I have audited the financial statements on pages 59 to 66 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of the General Manager, Electrical and Mechanical Services Trading Fund and the Director of Audit
Under section 7(4) of the Trading Funds Ordinance (Cap. 430), the General Manager, Electrical and Mechanical Services Trading Fund is responsible for the submission of financial statements prepared in accordance with generally accepted accounting principles and signed by him to me. In preparing the financial statements, the General Manager, Electrical and Mechanical Services Trading Fund has to select appropriate accounting policies and to apply them consistently.

It is my responsibility to form an independent opinion, based on my audit, on those statements and to report my opinion to you.

Basis of opinion

I certify that I have examined and audited the financial statements referred to above in accordance with section 7(5) of the Trading Funds Ordinance and the Audit Commission auditing standards. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the General Manager, Electrical and Mechanical Services Trading Fund in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Electrical and Mechanical Services Trading Fund's circumstances, consistently applied and adequately disclosed.

I planned and performed my audit so as to obtain all the information and explanations which I considered necessary in order to provide me with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming my opinion I also evaluated the overall adequacy of the presentation of information in the financial statements. I believe that my audit provides a reasonable basis for my opinion.

Opinion

In my opinion the financial statements give a true and fair view, in all material respects, of the state of affairs of the Electrical and Mechanical Services Trading Fund as at 31 March 1997 and of the results of its operations and cash flows for the period from 1 August 1996 to 31 March 1997 and have been properly prepared in accordance with the manner provided in section 7(4) of the Trading Funds Ordinance.

Audit Commission Hong Kong
18 September 1997

1. Status of the Electrical and Mechanical Services Trading Fund

The Electrical and Mechanical Services Trading Fund was established on 1 August 1996 under the Legislative Council Resolution passed on 26 June 1996 pursuant to sections 3, 4 and 6 of the Trading Funds Ordinance (Cap. 430). After the first three years of operation of the Electrical and Mechanical Services Trading Fund, customers will be gradually permitted to choose alternative suppliers for services provided under a phased programme.

2. Accounting policies

1. Basis of accounting
   The accounts have been prepared in accordance with generally accepted accounting principles.

2. Fixed assets
   Fixed assets appropriated to the Electrical and Mechanical Services Trading Fund on 1 August 1996 are stated at the value contained in the Legislative Council Resolution for the setting up of the Electrical and Mechanical Services Trading Fund. Fixed assets acquired since 1 August 1996 and costing more than $100,000 on an individual basis are capitalised at the actual direct expenditure of acquisition and installation.

3. Depreciation
   Depreciation is provided on a straight-line basis calculated to write off the cost of assets less residual value over their estimated useful lives. The annual rates of depreciation used are:-

   Buildings	5%-10%
   Computer systems and equipment	20%-25%
   Plant and equipment	14%
   Motor vehicles	20%

   Land is regarded as a non-depreciating asset.

4. Deferred tax
   Deferred tax is provided, by using the liability method, in respect of the taxation effect arising from all timing differences which are expected with reasonable probability to crystallize in the foreseeable future.

5. Revenue recognition
   Revenue is recognized as services are provided. Interest income is recognized on an accrual basis.

6. Stocks and work in progress
   Stocks and work in progress are stated at the lower of cost and net realisable value. Work in progress represents jobs in progress as at 31 March 1997.