Guidelines for the Financial Governance and Management of Investment Projects Financed by ADB
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Guidelines, Handbooks, and Manuals
On-line edition: Free of Charge
Hardcopy price: $10.00
Paperback
(Pub. Date: 2002)
Out of Print
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ADB's Guidelines
describe our policies, procedures, and approach governing the financial
management of investment projects we finance. They contain modern
business processes, and financial management and financial analysis
practices that are in harmony with the practices of other multilateral
development banks.
The Guidelines provide ADB management, staff and borrowers with
an understandable, comprehensive and transparent directory of standards
of financial analysis and financial management for the implementation
and operation of projects.
The Guidelines aims to enhance the quality of ADB's portfolio by:
- establishing the norms for financial analysis and financial management of revenue-earning and non-revenue-earning projects for use during the project cycle
- defining the financial management requirements for projects and project entities of borrowers, executing agencies and other organizations responsible for efficient use of funds provided by ADB
- explaining to borrowers the project and institutional financial performance requirements of ADB to achieve successful implementation and the sustainability of ongoing operations
- providing financial knowledge management for the guidance and training of ADB staff and borrowers
- providing ready access to ADB's project financial management requirements to all interested parties
Foreword, Abbreviations, Table of Contents
1. Introduction to the Guidelines
- 1.1. Introduction
1.2. Rationale
1.3. Objectives
1.4. Structure
1.5. Project File
1.6. Guideline Updates
2. User Instructions
- 2.1. Overview
2.2. ADB Lending and Technical Assistance
2.3. Applying these Guidelines
2.4. Project Types and General Treatments
2.5. An Overview of Project Processing Steps
2.6. Step 1: Identification and Early Preparation
2.7. Step 2: Loan Preparation
2.8. Step 3: Project Examination
2.9. Step 4: Loan Negotiations
2.10. Step 5: Project Implementation
2.11. Step 6: Project Completion
3. Preparing and Appraising Investment Projects
- 3.1. Investment Projects Overview
- 3.2. Possible Investment Projects
- 3.2.1. Possible Revenue-Earning Projects
3.2.2. Possible Non-Revenue-Earning Projects
3.3. Appraisal Checklists
- 3.4. Forecasting
- 3.4.1. Introduction to Forecasting
3.4.2. Using the COSTAB Model
3.4.3. Preparing Project Cost Estimates
3.4.4. Determining Contingencies
3.4.5. Disbursement Profiles
3.4.6. Preparing Financing Plans
3.4.7. Computing Incremental Project Cash Flows
- 3.5. Preparing Financial Benefit-Cost Analyses
- 3.5.1. Introduction
3.5.2. Determining the Discount Rate (WACC)
3.5.3. Calculating the Financial IRR and NPV
3.5.4. Undertaking Sensitivity and Risk Analyses
- 3.6. Loan Covenants
- 3.6.1. Introduction to Loan Covenants
3.6.2. Operating Covenants
3.6.3. Capital Structure Covenants
3.6.4. Liquidity Covenants
- 3.7. ADB Reports
- 3.7.1. Introduction to ADB Reports
3.7.2. The Project Preparation Report
3.7.3. Report and Recommendation of the President (RRP)
3.7.4. Miscellaneous ADB Reports
4. Financial Management of Executing Agencies
- 4.1. Financial Management Overview
- 4.2. Institutions and Systems
- 4.2.1. Introduction to Institutions and Systems
4.2.2. Major Institutional Assessments
4.2.3. Governance
4.2.4. Financial Policies
4.2.5. Country Diagnostic Studies of Accounting and Auditing
4.2.6. Executing Agencies (EAs)
4.2.7. Project Objectives
4.2.8. Revenue-Earning Projects
4.2.9. Non-Revenue-Earning Projects
- 4.3. Financial Analysis
- 4.3.1. Introduction to Financial Analysis
4.3.2. Financial Analysis Objectives
4.3.3. Linkages with Cost Recovery and Tariffs
4.3.4. Preparing Financial Tables
4.3.5. Determining Fiscal Period Coverage
4.3.6. Forecasting and Financial Projections
4.3.7. Forecasting Assumptions
- 4.4. Measuring Performance
- 4.4.1. Introduction to Measuring Performance
4.4.2. Objectives of Measuring Performance
4.4.3. Performance Indicators
4.4.4. Using Benchmarking Indicators
4.4.5. Selecting Indicators and Covenants
4.4.6. Operating Indicators and Covenants
4.4.7. Capital Structure Indicators
4.4.8. Liquidity Indicators
5. Reporting and Auditing
- 5.1. Financial Reporting and Auditing Overview
- 5.2. Accounting Standards and Policies
- 5.2.1. Introduction
5.2.2. International Accounting Standards (IASs)
5.2.3. ADB Accounting Policy Requirements
- 5.3. Financial Reporting
- 5.3.1. Introduction
5.3.2. Content and Timing of Financial Reporting
5.3.3. Accounting Statements and Financial Reports
5.3.4. Interim Financial Statements and the Project Management Report (PMR)
5.3.5. Audited Project Financial Statements
5.3.6. Annual Financial Statements for a Non-Revenue-Earning Project
5.3.7. Annual Financial Statements for Revenue-Earning Projects and EAs
5.3.8. Supplementary Financial Statements
5.3.9. Designing Financial Reports for Revenue-Earning Projects
5.3.10. Designing Financial Reports for Non-Revenue-Earning Projects
5.3.11. Examples of Model Financial Statements
- 5.4. Auditing Standards and Auditor Engagement
- 5.4.1. Introduction
5.4.2. ADB Requirements
5.4.3. Auditing Procedures
5.4.4. Auditor Selection and Appointment
5.4.5. Issues in Auditor Selection
5.4.6. Selecting Auditors
5.4.7. Terms of Reference for an Auditor
5.4.8. Contract or Engagement Letter of Auditor
5.4.9. International Standards on Auditing (ISAs)
5.4.10. Government Auditors
- 5.5. Reviewing Financial Reports
- 5.5.1. Introduction
5.5.2. The Review Process: Late or Unacceptable Financial Reports
5.5.3. Compliance With Financial Performance Covenants
5.5.4. Communication with Government Auditors
- 5.6. Reviewing Auditors’ Reports
- 5.6.1. Introduction
5.6.2. Auditors’ Reports and Opinions
5.6.3. Model Audit Opinions
5.6.4. Compliance with Loan Covenants
5.6.5. Compliance with ADB’s Requirements
5.6.6. Types of Auditors’ Opinion
5.6.7. Materiality
5.6.8. Use of Technical Experts
5.6.9. Statements of Expenditure (SOE) and Imprest Accounts
5.6.10. Reviewing Audit Management Letters
5.6.11. Audit Report Questionnaire
6. Financial Institutions (FIs)
- 6.1. FI Introduction and Overview
- 6.2. Reviewing FI Financial Management
- 6.2.1. General Operational Issues
6.2.2. Policy Framework for FIs and FI Loans
6.2.3. Treatment of Interest Rate Distortions
6.2.4. Treatment of Directed-Credit Programs
6.2.5. ADB Policy on Subsidies
6.2.6. Eligibility Criteria for FIs
- 6.3. FI Investments
- 6.3.1. Introduction
6.3.2. Investing in FIs
6.3.3. Selecting Participating Institutions
6.3.4. Appraising an FI Investment
- 6.4. Assessing FI Performance
- 6.4.1. Introduction
6.4.2. Assessing Microfinance Institutions (MFIs)
6.4.3. Applying the CAMEL Framework
6.4.4. Assessing FI Risks
6.4.5. Determining FI Credit Ratings
6.4.6. Specialized FI Internal Controls
6.5. Appraisal Checklist
- 6.6. FI Reporting and Auditing Issues
- 6.6.1. Introduction
6.6.2. FI Financial Reporting
6.6.3. FI Auditing
6.6.4. MFI Financial Reporting and Auditing
7. Knowledge Management
- 7.1. Useful Websites
7.2. Operations Manual (OM)
7.3. Project Administration Instructions (PAIs)
7.4. International Accounting Standards (IASs)
7.5. International Standards on Auditing (ISAs)
- 7.6. Financial Review Checklist for RRPs
- 7.6.1. Lessons from Past Projects
7.6.2. Project Cost Estimates
7.6.3. Financing Plan (FP)
7.6.4. Executing Agencies and Implementing Agencies
7.6.5. Financial Projections
7.6.6. Financial Analysis
7.6.7. Project Justifications
7.6.8. Accounting and Auditing
7.6.9. Procurements and Disbursement Arrangements
7.6.10. Finance-Related Risks
7.6.11. Assurances
7.7. Appraisal Checklist: Non-Revenue-Earning Project
7.8. Appraisal Checklist: Revenue-Earning Project
7.9. Appraisal Checklist: Private Sector Project
7.10. Appraisal Checklist: Financial Institution
- 7.11. Undertaking Sensitivity and Risk Analyses
- 7.11.1. Step 1: Identify the Key Variables
7.11.2. Steps 2 and 3: Calculate Effects of Changing Variables
7.11.3. Step 4: Analyze Key Variable Changes
7.11.4. Undertaking Risk Analysis
- 7.12. Model Operating Covenants
- 7.12.1. Rate of Return (see 3.6.2.2)
7.12.2. Self-Financing Ratio (see 3.6.2.3)
7.12.3. General Price Level (see 3.6.2.4)
7.12.4. Operating Ratio (see 3.6.2.5)
7.12.5. Breakeven Covenant (see 3.6.2.6)
- 7.13. Model Capital Structure Covenants
- 7.13.1. Debt Service Coverage (Version A: Historical orientation) (see 3.6.3.3)
7.13.2. Debt Service Coverage (Version B: Forecast orientation) (see 3.6.3.3)
7.13.3. Debt-Equity Ratio (see 3.6.3.4)
7.13.4. Capital Adequacy Ratio (see 3.6.3.6)
- 7.14. Model Liquidity Covenants
7.14.1. Current Ratio (see 3.6.4.2)
7.14.2. Quick Ratio Covenant (see 3.6.4.3)
7.14.3. Dividend Limitation (see 3.6.4.4)
- 7.15. Commonly Used Ratios
- 7.15.1. Operating Indicators
7.15.2. Capital Adequacy Indicators
7.15.3. Liquidity Indicators
7.16. Model Financial Statements: Service Organization
7.17. Model Financial Statements: Manufacturing Organization
7.18. Model Terms of Reference for an Auditor
- 7.19. Audit Report Questionnaire
- 7.19.1. Using the Audit Report Questionnaire
7.19.2. Authenticity, Form, and Timeliness
7.19.3. Audit Opinion
7.19.4. Matters Addressed
7.19.5. Auditor’s Opinion and Report
7.19.6. Conclusion and Further Action
Index
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