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 April 30, 2004.

(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 a watchdog of 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 (IASB), and interpretations issued by the Standing Interpretations Committee of the IASB.

(c) Basis of preparation
The financial statements are presented in Bulgarian leva. 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 years ended 1999, 2000, 2001, 2002 and 2003, the Statement of Revenues, Expenditures and Changes
in Fund Balances for that years and the Balance Sheet have not been adjusted according to the official inflation index.

(d) Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are revaluated at the foreign exchange rate ruling at that date. The resulting translation difference is recognised in Statements of revenues, expenditures and changes
in fund balances. The BNB official exchange rate of the USD as at 31 December 2002 is 2.06604 BGN/USD and as at 31 December 2003 is 1.54856. The average exchange rate for the year 2003 is 1.73283 BGN/USD. The official closing rate as at 31 December 2003 of the EUR is 1.95583 and of the USD is 1,54856.

(e) Property, plant and equipment
(i) Owned assets
Items of Property plant and equipment are stated at 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 costs have been inflated as at 31 December 1998.
Property plant and equipment and intangible assets have not been inflated for periods ended 1999, 2000, 2001, 2002 and 2003. The inflation rates for these periods are considered insignificant, and no restatement of the financial statements has been made. The inflation rates for each period are presented in the table below:

(ii) Depreciation
Property plant and equipment have been depreciated using the straight - line method. The rates of depreciation used are as follows:

(f) Intangible assets
Intangible assets that are acquired by the Center are stated at cost less accumulated amortisation 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 costs have been inflated as at 31 December 1998.
(i) Amortisation
Intangible assets as at 31 December 1998 have been amortised using the straight – line method. The rate of amortisation used is 20%.

(g) Investments
Subsidiaries are those entities controlled by the Center for the Study of Democracy. Control exists when the Center has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
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 that is different from the activities performed by the CSD. The financial statements of the subsidiaries are not consolidated and the management carries the investments at cost. In the present report information is disclosed (refer to note 7) for the activities of these subsidiaries concerning their net assets and financial results.

(h) 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.

(j) Receivables
Receivables are stated at cost less impairment losses. (see accounting policy (l)).

(k) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and deposits.


(l) Impairment
The carrying amount of the Center’s assets is reviewed at each balance sheet date 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 Statement of revenues, expenditures and changes in fund balances.
(i) Calculation of recoverable amount
The recoverable amount of the Center’s investments in held-to-maturity securities and receivables is calculated as the present value of expected future cash flows, discounted at the original effective interest rate inherent in the asset. The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. For an asset that does not generate largely independent
cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
(ii) Reversal of impairment
An impairment loss in respect to held-to-maturity securities or receivables is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
In respect to other assets, an impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(m) Payables
Payables are stated at cost.

(n) Revenue recognition and expense reporting
Revenue is recognized in the Statement of Revenues, Expenditures and Changes in Fund Balances on the basis of stage of completion of the project 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.
Revenues of the Center for the Study of Democracy consist 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. Each 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 organizations. Respective amounts 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 to the financing organization. Reporting periods are determined in the project contract.

(o) Taxation
CSD is a non - profit organization. No corporate income tax is levied in accordance with current Bulgarian legislation. As at 31 December 2002 and 31 December 2003 the Center has gained financial income from dealing with securities under agreement for trading of securities and bonds. The management has estimated that this is income from trading activities and has accrued the respective taxes due.

1. Revenue from grants, contributions and projects

2. Expenses on grants, contributions and projects

Hired services are related particularly to undertaking of the projects activities and are reported to the grantors to the amount of BGN 1,695,810. They include expenses for honoraria, communication and printing services. Substantial amount of honoraria consists of payment for consulting services to outside and local consultants and experts.

3. Foreign exchange gains or losses

4. Impairment of assets

5. Property, plant and equipment

6. Intangible assets

7. Investment in associates

CSD is a non-profit organisation which has invested in two subsidiaries (Agency Vitosha EOOD and Vitosha Research EOOD) in prior accounting periods. During 2003 the Center has invested in a new subsidiary which is a 100 percent ownership of the CSD – Project 1 EOOD.
The main activity is management, rent, sale and purchase of property, project management.
The capital of the company is 5,000 BGN. Their financial statements have been audited by certified chartered accountants according to Bulgarian legislation, for which some details are presented below:

8. 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 61,870.
The Center has accrued income and municipality tax in the Statement of revenues, expenditures and changes in fund balances in the amount of BGN 14,539.

9. Other receivables
Other receivable in the amount of BGN 341,292 represent long – term loan extended to subsidiary Project 1 EOOD presented at amortized cost. In accordance with loan contract dated 10 November 2003 between the Center and Project 1 EOOD, the total amount of the loan is 405,000 EUR paid in four tranches – 34,500 EUR, 5,942 EUR, 171,000 EUR paid by the end of
December 2003 and 193,558 EUR is due in 2004. The loan is payable from 2006 until 2015.

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 or stage 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. Subsequent events
In accordance with loan agreement between the Center for the Study of Democracy and Project 1 EOOD, the last fourth tranche of the contract in the amount of 193,558 EUR equivalent to 379,431 BGN has been paid on 12 January 2004.

18. Contingencies
There are no contingencies to report on.