916-May-18 24,001 24,00117-May-18 105,128 105,128

137,789 137,789

3.5.2.3 ExpenditureExpenditure represents amounts disbursed and costs incurred denominated in ETB.

3.5.2.4 Foreian currency transactions

Cash receipts and payments arising from transactions in a foreign currency are recoded in the financial statements usingthe actual rate of exchange applicable on date of transactions. Foreign currency denominated monetary assets and liabilitiesare 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 office maintains an assetregister 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 unreafzed.,.ps))hirn transaction in foreign currency andtranslation of foreign currency denominated monetary a etsi54 Ilabilites reporting currency using exchange ratesapplicable at year-end.

I 110

U

3.5 NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 7 JULY 2018

3.5.3 NOTES

3.5.3.1 Fund Received 2018 2017

ETB ETBI ' Fund Transfer from IDA 3,752,055 68,191,566

Total 3,752,055 68,191,566

3.5.3.2 Foreign Exchange Gain /Loss

Realized Gain 1,499,432 215,362Unrealized Gain 9,112,776 1,971,142

10,612,208 2,186,504

3.5.3.3 Expenditure

Salary and Benefits 1,099,080 580,086Local Training expenses 4,886,221Foreign Training expenses 3,427,466 707,086Professional services 2,407,546Vehicle 104,957

Communications 75,029 -Bank service charges 39,516 28,858Entertainment 35,703 -Miscellaneous 20,424 652

Stationary Expenses 12,069Fuel & Lubricants 1,680 -

Transport and Perdiem 2,751 27,635Advertisment 5,087 6,868

12,117,529 1,351,184

3.5.3.3 Account Receivables

Sundary receivables 65,724 -

Prepayments 10,494,117

10,559,841 -

3.5.3.4 Fund Balance

Opening Balance 69,026,886 -

Change during the period 2,246,734 69,026,886Ending balance 71,273,619 69,026,886

3.5.3.5 Tax Payables

Pension payable 12,420 -

Income Tax payable 26,650 -

39,070

I1