AND AUDITOR'S REPORT

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1 Public Disclosure Authorized Public Disclosure Authorized COMMUNITY AGRICULTURAL RESOURCE MANAGEMENT AND COMPETITIVENESS PROJECT IDA Credit No AM IMPLEMENTED BY "AGRICULTURAL PROJECTS IMPLEMENTATION UNIT" STATE AGENCY UNDER THE MINISTRY OF AGRICULTURE OF THE REPUBLIC OF ARMENIA SFoINDEPENDENT SPECIAL PURPOSE FINANCIAL STATEMENTS AND AUDITOR'S REPORT For the period from January 1, 2016 to January 13,2017 Public Disclosure Authorized Public Disclosure Authorized YEREVAN February 2017

2 CONTENT Page INDEPENDENT AUDITOR'S REPORT STATEMENT OF CASH RECEIPTS AND PAYMENTS STATEMENT OF USES OF FUNDS BY PROJECT ACTIVITY... 7 NOTES TO THE PROJECT SPECIAL PURPOSE FINANCIAL STATEMENTS... 8 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE PROJECT AND DISBURSED BY THE W ORLD BANK F I

IUOU-fIIIlbI4S" U%Q "SOS-AUDIT" LTD INDEPENDENT AUDITOR'S REPORT On the special purpose financial statements ofthe "Community Agricultural Resource Management and Competitiveness Project" for the

3 IUOU-fIIIlbI4S" U%Q "SOS-AUDIT" LTD INDEPENDENT AUDITOR'S REPORT On the special purpose financial statements ofthe "Community Agricultural Resource Management and Competitiveness Project" for the period from January 1, 2016 to January 13, 2017 To the Management of the "Agricultural Projects Implementation Unit" State Agency Opinion We have audited the accompanying special purpose financial statements of the "Community Agricultural Resource Management and Competitiveness Project" (hereafter: the Project) financed by IDA Credit No AM, and implemented by the "Agricultural Projects Implementation Unit" State Agency (the APIU), which comprise the statement of cash receipts and payments, the statement of uses of funds by Project activity for the period from January 1, 2016 to January 13, 2017, and a summary of significant accounting policies and other explanatory notes. In our opinion, 1. the special purpose financial statements present fairly in all material respects the cash receipts and payments of the Project for the period from January 1, 2016 to January 13, 2017 in accordance with International Public Sector Accounting Standard: Financial Reporting Under the Cash Basis ofaccounting, (IPSAS-Cash Basis); 2. funds have been used in accordance with the conditions of the Credit Agreement No AM dated I April 2011 between the International Development Association (IDA) and the Republic of Armenia, and World Bank related guidelines, with due attention to economy and efficiency, and only for the purposes for which the financing was provided; 3. supporting documents, records and accounts have been maintained to support claims for reimbursement of expenditures incurred. Expenditures included in the withdrawal applications and reimbursed against are eligible for financing under the IDA Credit No AM; 4. The Designated account used has been maintained in accordance with the provision of the IDA Credit No AM, and World Bank related guidelines. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Project and APIU in accordance with the International Ethics Standards Boardfor Accountants' Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled out other ethical requirements in accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matters Without qualifying our opinion we draw your attention to Note 9 of these special purpose financial statements which disclosed that the Project was completed as at the reporting date. q1i; p.bpllfl 0037, U1. Shqpwbjwtb 38155; lbn.' (+37410) ; www. sosaudit.am; LEtnunn' info@sosaudit.am A. Tigranyan, 0037 Yerevan, RA; Tel: (+37410) ; www. sosauditam; info@sosaudit.am

"SOS-AUDIT" LTD Management's Responsibility for the Special Purpose Financial Statements The management of APIU is responsible for the preparation and fair presentation of these special purpose

4 "SOS-AUDIT" LTD Management's Responsibility for the Special Purpose Financial Statements The management of APIU is responsible for the preparation and fair presentation of these special purpose financial statements in accordance with IPSAS-Cash Basis issued by the International Public Sector Accounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC), and Financial Management Manual for World Bank Financed Investment Operations (WB Guidelines), and for such internal control as management determines is necessary to enable the preparation of special purpose financial statements that are free from material misstatements, whether due to fraud or error. Auditor's Responsibility for the Audit of the Special Purpose Financial Statements V Lwhether Our objectives are to obtain reasonable assurance about whether the special purpose financial statements as a whole 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 high level of assurance, but is not a guaranty that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements arise from fraud and error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these special purpose financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the special purpose financial statements, due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement 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 in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. * Evaluate the overall presentation, structure and content of the special purpose financial statements, including the disclosures, and whether the special purpose financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. "SOS-Audit" LLC 3 February an Nazik Chitchyan L ii: r~~a1,~ lrq4auditor A V / 4 RR:; p.tplwg6 0037, U. SI1qpwULUU 38/55; qbn.' (+37410) ; www. sosaudit.am; t-l4num info@sosauditam A. Tgranyan, 0037 Y(erevan, RA; Tel;: (+37410) ; www, sosaudit.am, info@ sosauditamn

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8 NOTES TO THE PROJECT SPECIAL PURPOSE FINANCIAL STATEMENTS Community Agricultural Resource Management and Competitiveness Project IDA Credit 4891-AM For the periodfrom January 1, 2016 to January 13, General Information I. L The Project On I April 2011 credit agreement IDA Credit No AM was signed between the Republic of Armenia and International Development Association (IDA), according to which IDA provided to the Republic of Armenia credit in the total amount of 10,300,000 Special Drawing Rights (SDR). The credit was provided for implementation of Community Agricultural Resource Management and Competitiveness Project (the Project). The closing date of the Project is 30 September The Grace Period for submitting withdrawal applications for the expenditures incurred before the Closing date is four months following the Closing date The Project's objective The objective of the Project is to improve productivity and sustainability of pasture/livestock livelihood systems in selected communities of the Republic of Armenia. The Project consists of the following components. Community Pasture/Livestock Management System, Strengthening Support Services, Competitive Grants Program, Project Management and Monitoring and Evaluation Project Budget The Project is financed from the following sources: - International Development Association (IDA), - The Government of the Republic of Armenia (GoA), Beneficiaries, Governm Benefi- IDA Credit ent of the ciaries 4891-AM RA updated Total Categou SDR Original _ updated* Works, goods, consultants' services, training, operating costs 3,000,000 4,660,000 4,277,164 1,313,000 16, ,164 Community grants 6,300,000 9,786,000 9,949,419 2,590,000 3,700,000 16,239,419 I Competitive grants ,554,000 1,248, ,000. 1,818,429 Total 10,300, ,000,000 15,475, ,903,000 4,286,000 23,664,012 Budget equivalent of SDR underlined loan is calculated based on cumulative funds received in plus equivalent of undisbursed funds (if any) in SDR as at reporting date. SDRI rate at is set I SDR= (in ).

9 1.4. Project implementation The Project is implemented by "Agricultural Projects Implementation Unit" State Agency under the Ministry of Agriculture of the Republic of Armenia (the APIU) that was established in accordance with the Republic of Armenia Government decree #765 dated 22 December I999. The APIU's legal address is: 54B/15 Komitas Avenue, Yerevan, Republic of Armenia. 2. Summary of significant accounting policies 2.1. Preparation and presentation offinancial statements The special purpose financial statements are prepared in accordance with the International Public Sector Accounting Standard (IPSAS): Financial Reporting Under the Cash Basis of Accounting, (IPSAS-Cash Basis) issued by the International Public Sector Accounting Standards Board (1PSASB) within the International Federation of Accountants (IFAC), and presented in accordance with Financial Management Manual for World Bank Financed Investment Operations: RM 3 - Financial Reporting and Auditing (March 2010). The special purpose project financial statements consist of: - Statement of cash receipts and payments, - Statement of uses of funds by project activity, - Summary of significant accounting policies and other explanatory notes. The principal accounting policies applied in the preparation of these special purpose financial statements are set out below. These policies have been consistently applied to all the periods presented. 2.2 Cash basis of accounting The special purpose financial statements are prepared and presented using the cash basis of accounting. Cash basis means a basis of accounting under which transactions and other events are recognized only when cash or its equivalent is received or paid. Financial statements prepared under the cash basis provide information about the sources of cash raised during the period, the purpose for which cash was used and the cash balances at the reporting date. 23. Presentation currency The presentation currency of these special purpose financial statements is United States Dollar () Foreign currency transactions Foreign currency is a currency other than the presentation currency of the Project. Transactions in foreign currencies are translated to functional currency at exchange rates at the dates of the transactions. Settlement rate of foreign currency over presentation currency established by the Central Bank of the Republic of Armenia is taken as the exchange rate.

10 Project accounts are maintained and transactions are made in and Armenian Dram (AMD). Transactions denominated in local currency are translated into as follows: - Contributions of the Republic of Armenia expressed in AMD are presented in at the official exchange rate defined by the Central Bank of Armenia at the date of transfer. - Payments to contractors and suppliers expressed in AMD are presented in at the exchange rates defined by the CBA at the date of payment. The currency exchange rate defined by the CBA as at is: I = AMD. The currency exchange rate defined by the CBA as at is: 1 = AMD Taxes All applicable taxes are paid in accordance to common tax regulations of the Republic of Armenia. 3. Summary of summary reports and SOEs For the periodfrom January 1, 2016 to January 13, 2017 IDA Credit No AM Application Value date 1.Works, goods, 2.Community 3.Competitive Total number consultants' Grants under Grants under services, training part A.2 part C and operating costs, including audit Mar , , , , Apr , , , , May , , , , Jun , , , , Jun , , , , Aug , , , , Aug , , , , Sep , , , , Sep , , , , Oct , , , , Dec , , , Jan , , Total 530, , , ,439, to

11 4. Statement of designated account Designated Account Currency IDA Credit No.4891-AM Account number Bank Location Central Treasury 4 Tigran Mets str., 1-st floor, Yerevan, 0010 Republic of Armenia For the period from January 1, 2016 to January 13, 2017 UJSD 1. Opening balance as at ,000, Add: 2. Cumulated opening discrepancy 3. IDA Fund advance/replenishment 576, [: Less: 4. Refund to IDA from DA (137,652.34) [ 5. Present outstanding amount advanced to DA 1,439, SA closing balance as at Add: 7. Amount of eligible expenditures paid 1,433, [. Less: 8. Interest earned (if credited into DA) 9. Total advance accounted for 1,433, Discrepancy (5)-(9)* 5, (*) Balance at escrow account for paying audit service (Note 6).

12 5. Statement of financial position The Statements of Financial Position discloses assets, liabilities and net assets of the Project as at reporting date. It is prepared in accrual basis that is transactions are recognized when they occur (and not only when cash is received or paid) ASSETS Cash 6 42, ,137, Prepayments - 176, Total assets 42, ,313, LIABILITIES Payables 12, , Total liabilities 12, , NET ASSETS Cumulative income IDA credit No AM 15,333, ,894, GoA fund 3,919, ,657, Community fund 3,789, ,678, Other beneficiaries 566, , Bidding fund 14, , Other 6, , ,630, ,601, Cumulative expenses Project expenses (23,501,453.93) (21,268,880.17) 129, ,332, Foreign exchange gain/(loss) (99,090.23) (103,612.52) Total net assets 30, ,228, Cash Account Underlying held at Currency Designated Account (IDA Treasury AM) - 1,000, Government Co-financing Account Treasury AMD - 93, Community Co-financing Account Treasury AMD 36, , Current account (Bidding) Treasury AMD - 3, Escrow account (IDA 4891-AM) Treasury AMD 5, Escrow account (Government Co- Treasury financing) AMD 1, Total 42, ,137, L. r1

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14 8. Financing 8.1. IDA Credit 4891-AM Reporting Cumulative as period at 13 Jan 2017 Advances/ (advance recovery) (1,000,000.00) 0.00 SOE and Summary Report 1,439, ,333, Total 439, ,333, Total financing budget 15,475, ' Government of RoA Percentage of finance provided as at 13 Jan % Reporting Cumulative as period at 13 Jan 2017 Financed 261, ,919, Total financing budget 3,903, Percentage of finance provided as at 13 Jan % 8.3. Beneficiary funds Reporting period Cumulative as at 13 Jan 2017 Community grants 110, ,789, Other 215, , , ,356, Total financing budget 4,286, Percentage of finance provided as at 13 Jan % 9. Project completion The Project was completed as at September 30, 2016 (Closing Date), and the transactions were completed as at January 13, 2017 (the Reporting Date). As at the date of signing these special purpose financial statements: a. No expenses related to the Project were incurred after the Closing Date; the payments made during the Grace period related to expenses incurred before the Closing Date; b. No withdrawals from IDA Credit 4891 AM were made after Closing date; c. No expenditures related to the Project were submitted to the WB after the Reporting date; d. There were no uncovered prepayments to contractors related to the Project; e. There are construction works guarantee liability payable to contracts in the total amount of 12, (Note 5) that will be settled through the Government financing. f. The cash balance outstanding as at Reporting date consists (Note 6): - Balance at Community account at the amount of 36, to be refunded to communities; - Balance at escrow account at the amount of 6, for paying final audit service; g. We are not aware about any pending or existing litigations against the Project. 14

15 ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE [ -PROJECT AND DISBURSED BY THE WORLD BANK Community Agricultural Resource Management and Competitiveness Project IDA Credit No AM For the periodfrom January 1, 2016 to January 13, 2017 in Category Appl. N PIU WB Difference Advance (repayment) 57 (156,597.37) 58 (121,992.11) 59 (219,976.12) 60 (249,562.29) 61 (78,233.26) 62 (30,765.66) refund (137,652.34) 63 (5,220.85) (1,000,000.00) 1.Works, goods, consultants' services, 52 67, , training and operating costs, including audit 53 71, , , , L 55 37, , , , , , , , , , , , , , , , , , , , Community Grants under part A , , , , , , , , , , , , , , , , , , , , , , , , Competitive Grants under part C 52 11, , , , , , , , , , , , , , , , , , , , , , TOTAL 1,439, , i

FOREIGN FINANCING PROJECTS MANAGEMENT CENTER OF THE MINISTRY OF FINANCE OF THE REPUBLIC OF ARMENIA

STRENGTHENING PUBLIC FINANCIAL MANAGEMENT PROJECT MDPTF GRANT No. TF012529 IMPLEMENTED BY FOREIGN FINANCING PROJECTS MANAGEMENT CENTER OF THE MINISTRY OF FINANCE OF THE REPUBLIC OF ARMENIA Special Purpose