Accounting for the developing

During the past two decades, the Manila-based Asian Development
Bank has been one of the most active multilateral lending agencies
in the Asia-Pacific region. David Hayes explores
the development function and accounting practices of one of the
world’s leading lenders.

The Asian Development Bank (ADB) lent a total of $119 billion to
finance projects in developing countries over the past 40 years.
Best known for its social and economic infrastructure project
funding activities, the bank also operates an important technical
assistance programme, which includes improving and developing
public sector accountancy practice.

Energy development, transport and communication development, and
agriculture and natural resource development each accounted for
about 20 percent of accumulated lending, while social
infrastructure constituted almost 20 percent of total

Improving governance and transparency and preventing corruption is
at the core of the bank’s activities. To assist developing
countries achieve economic and social development progress, the
ADB, along with the World Bank, has taken a lead in the
Asia-Pacific region by encouraging developing member country
governments to adopt high accounting standards and ethical
practices when they are implementing multilateral loan

“About $7 billion a year goes out from here in project loans and
grant finance. We have to ensure also that all grant money is
disbursed in line with donor country requests for their grants’
intended purpose,” explains Asian Development Bank accounting
department controller Chiu Ping-Yung. “Grant finance is 10 percent
of our disbursement but it takes 60 percent to 70 percent of our
time because of our funding oversight responsibility. Before we
make a final disbursement, we make a final check that everything is
in line with our regulations. Although ADB equity is not listed, we
issue quoted bonds and must adopt the highest standards for a
triple-A rating to raise capital at the lowest cost to benefit our

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The ADB’s project funding activities cover major national
infrastructure needs in a wide range of sectors. Educational
projects may involve the construction and equipping of schools,
colleges and training centres, while health care projects often
include the construction of hospitals, clinics and other health
care facilities. Electricity projects often involve the
construction of powerplants along with electricity transmission and
distribution networks. Transport and communications schemes include
building railway lines, sea ports, roads and highways, and the
installation of telephone networks.

Borrowing countries agree to comply with the ADB’s strict code of
practice governing the procurement of all equipment and services.
The method of procurement is competitive bidding, which is intended
to provide the best range of bidders and prices. A team of
consultants carries out an initial feasibility study and prepares
the initial project outline in co-operation with the appropriate
ministry of the borrowing country’s government. Once the study is
approved by ADB and the government of the borrowing country,
consultants prepare the detailed project design, help draw up
procurement tenders and oversee the bid evaluation process.

The consultancy team also oversees project implementation.
International accounting firms are appointed as consultants when
their specific expertise is required to assist project management
or to provide training and other support to government departments,
agencies and enterprises.

The ADB, through its project loan and technical assistance
programme, assists requesting governments in accounting
development, improving governance and financial management
capability, plus a range of related activities. However, each
country has its own development priorities when seeking ADB

“The ADB operational department handles requests for assistance
with accounting development. The bank has so many developing
country members and they have to prioritise their projects. We have
spent a lot to strengthen accounting in China and other countries.
Over the last 20 years there have been many projects. We have
accountants to help institutions in borrowing countries,” Chiu

“Each country has its own accounting laws and institutions. We must
respect the rule of the land. It is up to them whether they choose
IFRS or their own standards. Accounting is a man-made science. It’s
not one size fits all; and, in countries like East Timor or
Afghanistan, accounting standards are not the governments’ first

Governance focus

During the past five years, ADB technical assistance projects have
focused more on governance and financial management than purely
accounting as developing member countries have learned from the
earlier phases of technical assistance that focused purely on

The 1997-1998 Asian financial crisis exposed structural weaknesses
in the banking and corporate sectors of many Asian countries that
were caused by poor governance, lack of transparency and weak
supervision and regulation. As a result of the widespread problems
throughout Asia, the ADB launched a regional technical assistance
programme in 2000 under which diagnostic studies of accounting and
auditing were prepared and published for Cambodia, China, Mongolia,
Pakistan, Papua New Guinea, Uzbekistan and Vietnam.

The studies were designed to identify gaps and weaknesses in
government accounting and auditing programmes for which a series of
strategies was recommended for each government to adopt, in some
cases as part of ADB-funded projects and technical assistance
schemes. Other countries that were supported by similar bilateral
schemes to improve government accounting and auditing practices
were Azerbaijan and the Maldives.

The ADB also supports international initiatives to develop
accounting standards that benefit its developing member countries.
The bank has provided $245,000 in funding to the International
Public Sector Accounting Standards Board (IPSASB) under the
Inernational Federation of Accountants to support work to produce a
series of accounting guidelines and standards to enhance financial
reporting, accounting and auditing in the public sector.

ADB technical assistance funding supported the preparation of
guidelines for governments on cash basis accounting and the
application of International Public Sector Accounting Standards. As
a result, the IPSASB has issued guidelines on transition to accrual
basis accounting, while International Public Sector Accounting
Standards have been issued for cash basis accounting and financial

Represented by Chiu Ping-Yung in his capacity as Asian Development
Bank controller, the ADB closely monitored and assisted the IPSASB
in drawing up exposure drafts and standards. After attending board
meetings and conferences that accompanied the preparatory work,
Chiu was able to disseminate documents and details about the
board’s activities to relevant divisions within the ADB, enabling
the knowledge gained to spread to the bank’s developing member
country governments.

Technical assistance

As part of the growing focus on public sector and corporate
governance, the ADB recently approved a $1.8 million technical
assistance package to the Philippines to strengthen local
government fiscal management and administration in selected
provinces, towns and cities. Consultants will be appointed to
support development of a legal framework for decentralisation and
an efficient intergovernmental fiscal transfer system, also to
support establishment of more effective and transparent budget
processes and public expenditure management.

To achieve these targets, ADB consultants’ tasks will include
preparing action plans for creating an effective internal audit
function in local government administrations, developing a
framework for local government expenditure management, drawing up
forward estimates, and developing a more efficient procurement
process, including preparation of a local government procurement

Other ongoing ADB technical assistance projects include a $1
million financial governance and social security reform scheme to
help Indonesia restructure its insurance sector, develop the
country’s actuarial profession and develop a national social
security scheme.

Kazakhstan is using ADB consultancy services to improve and
strengthen financial sector governance, while China is using them
to support efforts to develop and strengthen corporate governance
at the state-run Bank of China. Vietnam is using ADB consultants to
assist preparations for a major state enterprise reform programme
that will include the introduction of improved corporate governance
along with selection and preparation of government-owned banks and
industrial enterprises for listing.

In 1995, the ADB became the first multilateral development bank to
adopt a governance policy that applies to all its operations. The
initiative was followed three years later by the adoption of an
anti-corruption policy that applies to all its operations.

After carrying out an implementation review of its governance and
anti-corruption policies in 2005, the bank concluded that while it
has succeeded in raising the profile of governance in the
Asia-Pacific region, considerable work remains to be done towards
embedding implementation of governance and anti-corruption in the
mainstream of ADB operations.

The review found that the sheer scope of the governance policy has
resulted in too many small projects of short duration and
consequently thinly spread staff resources. As a result, the
review’s conclusions call for governance activities to be more
focused and for the ADB to renew its commitment to fight
corruption. These recommendations will be incorporated into the
bank’s new medium-term strategy. In addition to providing
accounting and governance support services to developing member
countries, the ADB also runs a sophisticated financial management
operation to administer the growing volume of loans, grants and
other disbursements that its development activities involve.

“The Asian Development Bank is an international organisation. We do
not fall under any jurisdiction,” Chiu notes. “We report to a board
of directors first and then a board of governors; the governors
approve. The board is made up of 66 member countries and it is
majority decision.”
The ADB controller’s department has a staff of about 160 local
employees plus a team of 21 CPAs from various countries. “Most
accounting staff recruitment is direct to this department. We are
the training section. They then move to other ADB sections.
Accountant recruits need a [professional qualification], a master’s
degree and at least ten years’ accounting experience in more than
one country. They could have a banking background,” Chiu

“Training is by the human resource department but we help define
training for accounting and internal control. Here at the ADB there
is a division between local and professional staff though local
staff can apply for a professional position.

“Recruits start with a three-year contract and then become
permanent. Some want to be involved in social and economical
development. Some leave to work with other development banks while
some move [to other] departments in the bank.”

The ADB operates a co-ordinating office in each member country that
reports to the ADB controller’s office in the Manila headquarters.
“We have an oversight function in which we have two roles – to
support the client country and oversight like internal audit,” Chiu
remarks. “The member country co-ordinating offices report monthly
to us and we visit them regularly. We assess the adequacy of the
internal control of each resident mission to ensure there is no

Moving to IFRS

While the bank’s member countries are free to choose
their own accounting standards, the ADB follows the US’s Financial
Acounting Standards Board (FASB) standard.

“We have followed the United States FASB standard for about 30
years as it was the most developed standard at the time we issued
bonds on the US stock market. Now IFRS and FASB are converging,”
Chiu says. “We are exempt from the Sarbanes-Oxley 401 requirement
but we are implementing it to make sure our system control is
adequate. We are not doing it in a big way like some organisations
but at minimum cost and interruption to the bank. We saw a need and
proposed to the ADB’s management to do this.”

All expenditure is carefully monitored and reported, including
expenditure on projects and technical assistance, as well as the
bank’s internal administrative and operating costs. “We follow all
measures for transparent accountable reporting. All transactions
are done in an accountable way,” Chiu says. “For all expenditure
there is an ADB policy; for example, travel expenses. Our job is to
monitor this. It’s a watchdog role as well, sometimes we act as a
bloodhound. We are semi-policemen. This department has a reporting
and support function. If we find something wrong we send it to the
bank’s auditor general to investigate.”