CONFERENCE

Table of contents

FINANCIAL STATEMENTS

OPINION OF THE EXTERNAL AUDITOR ON THE FINANCIAL STATEMENTS

CERTIFICATION OF FINANCIAL STATEMENTS

STATEMENT OF INCOME AND EXPENDITURE AND CHANGES IN RESERVES AND FUND BALANCES

STATEMENT OF ASSETS, LIABILITIES, RESERVES AND FUNDS

STATUS OF CASH FLOW

STATUS OF REGULAR PROGRAMME APPROPRIATIONS

NOTES TO THE ACCOUNTS

SCHEDULE OF ASSESSED CONTRIBUTIONS OUTSTANDING FOR THE REGULAR PROGRAMME

STATUS OF PROJECTS FUNDED UNDER THE TECHNICAL COOPERATION PROGRAMME AGAINST 1996-97 PROJECT APPROPRIATION AT 31 DECEMBER 1997

STATUS OF PROJECTS FUNDED UNDER THE TECHNICAL COOPERATION PROGRAMME AGAINST 1994-95 PROJECT APPROPRIATION AT 31 DECEMBER 1997

REPORT OF THE EXTERNAL AUDITOR

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS
FINANCIAL STATEMENTS 1996-97

OPINION OF THE EXTERNAL AUDITOR

My staff audited the accompanying financial statements numbered I to IV, the supporting schedule 1, Annexes 1.1 and 1.2 and the notes numbered 1 to 27 to the financial statements of the Food and Agriculture Organization of the United Nations for the financial period ended 31 December 1997. These financial statements are the responsibility of the Director-General of the Food and Agriculture Organization. My responsibility is to express an opinion on these financial statements based on the audit.

The audit was conducted in accordance with the Common Auditing Standards of the Panel of External Auditors of the United Nations, the Specialized Agencies and the International Atomic Energy Agency. These standards require that the audit be planned and carried out to obtain reasonable assurance that 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 principles used and evaluating the overall financial statement presentation.

As a result of this audit, I am of the opinion that the financial statements present fairly the financial position at 31 December 1997 and the results of the operations for the period then ended; that they were prepared in accordance with the Organization's stated accounting policies which were applied on a basis consistent with that of the preceding period, except for the changes, with which I concur, detailed in paragraph 27 of my attached long form report; and that the transactions were in accordance with the Financial Regulations and legislative authority.

Pierre JOXE
Premier Président de la Cour des Comptes
de la République Française
External Auditor

27 July 1998

CERTIFICATION OF FINANCIAL STATEMENTS

Statement 1

STATEMENT OF INCOME AND EXPENDITURE
AND CHANGES IN RESERVES AND FUND BALANCES

For the biennium ended 31 December 1997
(US$ millions)

The accompanying notes are an integral part of the financial statements.

Statement II

STATEMENT OF ASSETS, LIABILITIES, RESERVES AND FUND BALANCES

As at 31 December 1997
(US$ millions)

The accompanying notes are an integral part of the financial statements.

Statement III

STATEMENT OF CASH FLOW

For the biennium ending 31 December 1997
(US$ millions)

The accompanying notes are an integral part of the financial statements.

Statement IV

STATUS OF REGULAR PROGRAMME APPROPRIATIONS

For the biennium ended 31 December 1997
(US$ millions)

The accompanying notes are an integral part of the financial statements.

NOTES TO THE FINANCIAL STATEMENTS

1. THE ORGANIZATION

The Food and Agriculture Organization (the Organization), was established on 16 October 1945. Its headquarters are in Rome, Italy. The purpose of the Organization is to raise levels of nutrition and standards of living; secure improvements in the efficiency of the production and distribution of all food and agricultural products; better the condition of rural populations; and thus contribute toward an expanding world economy and ensure humanity's freedom from hunger.

The Organization's Programme of Work (Regular Programme) is approved by the Conference of Member Nations. The related budget appropriations voted are financed by annual contributions based on an assessment on Member Nations and Associate Members by the Conference. Unutilised appropriations at the close of the financial period are cancelled, except for the Technical Cooperation Programme (TCP) appropriation which remains available for obligations during the financial period following that for which the funds were voted.

Voluntary contributions for special purposes, which are consistent with the policies, aims and activities of the Organization, may be accepted by the Director-General and Trust and Special Funds established accordingly. In addition, the Organization receives funds under an inter-organizational arrangement with the United Nations Development Programme (UNDP) to participate as an executing agency for UNDP technical cooperation projects or act as implementing agency for UNDP funded projects executed by other executing agencies. Voluntary contributions and funds received include payment towards recovering certain costs relating to technical, managerial and administrative services (support costs) which are a necessary part of extra-budgetary projects.

In agreement with the main multilateral financing agencies for agriculture, the Organization provides investment support services under jointly financed missions to individual countries, for which it receives reimbursement of an agreed share of costs. The Organization also renders technical, management and administrative services to the UN/FAO World Food Programme (WFP) on a cost reimbursement basis.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Period
The financial period is a biennium consisting of two consecutive calendar years.

Basis of Preparation
The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards.

Income
Income is recognized when the Organization becomes entitled to it with the exception of (a) the part of the assessment on Member Nations which relates to the appropriation for TCP, which is recorded as deferred income when due and transferred to income as related expenditures are incurred, and (b) voluntary contributions and funds received under inter-organizational arrangement for which income is recognized proportionately with the degree of project activity completed as measured in terms of expenditure.

Expenditure
Expenditure is recognised as costs are incurred except for (a) contracts and purchase orders for which the Organization may, in accordance with its financial rules, recognise expenditure on the basis of the cost of contracts or purchase orders entered into, and (b) certain end of service and retirement benefits which are treated on a cash paid basis.

Equipment, Furniture and Vehicles
The cost of equipment, furniture and vehicles is included in expenditure in the year of purchase.

Foreign currencies
The financial statements are expressed in US dollars. Income and expenditure in currencies other than US dollars are translated into US dollars at the UN operational rates of exchange which approximate the market rate in effect at the date of the underlying transactions. Assets and liabilities in currencies other than US dollars are translated at the UN operational rate of exchange in effect at 31 December 1997. Exchange differences are taken to the income and expenditure account.

Provision for contributions
Contributions which are unreceived at the end of the biennium are fully provided for.

Forward Exchange Contract
The contractual liability and asset under the Organization's forward exchange contract together with the related unrealised exchange difference are disclosed in the related note to the accounts.

Investments
Investments are stated at the lower of cost and market value determined on a total portfolio basis.

3. CHANGE IN ACCOUNTING PRESENTATION

In order to follow better the applicable accounting standards the presentation of the accounts of the Organization has been changed as follows:

(i) Contributions towards support costs and related expenditures

Contributions towards support costs are credited to the General and Related Funds as Voluntary contributions and Funds received under inter-organizational arrangement. Related expenditures are charged to the General and Related Funds as Regular Programme expenditures. Previously this income and expenditure was credited and charged under the column Trust and UNDP Funds. The opening support costs balance of US$ 1.9 has been transferred to the General Fund. The net effect of the above changes is to increase the General and Related Funds Balance by $1.9 million.

(ii) Staff Related Schemes

Separation Payments and Compensation Payments
Income earned on investments earmarked for Staff Related Schemes (Separation Payments and Compensation Payments) is credited to Miscellaneous Income. Previously this income was reported as an increase in the respective investments and related fund balances.

Liabilities of the above Staff Related Schemes represent the actuarial liability rather than the book value of the earmarked investments. The reduction in the respective balances is reported as Miscellaneous Income. The net effect of the above changes is to increase the General Fund Balance by $23.9 million.

The Compensation Payments balance is classified under Liabilities as a Staff Related Scheme. Previously this was classified as a Reserve.

Terminal Payments Fund
The Terminal Payments Fund balance, which is included under Liabilities as a Staff Related Scheme, is reported under the column General and Related Funds. Previously this balance was reported under the column Trust and UNDP Funds.

10. EXPENDITURE

Expenditure amounting to $729.0 million includes $595.4 million in respect of the 1996/97 appropriation (see Statement IV); $44.1 million in respect of 1994/95 TCP appropriation; $25.3 million in respect of Jointly financed activities; $6.0 million in respect of Services rendered; $56.4 million in respect of Support Costs and $1.8 million in respect of the Publication Revolving Fund and is made up as follows:

From this biennium, the Field Imprest accounting returns are closed based on the November Imprest records instead of December Imprest records which was previously the case. It is estimated that the processing of December 1997 Imprest records would have resulted in additional expenditures of approximately $1 million.

On behalf of the Organization, the above investments are held by Northern Trust Company and managed by the Fiduciary Trust Company. The investments of $152.2 million include $13.6 million held on behalf of the UN/FAO World Food Programme in respect of its share of the investments earmarked for its staff related schemes and $40.2 million from the General Fund (1994/95: $8.2 million) and have a market value of $196.5 million. See also note 24.

16. UNLIQUIDATED OBLIGATIONS

Unliquidated obligations include liabilities for costs of personal services incurred and the cost of contracts and purchase orders entered into at 31 December 1997.

17. INTER-FUND BALANCES

Inter-fund balances arise mainly from disbursements and reimbursements in the normal course of operations by the General Fund on behalf of Trust and UNDP Funds and vice versa.

The above liabilities include $13.6 million due to the UN/FAO World Food Programme in respect of the investments held on its behalf for its staff related schemes (Separation Payments $13.3 million and Compensation Payments $0.3 million).

Staff fiduciary accounts
Staff fiduciary accounts represent funds related to the operation of the contributory medical and insurance arrangements for staff. The funds are used for related purposes such as settling claims received after the expiry of the medical and insurance contracts.

Separation Payments
The Separation Payments are due to General Service category staff at Headquarters who are entitled to receive a separation payment equivalent to 1/13.5 of yearly salary for each year of service completed after 1 January 1975. Separation Payments are subject to actuarial review to ascertain the liabilities and recommend rates of contribution. The valuation method used is the projected unit cost method. The details of the last actuarial valuation as at 31 December 1997 are as follows:

Compensation Payments
Compensation Payments are due to staff members (and their dependants) in case of death, injury or illness attributable to the performance of official duties and, in certain circumstances, to supplement the disability and survivors' pensions paid by the United Nations Joint Staff Pension Fund. Compensation Payments are subject to actuarial review to ascertain the liabilities and recommend rates of contribution. The valuation method used is the one-year cost method. The details of the last review as at 31 December 1997 are as follows:

After Service Medical Care
After Service Medical Care provides for worldwide coverage for After Service Medical Care for necessary medical expenses of eligible former staff members and their dependants. After Service Medical Care is subject to actuarial review to ascertain the related liabilities and recommend rates of contribution. The valuation method used is the projected unit credit method. The details of the last review as at 31 December 1997 are as follows:

Terminal Payments
Terminal Payments relate to payment of accrued annual leave, repatriation grant, termination indemnity, the cost of repatriation travel and the removal of household goods for all eligible staff. Terminal Payments are subject to actuarial review to ascertain the related liabilities. The valuation method used is the aggregate cost method. The details of the last valuation as at 31 December 1997 are as follows:

Terminal payments liabilities are provided in part ($2 million) under the Terminal Payments Fund referred to above. The Fund is credited with contributions and interest and is subject to review periodically in order to adjust contribution funding rates. The unprovided portion is discussed under note 24 below.

Pensions
The Organization is a member of the United Nations Joint Staff Pension Fund (UNJSPF) established by the General Assembly of the United Nations to provide retirement, death disability and related benefits to staff of member organizations. The scheme is of the defined benefit type and the Organization's obligation is limited to specified contributions to the Fund. The amount recognised as an expense in respect of contributions to the Pension Fund in the biennium was as follows:

The purpose of the Working Capital Fund is to advance moneys on a reimbursable basis to the General Fund in order to finance budgetary expenditures pending receipt of contributions to the budget; finance emergency expenditures not provided for in the current budget; and make loans for such purposes as the Council may authorise in specific cases. The authorized level of the Working Capital Fund is $25 million in accordance with Conference resolution 15/91 of which the amount paid up is $23.7 million.

The purpose of the Special Reserve Account is to protect the Organization's Programme of Work against the effects of unbudgeted extra costs arising from adverse currency fluctuations and unbudgeted inflationary trends. The authorised level of the Special Reserve Account is set by Conference Resolution 13/81 at 5% of the effective working budget for the respective subsequent biennium. Net gains or losses on exchange in addition to the currency variance on staff standard costs are charged to the Special Reserve Account. The currency variance on staff standard costs represents the difference between staff costs expressed in US Dollars at the budget rate for the biennium (Lire 1600 to $1) and the UN operational rates at the time of payment.

24. UNRECORDED END OF SERVICE AND RETIREMENT BENEFITS

For terminal payments not provided for under the Terminal Payments Fund (commutation of accrued annual leave, repatriation grant, repatriation travel and removal costs, termination indemnities and death grant) and after service medical care, the Organization charges expenditure with the amount of payments made during the biennium. As at 31 December 1997 the estimated unrecorded liabilities for terminal payments and After Service Medical Care Plan amounted to some $20.4 million and $ 195.1 million respectively.

25. CONTINGENT LIABILITIES

FAO received an assessment for garbage collection tax from the Rome Municipality for 1995 of the Lire equivalent of $1.1 million representing an increase of 425% from the previous year. By Note Verbale of June 1995, FAO informed the Italian Permanent Representation of the impossibility of accepting such a request due to both legal and financial considerations. In 1997 total garbage tax assessed on FAO amounted to $3.2 million which resulted in a contingent liability of $2.3 million since $0.9 million had already been accounted for. FAO has a legal obligation under provisions of relevant treaties to pay that portion of garbage collection tax that corresponds to the cost of the service rendered. Therefore, pending conclusion of an agreement with all parties involved, any amount charged by the Rome Municipality for garbage services rendered constitutes a potential liability for the Organization.

26. FORWARD EXCHANGE CONTRACT

In November 1997, the Organization entered into a forward contract for the purchase of its Italian Lira requirements for the 1998/99 biennium. The total liability under this contract is $288 million payable in instalments of $12 million per month from January 1998 to December 1999. Based on the UN operational rate of exchange prevailing at 31 December 1997 (Lire 1720 to $1), the dollar equivalent of the Italian Lire to be purchased amounted to $282 million.

27. OTHER DISCLOSURES

Equipment, Furniture and Vehicles
The historical cost of fully expended FAO equipment, furniture and vehicles at the end of the biennium was as follows:

Voluntary Contributions-in-kind
The Headquarters premises in Rome are provided rent-free by the Host Country in accordance to the Headquarters agreement. It is estimated that the commercial rental value of the Headquarters property is approximately $16.4 million per year.

Non-convertible Currencies
At 31 December 1997, cash balances held in non-convertible currencies amounted to $5.5 million (1994/95 - $6.7 million).