Center for the Study of Democracy Financial Statements for the period ended 31 December 2002

I. Significant accounting policies
The Center for the Study of Democracy (CSD) is a non profit organization domiciled in Bulgaria. The financial statements were authorized for issue by the Executive Director on 4 March 2003.

(a) Activity background
Founded in late 1989, the Center for Study of Democracy (CSD) is an interdisciplinary public policy institute dedicated to the values of democracy and market economy. CSD is a non-partisan, independent organization fostering the reform process in Bulgaria through impact on policy and civil society.

CSD objectives are:

• to provide an enhanced institutional and policy capacity for a successful European Integration process;
• to promote institutional reform and the practical implementation of democratic values in legal and economic practice;
• to monitor public attitudes and serve as well as to monitor the institutional reform process in the country;
• to strengthen the institutional and management capacity of NGOs in Bulgaria, and reform the legal framework for their operation.

CSD encourages an open dialogue between scholars and policy makers and promotes public-private coalition building. As a full-service think tank, the Center achieves its objectives through policy research, process monitoring, drafting of legislation, dissemination and advocacy activities, building partnerships, local and international networks.

(b) Statement of compliance
The financial statements of the Center for the Study of Democracy have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (LASB), and interpretations issued by the Standing Interpretations Committee of the IASB.

(c) Basis of preparation
These financial statements have been drawn up in conformity with International Financial Reporting Standards.
Hyperinflation adjustments have been made in order to show the effect of inflation on the purchasing power of the equity interest as at 31 December 1998. Due to the insignificant inflation growth in the financial year 1999, 2000, 2001 and 2002, the Statement of Revenues, Expenditures and Changes in Fund Balances for that years and the Balance Sheet as at 31 December 1999, 31 December 2000, 31 December 2001 and 31 December 2002 have not been adjusted according the official inflation index.

(d) Foreign currencies
Monetary assets and liabilities in foreign currencies have been revalued on a monthly basis. As a result foreign exchange differences have arisen. The BNB official exchange rates of the USD as at 31 December 1999 is 1.9469, as at 31 December 2000 is 2.1091 BGN/USD and as at 31 December 2001 is 2.21926 BGN/USD, the average exchange rate for the year 2001 is 2.18467 BGN/USD and as at 31 December 2002 is 2.06604 BGN/USD.

(e) Property, plant and equipment
Items of Property plant and equipment and intangible assets are stated at a cost less accumulated depreciation and impairment losses. They are reported in the Balance Sheet applying International Accounting Standard 29 Financial reporting in hyperinflationary economies. The monthly inflation indices have been used. Their cost have been inflated as at 31 December 1998.
Property plant and equipment and intangible assets have not been inflated for the years ended 31 December 1999, 31 December 2000, 31 December 2001 and 31 December 2002. The inflation rate for the twelve months ended 31 December 1999, 31 December 2000, 31 December 2001, 31 December 2002 of 6.4 %, 11.4%, 4,8% and 3,8% respectively are considered insignificant, and no restatement of the financial statements as of and for the year ended 31 December 1999, 31 December 2000, 31 December 2001 and 31 December 2002 have been made.

Inflated values as at 31 December 1998 of property plant and equipment and of intangible fixed assets have been depreciated using the straight - line method. The rates of depreciation used are as follows:

(f) Investments in associates
Investments classified as long-term assets are carried at cost, less any amounts written off to recognise a decline in the value of the investment. The subsidiaries perform economic activity which is different from the activities performed by the CSD. In relation to the stated above, the financial statements of the subsidiaries are not consolidated and the management carries the investments at cost. In the present report there is an information is disclosed (refer to note 8) for the activities of these subsidiaries concerning their net assets and financial results.

(g) Other investments
As other investments are classified held-to-maturity assets measured at amortised cost less impairment losses. Amortised cost is calculated on the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

(h) Receivables
Receivables are stated at cost less any amounts, which are not expected to be collected. The latter are presented as impairment losses on the basis of the calculated recoverable amount of trade receivables (refer to accounting policy (k)).
(j) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with banks.

(k) Impairment
The carrying amount of the Center's assets is reviewed at each balance sheet to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. For intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

(l) Payables
Payables are stated at their cost.

(m) Revenue recognition and expense reporting
Revenue is recognized in the income and expenditure account on the basis of completed stage as reported by the CSD to the commissioning bodies. Revenue is recognized as income for the period to match the related costs, on a systematic basis. Project contracts are denominated in foreign currency, while the related expenses are incurred in BGN.
The revenue of the Center for the Study of Democracy consists of funds extended by international financing bodies for the completion of accepted projects. The amounts are carried in the balance sheet as deferred revenue at their historic values. Every project is commenced with a signing of a contract where the financing body determines the budget, payment installments and the rates at which expenses incurred in BGN are to be translated into the respective foreign currency.
Reports are prepared as contracted with financing organization. Respective amount of BGN expenses are translated at the specified rate and an expense report in foreign currency is produced. It is used to report on the progress of the project before the financing organization. Frequency is determined in the contract for the project assignment.

(n) Taxation
CSD is a non - profit organization. No corporate tax is levied in accordance with current Bulgarian legislation. For the period ended 31 December 2000 and 31 December 2001 there are no trade operations on which tax is due.
As at 31 December 2002 the Center has gained financial income from dealing with securities under agreement for trading of securities and bonds. Under Bulgarian tax legislation income and municipality tax is levied.
Center for the Study of Democracy Financial Statements for the period ended 31 December 2002

2. Revenue from grants, contributions and projects

3. Expenses on grants,contributions and projects

Hired services are related particularly to undertaking of the projects activities and reported to the grantors to the amount of BGN 47,313.They include expenses for honoraria,communication and printing services.Substantial amount of honoraria consist of payment for consulting services to outside and local consultants and experts.

4. Foreign exchange gains or losses

5. Impairment of assets

6. Property, plant and equipment

7. Intangible assets

8. Investments in associates

CSD is a non-profit organisation which has invested in two companies in prior accounting periods. For the financial year 2002 the subsidiaries that perform business activities in line with the overall goals and the mission of CSD have received no further financial support. Their financial statements have been audited by certified chartered accountants according to Bulgarian legislation, for which some details are presented below:

9.Other investments

The financial assets held-to-maturity realise gains accounted for as financial income in the Statement of revenues, expenditures and changes in fund balances in the amount of BGN 30,433.
The Center has accrued income and municipality tax in the Statement of revenues, expenditures and changes in fund balances in the amount of BGN 7,151.

10. Receivables

11. Cash and cash equivalents

12. Deferred expenses

Since revenue and expenses on projects are matched on a yearly basis to conform with the accruals principle, deferred expenses consisting of expenses incurred on projects that have not been completed.

13. Payables

14. Deferred revenue

15. Financial instruments

Effective interest rates and repricing analysis

In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice.

16. Related parties

17. Events subsequent to the balance sheet date

There have been no material changes or transactions subsequent to the balance sheet date that require adjustment or disclosure in the financial statements prepared for the period ended 31 December 2002.

18. Contingencies

There are no contingencies to report on.