Financial Management

FAQs

1. FM Notes
2. What criteria does ADB follow in selecting external auditor?
3. Why do we need to breakdown the cost between local and foreign?
4. How does Audited Project Account differ from Audited Financial Statements?
5. How do you compute price contingencies?
6. What comprises project financial due diligence for ADB?

1. FM Notes

• Issue No. 4 [ PDF: 103kb | 1 page ]
• Issue No. 3 [ PDF: 93kb | 1 page ]
• Issue No. 2 [ PDF: 89kb | 1 page ]
• Issue No. 1 [ PDF: 97kb | 1 page ]

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2. What criteria does ADB follow in selecting external auditor?

ADB requires an executing agency for an ADB-financed project to have the project accounts and financial statements, and, where required, those of the executing agency itself, audited each fiscal year in accordance with the agreed upon auditing standards by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB¹.

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3. Why do we need to breakdown the cost between local and foreign?

The Financial Management and Analysis of Projects (the Guidelines) and the Technical Note on the Preparation and Presentation of Cost Estimates³ indicate that detailed cost estimates should be prepared taking into consideration the breakdown between local and foreign costs for the following reasons:

1. component prices are likely to vary between domestic and international markets, taking into consideration, among other things, varying tax rates between import and domestic sales taxes, freight, customs, etc.;
2. to enable the reader to track cost estimates to the financial projection and/or financial internal rate of return (FIRR) calculation, if applicable.
3. Having the detailed assumptions underlying the cost estimates will facilitate project management; and
4. It highlight whether or not the project will be susceptible to foreign exchange risk during project implementation.

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4. How does Audited Project Account differ from Audited Financial Statements?

The Annual Project Accounts (APA) present the financial activity for a specific project. This includes: (i) Statement of Accounting Policies; (ii) Statement of Receipts; (iii) Statement of Payments; (iv) Statement of Receipts and Payments (Cash flow); (v) Statement of Uses of Funds by Project Activity; and (vi) Associated Notes to the Accounts.

Annual Financial Statements present the financial position and performance of an entity for a given accounting period. They comprise: (i) Statement of Accounting Policies; (ii) Statement of Financial Performance (Profit and Loss Statement); (iii) Statement of Financial Position (Balance Sheet); (iv) Statement of Movements in Equity; (v) Statement of Cash Flow; and (vi) Notes to the Financial Statements.

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5. How do you compute price contingencies?

Price contingencies should be based on international and domestic inflation factors as projected by ADB's Economic and Research Department and posted on the ADB intranet. The price contingency should be computed from the first year following the base year. As base cost estimates are to be no more than six months old at the time of board consideration, the price contingency for the first year should be 50% of the computed total. From the second year onward, the full price contingency is assumed⁴.

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6. What comprises project financial due diligence for ADB?

1. Financial Management Assessment
2. Cost Estimates
3. Financing Plan
4. Financial Analysis
5. Financial Evaluation
6. Risk and Sensitivity Analysis
7. Financial Implementation Arrangements
8. Fund Disbursement Arrangements
9. Auditing Arrangements

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¹ OM J7 Project Accounting, Financial Reporting, And Auditing-para.6
² Financial Management and Analysis of Projects, 2005 (5.4.4.2)
³ Technical Note on the Preparation and Presentation of Cost Estimates, April 2008
⁴ Financial Due Diligence Methodology Note, October 2008