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p. 2 of 203 BACK | NEXT Foreword 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 1.7. Roles of Financial Analysis Specialists and Financial Management Specialists 2. User Instructions 3. Preparing and Appraising Investment Project 4. Financial Management of Executing Agencies 5. Reporting and Auditing 6. Financial Institutions 7. Knowledge Management

Financial Management and Analysis of Projects

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1. Introduction to the Guidelines

1.1. Introduction

1.1.1. The vision of the Asian Development Bank (ADB) is a poverty-free Asia and Pacific region. ADB strives to be an effective partner for its Developing Member Countries (DMCs) in Asia and the Pacific in responding to the challenges of achieving sustained and equitable development, improving the quality of life, and eradicating poverty. ADB recognizes that sustained pro-poor growth, social development, and good governance are essential for poverty reduction. This vision reflects the belief that unleashing the potential of the poor will substantially contribute to overall growth and enhance the quality of life for all.

1.1.2. The Financial Management and Analysis of Projects (the Guidelines) serve two purposes. First they provide guidance to ADB staff and borrowers on the financial due diligence activities to be completed as part of the project appraisal process, namely financial analysis and financial management assessment. Second, they describe and explain ADB's policies, procedures, and approach to the financial management of the projects that it finances. They replace ADB's Guidelines for the Preparation and Presentation of Financial Analysis that were first published in 1989. In addition to providing guidance on ADB's financial due diligence activities, the Guidelines contain business processes and good practice examples of financial management and financial analysis practices adopted by ADB and other multilateral development banks (MDBs).

1.1.3. This is the second release of the Guidelines. It incorporates results of a pilot testing exercise conducted during 2002 and 2003, a full technical review (completed in 2003), and further amendments to reflect ongoing activities associated with the Harmonization Agenda¹. A matrix summarizing the second release amendments is provided under the "Revisions" tab.

1.1.4. The Guidelines are summarized in the Handbook for Borrowers on the Financial Governance and Management of Investment Projects financed by the ADB. The Handbook sets out the policies and procedures of ADB with respect to the financial management of projects and executing agencies (EAs). It has been prepared for the benefit of borrowers, EAs, auditors, consultants, and others whose work requires them to be familiar with ADB procedures. The Guidelines are further supported by the "Financial Due Diligence Methodology Note" which summarizes standard due diligence activities to be completed during project processing and appraisal.

1.1.5.ADB activities are guided by policies (approved by the ADB Board) and operationalized through the Operations Manual (OM). Implementation is guided through the preparation of various guidelines. Furthermore, project implementation is undertaken following the Project Administration Instructions (PAIs).

1.1.6.These Guidelines address the financial management of investment projects with the exception of those that involve equity participations and venture capital that ADB may assist in the private sector.

1.1.7.The Knowledge Management section of the Guidelines (most of which is only available from the web-based Guidelines) includes international standards and practices recognized by ADB that are recommended by international bodies such as the Basle Committee on Banking Supervision (BCBS) of the Bank of International Settlements (BIS) and the International Accounting Standards Board (IASB).

1.1.8.These Guidelines have been developed as a web-based document, with a search facility. There is provision to update these guidelines on a regular basis. The full web-based guidelines can be accessed at www.adb.org/documents/guidelines/financial. This hardcopy version of the Guidelines is an abridged version of the web-based guidelines. It has been developed to improve access to the Guidelines, in particular by ADB borrowers and development partners.

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¹In February 2003, a Harmonization Forum was jointly sponsored by five Multilateral Development Banks (MDBs) (African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, Inter-American Development Bank, and World Bank) and the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD-DAC). All MDB presidents attended the meeting. The closing statement, the Rome Declaration on Harmonization, summarized progress and committed all participating institutions to specific activities to enhance harmonization. Subsequent to the Forum, the Islamic Development Bank joined the harmonization effort. In addition, an MDB Technical Working Group on Financial Management Harmonization was formed to foster increasing harmonization among the MDBs.

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