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Audit Report Sheki.2003doc

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VIATOR MICRO CREDIT AZERBAIJAN SHEKI FINANCIAL STATEMENTS 31 DECEMBER 2003 VIATOR MICRO CREDIT AZERBAIJAN SHEKI TABLE OF CONTENTS Page Statement of management responsibilities 2 Report of independent auditors 3 Balance sheet 4 Statement of income 5 Statement of changes in equity 6 Statement of cash flows 7 Notes to financial statements 8 - 15 1 STATEMENT OF MANAGEMENT RESPONSIBILITIES Management has prepared and is responsible for the financial statements and related notes of Viator Micro Credit Azerbaijan Sheki ("the Institution"). They have been prepared in accordance with International Financial Reporting Standards and necessarily include amounts based on judgements and estimates by management. The Institution maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorisation and properly recorded, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The system contains self-monitoring mechanisms that allow management to be reasonably confident that controls, as well as the ...
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             VIATOR MICRO CREDIT AZERBAIJAN SHEKI  FINANCIAL STATEMENTS  31 DECEMBER 2003                                          
             VIATOR MICRO CREDIT AZERBAIJAN SHEKI  TABLE OF CONTENTS    
 Statement of management responsibilities  Report of independent auditors  Balance sheet  Statement of income  Statement of changes in equity  Statement of cash flows  Notes to financial statements                          
 
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2 3 4 5 6 7 8 - 15
            STATEMENT OF MANAGEMENT RESPONSIBILITIES     Management has prepared and is responsible for the financial statements and related notes of Viator Micro Credit Azerbaijan Sheki ("the Institution"). They have been prepared in accordance with International Financial Reporting Standards and necessarily include amounts based on judgements and estimates by management.  The Institution maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorisation and properly recorded, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The system contains self-monitoring mechanisms that allow management to be reasonably confident that controls, as well as the Institution's administrative procedures and internal reporting requirements operate effectively. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error or the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation.       _____________________________ Agil Huseynov Director      2004 ___________________  Sheki, Azerbaijan
 
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            REPORT OF INDEPENDENT AUDITORS TO THE MANAGEMENT OF VIATOR MICRO CREDIT AZERBAIJAN   We have audited the accompanying balance sheet of Viator Micro Credit Azerbaijan Sheki (the Institution) as of 31 December 2003 and the related statements of income, changes in equity and cash flows for the year then ended as set out on pages 8 to 15. These financial statements are the responsibility of the Institution's management. Our responsibility is to express an opinion on these financial statements based on our audit.  Except as discussed in the following paragraph we conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit so as to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.  We did not observe the counting of cash on hand as of 31 December 2003 since that date was prior to our engagement as auditors. Owing to the nature of the Institutions records, we were unable to satisfy ourselves as to the balance of cash on hand at year end by other audit procedures.  In our opinion, except for the effect of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the balance of cash on hand, the financial statements present fairly, in all material respects, the financial position of the Institution as of 31 December 2003 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.         2004 __ _________
 
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Notes     3   4                5                    6             7                 
   VIATOR MICRO CREDIT AZERBAIJAN SHEKI BALANCE SHEET at 31 December 2003 (Expressed in US$)    ASSETS Current Assets Cash and cash equivalents Loans, net of allowance for losses Interest receivable Other debtors Inventory    Non-Current Assets Property and equipment, net of accumulated depreciation    Total Assets   LIABILITIES AND EQUITY LIABILITIES Current Liabilities Other creditors    EQUITY Capital and Reserves Accumulated deficit Accumulated grants  Total Equity  Total Equity and Liabilities  Commitments and contingent liabilities       _________________________  Agil Huseynov, Director         The accompanying notes on pages 8 to 15 form an integral part of these financial statements.  4
2003 67,953 31,959 415 222 125 100,674 31,811 31,811 132,485 7,168 7,168 (22,545) 147,862 125,317 132,485 -
   VIATOR MICRO CREDIT AZERBAIJAN SHEKI STATEMENT OF INCOME for the year ended 31 December 2003 (Expressed in US$)    Operating income Interest income Fee income  Provision for loan losses  Net operating income after provision for loan losses  Non-interest expenses Salaries and benefits Administrative expenses Depreciation Bank fees  Total non-interest expense  Net loss for the year
Notes         4          8  9  5             
                                  The accompanying notes on pages 8 to 15 form an integral part of these financial statements.  5
2003 1,067 716 (1,682) 101 9,118 12,334 1,151 43 22,646 22,545
Accumulated deficit --(22,545) (22,545)
Grants  -  147,862  - 147,862 
   VIATOR MICRO CREDIT AZERBAIJAN SHEKI STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2003 (Expressed in US$)     Balance at 01 January 2003  Additions Net loss for the year  Balance at 31 December 2003                                             The accompanying notes on pages 8 to 15 form an integral part of these financial statements.  6
Total -147,862 (22,545) 125,317
   VIATOR MICRO CREDIT AZERBAIJAN SHEKI STATEMENT OF CASH FLOWS for the year ended 31 December 2003 (Expressed in US$)     Cash flows from operating activities: Interest and fees received Cash payments to employees and suppliers  Operating loss before changes in operating assets  Increase in operating assets: Loans advanced to customers Purchase of inventory Increase in other debtors Increase in operating liabilities:  Increase in other creditors  Net cash used in operating activities  Cash flows from investing activities: Purchase of property and equipment  Net cash used in investing activities  Cash flows from financing activities: Receipt of grants  Net cash provided by financing activities  Net increase in cash and cash equivalents  Cash and cash equivalents at the beginning of the year  Cash and cash equivalents at the end of the year
Notes                                                             3
                    The accompanying notes on pages 8 to 15 form an integral part of these financial statements.  7
2003 1,368 (17,365) (15,997) (33,641) (125) (222) 3,038 (46,947) (32,962) (32,962) 147,862 147,862 67,953 -67,953
   VIATOR MICRO CREDIT AZERBAIJAN SHEKI NOTES TO FINANCIAL STATEMENTS at 31 December 2003 (Amounts expressed in US$)   Note 1 Organisation, Principal Activities and Operating Environment  (a) Organisation and Principal Activities  Viator Micro Credit Azerbaijan Sheki (the Institution), operates as a branch of Viator Micro Credit Azerbaijan and was established in September 2003. A license was obtained from the National bank of Azerbaijan to render lending services in December 2003. The Institution's primary source of income is derived from providing micro-loans to clients, located in Sheki and surrounding areas.  The Institution is not registered as a separate legal entity.  The general oversight function over the Institutions activities is the responsibility of Viator Micro Credit Azerbaijan located in Baku.  Number of employees in 2003 was 9.  The Institution's address and principal place of business is: 1/2 Izzat Hamidov Street Sheki, Azerbaijan  (b) Operating Environment in Azerbaijan  The Azerbaijan economy outside the energy sector continues to display characteristics of an emerging market. These characteristics include lack of liquidity in the capital markets, and the existence of currency exchange control regulations which causes the manat to be non-convertible outside the Republic. The success and stability of the country's economy in the non-energy sector will be significantly influenced by the government's actions with regard to supervisory, legal, and economic reforms.  The Institution's operations and financial position will continue to be affected by political developments in Azerbaijan including the application of existing and future legislation. These factors could have a significant impact on the Institution's financial position, results of operations and its ability to continue operations. The Institution does not believe that these contingencies, as related to its operations, are any more significant than those of similar enterprises in Azerbaijan.   Note 2 Significant Accounting Policies  (a) Basis of accounting  These financial statements are prepared under the historical cost convention. Income and expenses are recognised on an accruals basis.  The Institution maintains its primary accounting records in accordance with internal regulations. These financial statements have been prepared from the Institution's primary records, and adjusted as necessary in order to conform in all material respects with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.  (b) Use of estimates  The preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions that affect reported assets and liabilities as well as reported income and expenses for each year. A material estimate that is particularly susceptible to significant change relates to the determination of provisions for loan losses.
 
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   VIATOR MICRO CREDIT AZERBAIJAN SHEKI NOTES TO FINANCIAL STATEMENTS (Continued) at 31 December 2003 (Amounts expressed in US$)   Note 2 Significant Accounting Policies (continued)  (c) Loans, loan loss allowance, interest accrual, and write-offs  Loans have been reduced by the allowance for loan losses.  The adequacy of the allowance for loan losses is evaluated regularly by management. Factors considered in evaluating the adequacy of the allowance include the size of the portfolio, previous loss experience, current economic conditions and their effect on clients, the financial condition of individual clients, and the performance of individual loans in relation to contract terms. The allowance for loan losses charged to expense is based on management's judgement of the amount necessary to maintain the allowance at a level adequate to absorb losses. A general provision of 5 percent is set against all loans not specifically reviewed. Loan losses (write-offs) are charged against the allowance for loan losses when management believes that the principal is unlikely to be collected.  The Institution accrues interest on its loans as it is earned on a time proportion basis taking into account the principal outstanding and the rate applicable and using the simple interest method. Other fee income is recognised when due. If a loan becomes delinquent on principal or interest for 90 days or more, the Institution automatically stops further accrual of interest and reverses from income any unpaid interest that may have been accrued. Interest received on a loan in non-accrual status is applied to reduce principal or, if management determines that the principal is collectible, applied to interest on a cash basis. A loan is returned to accrual status after the client has brought the loan current and demonstrated compliance with the loan terms for a sufficient period and management's doubts about collectibility have been removed.  (d) Property, equipment and depreciation  Property and equipment is stated at the lower of cost and recoverable amount in accordance with International Accounting Standard 36. Replacements and improvements, which materially extend the useful lives of the assets are capitalised, while routine maintenance repairs and minor replacement costs are charged to expense when incurred. Any diminution in recoverable amount is charged to the income statement.  Assets are depreciated when placed into service. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. The estimated useful life of computers is 3 years. For all other equipment it is 5 years.  (e) Grants  Grants both to finance lending operations and to subsidize operating and administrative expenses or the purchase of property and equipment are shown as direct additions to equity and the corresponding asset account.  (f) Deferred taxation  As discussed in Note 10, management believes that the Institution is exempt from profit tax and accordingly no deferred tax is accounted for in these financial statements.  
 
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   VIATOR MICRO CREDIT AZERBAIJAN SHEKI NOTES TO FINANCIAL STATEMENTS (Continued) at 31 December 2003 (Amounts expressed in US$)   Note 2 Significant Accounting Policies (continued)  (g) Financial instruments  The carrying amounts of the Institution's financial assets (comprising cash and cash equivalents and loans to customers) approximate to their fair values at the date of the transaction. Where the fair value of a financial asset is materially below the carrying amount the carrying amount is written down to fair value.  (h) Currency translation  The financial statements are presented in US dollars (US$) as this is the principal functional currency of the Institution.  Current assets at the balance sheet date are translated into US$ at the relevant rates ruling on that date. For the purposes of these financial statements, current assets denominated in Azeri Manats have been translated at a rate of 4,923 = US$1.  Transactions during the period in Azeri Manats have been translated into US$ at the actual rates ruling on the date of the transaction. Property and equipment denominated in Azeri Manats has been translated into US$ at estimated historic rates.  Differences on exchange arising on the application of the above policy are dealt with in the Income Statement. 
 
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