# EUR-Lex - 52005DC0090 - EN

Important legal notice

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# 52005DC0090

**Communication from the Commission - Report on progress at 31 January 2005 of the modernisation of the accounting system of the European Commission /* COM/2005/0090 final */ **

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Brussels, 16.3.2005

COM(2005) 90 final

COMMUNICATION FROM THE COMMISSION

R eport on progress at 31 January 2005 of the modernisation of the accounting system of the European Commission

TABLE OF CONTENTS

1. Introduction 3

2. Summary of implementation to January 2005 3

3. Accounting issues 4

3.1. Accounting rules 4

3.2. Accounting processes 4

3.3. Control environment and validation of local systems 4

4. IT developments 5

5. Implementation of the modernised accounts in the Commission’s services 6

5.1. Preparation of opening balances for the 2005 financial year 6

5.2. Development of local IT systems and their links to ABAC 7

5.3. Training 7

6. Implementation of accrual accounting by the other institutions and agencies 7

7. Future developments 7

7.1. General Budget 7

7.2. Loans and borrowings 8

7.3. European Development Fund 8

8. Conclusion 8

ANNEX 1: ABAC PROGRAMME STATUS AT 31 JANUARY 2005 9

ANNEX 2: INTEGRATED PROGRAMME PLAN 31 JANUARY 2005 17

ANNEX 3 : ACCOUNTING FRAMEWORK: ACCOUNTING RULES 23

ANNEX 4 : MAIN TASKS TO BE EXECUTEDFROM JANUARY 2005 26

1. INTRODUCTION

On 17 December 2002, the Commission adopted its Communication on the modernisation of the accounting system of the European Communities[1]. Both the Council and the European Parliament were informed of this Communication.

The project addressed three principal issues:

- compliance with internationally accepted accounting principles for the public sector, in particular regarding accrual accounting (the recording of accounting events when they occur, and not only when cash is received or paid, or at the year end only);

- integration of the financial and accounting systems held on different IT platforms;

- improving the performance of the system SINCOM2 in the meantime, in particular concerning security and the consistency of data from different sources.

The Commission has presented half-yearly progress reports[2] since 2002. DG Budget established information notes on the progress made in the intervening quarters. This report now summarises progress as of 31 January 2005, rather than 31 December 2004, in order to report on the transition to the new system. Like the preceding reports, it will be communicated to the relevant committees of the discharge authorities, and to the Court of Auditors. A brief oral presentation was made to the Budgetary Control Committee on 1 February 2005.

2. SUMMARY OF IMPLEMENTATION TO JANUARY 2005

Under the new Financial Regulation which entered into force on 1 January 2003[3], accrual accounting for the General Budget had to be introduced by 2005. Full integration of all accounting systems was expected to take longer. Once the accounting system was modernised, it was planned to progressively expand its role in supporting the financial management of the Commission's operations.

The legal requirement was met on 10 January 2005, when the new accounting system was opened on a full accrual basis. The Commission has thus fulfilled its commitment to the discharge authority in this respect. This was achieved at the planned date, and within the planned cost of EUR 20 million for DG Budget and DIGIT. In addition, EUR 5 million was allocated to other services for temporary clerical support.

Now that the Commission has carried out its administrative reform, and has successfully modernised its accounting system the conditions are fulfilled for restoring the confidence ofthe European taxpayer that his or her funds are managed by the Commission under strict standards of control.From now on, the Communities' financial statements will meet the highest accounting standards, thus putting the Commission at the forefront of European public administrations.

Nevertheless, January 2005 is not the end of the accounting reform. There is still room for improvement of the IT systems at central and local level, of the integration of systems and of management reporting. Moreover, the new accounting procedures will take time to become fully embedded.

The project was implemented largely in accordance with the timetable set out in section III.3 of the Communication of 17 December 2002, and with the more detailed project plan for 2003 and 2004 proposed on 8 July 2003. Annex 1 presents a detailed comparison between the timetable of 17 December 2002 and actual implementation. Annex 2 presents an update of the milestone plan adopted in July 2003.

3. ACCOUNTING ISSUES

3.1. Accounting rules

The fifteen sets of accounting rules applicable to the Community’s accounts and the harmonised chart of accounts were adopted by the Accounting Officer on 28 December 2004, and communicated to the accounting officers of the other institutions and of the agencies. They are summarised in Annex 3.

The Commission's accounting manual, based on the accounting rules and chart of accounts, was largely finalised by the end of December 2004, after taking into account the comments of the various departments. This version will continue to be adapted in the light of experience and of further IT developments. A practical means of evaluating certain year-end provisions, such as for claims not yet received, remains to be established.

3.2. Accounting processes

The accounting processes yet to be defined are the procedures for closing the 2005 accounts and for preparing the 2005 financial statements. The adoption of a consolidation manual and cut-off procedures is planned for 2005, as is the introduction of an IT tool for consolidating the institutions’ and agencies' accounts.

3.3. Control environment and validation of local systems

The modernised accounting system will depend on accurate and complete data entry by the many users of the central IT system (some 7 000 are expected). The menus being developed for users will provide step-by-step assistance aimed at minimising the risk of error, but the quality of the data entered will depend also on the control environment put into place by each Authorising Officer by Delegation. Guidance in this matter is given in the document ‘Accounting objectives and control framework’ (December 2003), which sets out the risks associated with each category of transactions and the controls proposed to counter these risks. DG Budget will continue to develop guidance on accounting matters and to support services in its implementation.

The criteria for validating authorising officers’ financial procedures and IT systems were issued on 2 July 2004. A detailed questionnaire permitting a readiness assessment by each service in relation to the criteria was circulated on 1 September, and all services replied by the deadline of 30 September 2004.

Despite difficulties in recruiting staff with suitable experience, a high-level assessment of all services' financial procedures and related IT systems was completed by DG Budget on 17 December, on the basis of the replies to the questionnaire, plus a half-day discussion with each service. The resulting report was finalised on 31 January 2005. It identifies a number of risks which the services concerned will be asked to address.

DG Budget's team of eight people will be fully staffed by 16 March 2005. It will undertake a programme of more in-depth checks of the systems as they actually operate in each service, commencing with those assessed as presenting the higher risks. This work will underpin the validation of the systems laid down by the authorising officers to supply or justify accounting information, as required under Article 61(1)(e) of the Financial Regulation.

4. IT DEVELOPMENTS

The most challenging part of the project is to integrate the existing financial management and accounting systems, to develop the systems so as to provide accrual accounting, and to provide users with user-friendly menus which will help ensure that the data entered is of high quality. The present situation is summarised below.

The IT functionalities to support the accounting processes have been developed. The new system, termed ‘ABAC’, comprises the central accounting system which runs on SAP-Enterprise software, and workflows developed by the Commission for payment claims (ABAC-invoices), for contracts and related commitments (ABAC-contracts) and for fixed assets (ABAC-assets). The Si2 payment workflow was redeveloped to meet accrual accounting requirements. A number of other services continue to supply accounting information through interfaces with their local IT systems.

The main work completed since 30 June 2004 is:

- developing, testing and releasing ABAC-contracts (4 October) and ABAC- invoices (25 October), so that staff could be trained and become familiar with these workflows before January 2005;

- developing, testing and releasing ABAC-assets (14 January 2005);

- testing the working of the system as a whole by multi-disciplinary teams, in order to identify and correct problems before January 2005;

- backing up the old system on 31 December, and moving to the new system, which was opened on 10 January and under full load in early February once the commitments carried forward from the 2004 budgetary year became available;

- loading the opening balances for prefinancing (30 000), claims awaiting payment (7 400) and fixed assets (74 000).

On 10 January 2005, the central accounting system was opened for use in accounting for the General Accounts on an accrual basis, including most of the opening balances necessary for the services' day-to-day work, and has since functioned with a high level of reliability. Over 32 000 payments, 10 000 claims and 1 300 commitments had been successfully processed by 31 January 2005.

The one exception concerns the imprest accounts and office equipment of external delegations and press offices outside the Commission's headquarters, to which financial responsibilities have been devolved. These will be progressively included in the central system as from 2005.

5 . IMPLEMENTATION OF THE MODERNISED ACCOUNTS IN THE COMMISSION’S SERVICES

5.1. Preparation of opening balances for the 2005 financial year

All services were requested to assist in the establishment of an inventory of prefinancing, guarantees, fixed assets and legal entities benefiting from grants and contracts. This involved examining files relating to some 45 000 open commitments and 74 500 bank account references before the end of December 2004. The services reported on progress made to 30 June, 30 September, 31 October and 30 November 2004.

On the basis of the information in these reports, and that given in bilateral contacts, it is apparent that some 95% of the work was completed by the deadline, and that the remaining work concerned cases where the beneficiary failed to forward the documentation necessary to register a legal entity, and thus complete the recording of the prefinancing and guarantees concerned. Three services were given an extension to deal with these remaining cases.

Practically all services presented files to be uploaded into the accounting system by the deadlines and to a high quality. Less than 1% of the records were returned for correction, and complete files were received late from, or had to be returned to, only three services. By 31 January 2005, 76 000 legal entity files had been processed regarding external contractors or experts and 56 000 regarding staff, and 30 000 prefinancing balances loaded. A deadline of 31 March 2005 has been set for completing the exercise for the 22 000 guarantees. All services concerned have converted to ABAC-assets for their management of inventories except the delegations and press offices which aim to undertake this conversion in 2005. All fixed assets have been loaded in the central accounting system except those regarding two Joint Research Centres, DG TREN and buildings, which will be loaded in March.

DG Budget will ask each service to verify the accuracy and correct accounting of the figures on opening balances, to ensure the figures are complete and to make corrections before 31 March 2005. A means will be provided for recording prefinancing which cannot be linked to a validated legal entity file. The opening balance sheet of each service will be sent to the Director-General or Head of Service concerned for formal validation by 30 June 2005.

In addition to the above work, the services have been requested to link all closed commitments recorded since 1 January 1999 to a legal commitment, so that the Commission's financial relationship with each entity since that date can be determined. It is intended to limit this work to commitments over EUR 50 000, which entails examining some 35 000 further files (if the limit were lowered to EUR 13 800, a further 25 000 files would need to be examined). Together with work on 30 000 commitments which still remain to be linked to a legal entity, this work will complete the implementation of action 74 of the administrative reform concerning the development of a central database for contracts, and ensure that the Commission honours the commitment it made to Parliament following the Eurostat affair.

5.2. Development of local IT systems and their links to ABAC

All services except one adapted the bulk of their IT systems to the requirements of accrual accounting by the end of 2004. Where development was not completed in time, the services concerned used the central system to avoid delays in processing commitments and payment claims.

5.3. Training

A programme to train future users of the ABAC system, supported by outside experts, was launched on 5 October 2004. By 31 January 2005, 3 300 participant days of training had been given, with a satisfaction rating rising progressively from 60% to 86%. All key users were offered hands-on training; others received 'hands-off' familiarisation training in larger groups. The users’ training modules are designed to become a user guide, and to form the basis of a continuous training programme for future users. Each service with a local system was expected to undertake its own training programme for users of that system. A training programme specifically for staff in the Commission's delegations in third countries will be launched in 2005.

6. IMPLEMENTATION OF ACCRUAL ACCOUNTING BY THE OTHER INSTITUTIONS AND AGENCIES

The Commission invited each institution and agency to conduct a ‘readiness assessment’ for application of the new accounting rules and accrual-based accounts. From an analysis of the replies, and information exchanged during meetings, it appears that each is taking the necessary steps. Information meetings were held with the accounting officers of all institutions and agencies in June and November 2004.

Several agencies and smaller institutions use a version of the Commission’s Si2 system for their budgetary accounts. By letter of the Secretary-General of 22 June 2004, the Commission agreed to continue to make Si2 available during 2005, and to make all modules of ABAC available to those entities which wished to use them, together with the technical specifications necessary to link them to their own systems.

The Commission has also suggested that the Agencies develop a shared IT platform on which to run their copies of ABAC. This solution, in line with a recommendation by Parliament, would be cost-efficient while preserving the independence of each Agency.

7. FUTURE DEVELOPMENTS

7.1 . General Budget

A new milestone plan is being established for further IT developments (see Annex 4). These relate mainly to improving user-friendliness and the financial reporting function, and preparing the first annual consolidated accounts. During 2005, the different workflows are due to be consolidated into a single web-based application (ABAC-workflow), and certain new functionalities will be developed (for example, the debt recovery process). A series of further developments is also being planned in order to achieve the longer-term aim of closer integration of local systems, and provide further tools for user support and financial management.

7.2. Loans and borrowings

As regards operations outside the Commission’s budget, the project is on track to integrate loans and borrowing activities, at present recorded on Globus, a system owned by DG ECFIN, into the central accounts by July 2005, using the SAP banking module, CFM.

7.3. European Development Fund

In a separate exercise, the accounts of the European Development Fund, which are at present separate from the accounts of the General Budget, must also be modernised.

In collaboration with AIDCO, the workflows for the management of EDF projects will be transferred from the present EDF accounting system (OLAS) to AIDCO’s local system (CRIS), and the EDF accounts will be kept on an accrual basis in ABAC. The advantages of this solution are that it prepares the way for any integration of the EDF in the General Budget, and it allows EDF payments to be executed using the functions developed for the General Budget.

The IT necessary for full accrual accounting will be in place as from 2006, after ABAC and the parallel developments of CRIS are completed. The EDF accounts for 2005 will be prepared from information held in OLAS, as adapted to provide a basis for accrual accounts. It is aimed that, as from 2006, the new ABAC-EDF system will be fully compliant with the requirements of accrual accounting.

In the meantime, payments by the EDF will be made through the General Budget’s accounting system as from February 2005.

8. CONCLUSION

The modernisation project has met the deadline set in the Financial Regulation for the introduction of accounting systems for the General Budget which provide a basis for the Commission to comply with internationally accepted accounting standards. The Commission achieved this objective within two years, which is substantially less time than that taken by other European public administrations, and has met a deadline which its external consultants and external auditors considered to be very ambitious. It could not have achieved this undoubted success without the commitment and constructive collaboration of all services.

The extra-budgetary activities of DG ECFIN will be incorporated into the central accounting system of the Commission by July 2005. During the first six months of 2005 accounting for extra-budgetary activity will, as in the past, be accrual based. The European Development Fund will use ABAC for its payment process in 2005, and for its accounting processes in 2006.

The project plans to provide each service’s management with more reliable and complete information on the assets and liabilities for which it is responsible and on its financial relationships with each supplier (in the longer term), and, in the medium term, on the financial implementation of multiannual projects and commitments.

ANNEX 1: ABAC PROGRAMME STATUS AT 31 JANUARY 2005

(Referenced to the Timetable in section III.3 of the Commission's communication COM(2002)755 final)

1st to 4th quarter: 2003

5th to 8th quarter: 2004

Measure | Deadline | Result | Comment |

Accounting framework |

Definition of an accounting framework |

Provision by the Accountant of an initial analysis of accounting requirements based on the Commission’s decision | 1st quarter | completed 2nd quarter | Initial analysis of accounting requirement based on the Commission's decision was drawn up by June 2003 and used as a basis to develop the accounting rules and to determine the IT development issues. |

Setting up an accounting standard committee Establishment of accounting standards for European Communities - Draft - Final priority standards - Final others standards | 1st quarter 2nd quarter 4th quarter 6th quarter | Completed | The Accounting Standard committee was set up in March 2003, with monthly meetings, to give its advice and judgement on accounting rules. The final meeting (July 2003) examined the comments on the proposed rules. |

Adapting Chart of account Draft : Final : | 2nd quarter 4th quarter | Completed |

Defining the event giving rise - draft - final | 2nd quarter 4th quarter | Completed | The inventory of financial processes was carried out and events giving rise were described in flows and validated by services |

Extending the scope of consolidation | 9th quarter | Started, still in progress | The scope of consolidation is to be extended for 2005 accounts, the IPSAS compliant accounting rule was adopted Future steps: consolidation manual, consolidation pack, development and implementation of the chosen tool |

Financial statements | 9th quarter | Started, still in progress | They are defined as part of the accounting rules and the Chart of accounts drawn up accordingly. The accounting rules relating to financial statements have been prepared |

Integration of accounting data |

Fixing the opening balances - Provisional - definitive | 4th quarter 8th quarter | Completed | Opening balance have been collected for prefinancing, guarantees and invoices received and not yet paid. Other opening balances will be the result of 2004 accounts closure. The amounts of provisions for cost claims not received by 31/12/2004 will be estimated in mid-2005. |

Defining the object code, - Plan - link between budget and general accounts | 4th quarter 7th quarter | Completed Completed | Following the inventory of financial processes and Chart of accounts, object codes were defined and linked to budget and general accounts |

Integrating contingent assets and liabilities (off balance-sheet items) - inventories - guarantees - integration | 4th quarter 5th quarter 9th quarter | On schedule | The complete opening balance will be established when the 2004 accounts are closed |

Management, entry in the accounts of prefinancing, interim payments and final payments | 5th quarter | Still in progress | Prefinancings for most open commitments and balances have been recorded in the accounts. The remainder should be recorded by 31.3.2005 |

Creating link between CIR and the accounts - use of CIR mandatory - link to general accounting | 4th quarter 7th quarter | One quarter delay | During the 5th quarter, CIR was deployed in most services lacking an equivalent IT tool. It was upgraded to become ABAC invoice on 25/10/2004, when its use was made obligatory where appropriate. |

Receivables and files of clients / suppliers | 5th quarter | The legal entity file was set up in March 2004. By 31/1/2005, 121 213 legal entities had been validated. The exercise will continue in 2005 in order to link all commitments since 1999 and over 50000 € with a legal entity. |

Organisation of internal control of accounting data |

Expanding internal control in DGs to include accounting aspects - draft - definitive | 4th quarter 8th quarter | Completed | The control framework has been developed, validation criteria were communicated to all services on 02/07/04 and a questionnaire on 01/09/04 |

Supporting evidence for balance sheet balances through inventories | 7th quarter | Completed | A part of inventories of fixed assets were consolidated in ABAC assets end 2004 and loaded in SAP in January 2005; a second loading will take place in March 2005. |

Certification of local system | 9th quarter | Each high level assessment of services was completed by 17/12/2004 and the report established on 31.1.2005. A programme of in depth checks will be launched in March 2005 |

Training and awareness |

Training | 3rd to 6th quarter | Rescheduled according to services | Information sessions from the 4th quarter, accounting training in 2004, training for users from 10/2004 following releases of ABAC invoices and ABAC Contracts |

Recruitment | 3rd quarter | Completed | 17 additional resources |

Network accounting correspondents | 1st quarter | Completed | Identification of correspondents, meetings and regular information session organised |

Improvement of current system architecture |

Reconciliation SI2 / R3 (2002 data) | 2nd quarter | Completed | Reconciliation SI2/R3 completed and validated in early 2003, continued weekly thereafter |

Written security policy | 2nd quarter | Completed | Security policy for SI2 written during the second quarter of 2003 and adopted July 2003 |

Comparison of security management principles | 3rd quarter | Completed | Current security policy compared to relevant international standards in 2003 and deemed appropriate. |

Fixing of rules governing incorporation of security elements | 3rd quarter | Completed | Rules governing the incorporation of the security elements in the new functionalities have been designed in the 3rd quarter |

Developments of computerised tools to facilitate management and audit of access rights | 3rd quarter | Partially completed | Access rights have been audited and a computerised tool was implemented in 2004 to facilitate the management of access rights. This temporary tool will be replaced by a more powerful tool integrated fully within the ABAC “Web” environment during 2005. |

Development, implementation of web based version of SI2 | 4th quarter | Not completed | The development full web-based of SI2 was postponed and planned to be implemented in 2005, the other ABAC workflows are web-based. |

Elimination of redundant data | 4th quarter | Partially completed | Data management activities are included in the IT developments and include data cleansing phases (elimination of redundant data, correction of errors, completion of missing data...) An archiving policy will be developed in 2005. |

Development of the new system architecture |

Feasibility study of new architecture – integration of sectorial systems | 2nd quarter | Completed | A feasibility study was completed in May 2003, including the examination of the integration of sectorial systems (certain will be abandoned- DG Entr, JRC). The cost benefit of retaining the remaining systems will be examined progressively over 2005 and 2006. |

Detailed road map for implementation of the next IT system | 2nd quarter | Completed | A detailed road map for the implementation of the new system was developed in May 2003 and maintained on a daily basis. This roadmap has been developed into an implementation plan |

Analysis of users’ management needs | 3rd quarter | Completed | Users’ management needs have been recorded through workshops, analysed, categorised and mapped against planned system functionalities to ensure proper alignment on the system future functionalities. Final report was issued on 30/9/03 |

Design of proposed solutions - progressive functional and technical definition of the system | 4th quarter | Completed | The design was performed in two phases: first the production and validation of functional blueprint and second the technical blueprint; the functional blueprints consolidate the accounting rules, operational activities and data model, they were finalised in December 2003, the technical blueprint translated in technical terms to actual system functionalities, they were ready in March 2004. |

Migration towards SAP Enterprise | 7th quarter | Completed 3rd quarter | Problems were resolved in collaboration with SAP |

User workshops and feedback | 4th quarter | Completed | Workshops have been conducted in 2003, the users’ requirements has been analysed, categorised and incorporated in the functional blueprints. Users’ feedback is collected during the implementation and testing phases. |

Progressive implementation of new functionality | 6th quarter | Completed 7th quarter | The system implementation has been phases to allow a progressive implementation of functionalities as they became available. |

New functionalities following tests | 7th quarter | Completed 8th quarter | All new modules and functionalities were tested before release to ensure meeting accounting principles and users’ requirements. Testing of the integrated system was completed end of 2004. |

Training for key users | 8th quarter | Completed | All key users were proposed hands on training by 31.12.2004 |

Release of new system | 8th quarter | Completed | ABAC invoice, ABAC contracts, ABAC Assets have been released and are operational. The ABAC system was released on 10 January 2005 |

ANNEX 2: INTEGRATED PROGRAMME PLAN 31 JANUARY 2005

List of milestones

2 | Accounting Standards defined | Accounting | February | 31/08/03 | February | 31/08/03 | Done |

3 | Business events analysed | Accounting | May | 31/01//04 | May | 31/01//04 | Done |

4 | Accounting objectives and control framework updated and issued | Accounting | 01/09/03 | 31/10/03 | 01/09/03 | 31/10/03 | Done |

5 | Draft architecture strategy is defined | IT | February | 15/07/03 | February | 15/07/03 | Done |

6 | Draft user requirements documented | User Req. | March | 30/06/03 | March | 30/06/03 | Done |

7 | Chart of accounts updated and object code mapping done, functionalities defined | Accounting | 15/07/03 | 31/01/04 | 15/07/03 | 31/01/04 | Done |

8 | Functional Blueprint, Data/ process model prepared and validated | IT/Accounting | 15/07/03 | 15/01/04 | 15/07/03 | 15/01/04 | Done |

9a | Functional architecture proof of concept built and tested | IT | 01/07/03 | 15/10/03 | 01/07/03 | 15/10/03 | Done |

9b | Prototypes completed | IT | 16//10/03 | 31/01/04 | 16//10/03 | 31/01/04 | Done |

10 | Local systems and SI2 adaptation capacity analysed | IT/DG | 15/09/03 | 15/12/03 | 15/09/03 | 15/12/03 | Done |

11 | Consolidated entities identified and informed | Accounting | 01/10/03 | 31/10/03 | 01/10/03 | 31/10/03 | Done |

12 | High-level DG Budget processes defined | Accounting | 01/10/03 | 14/11/03 | 01/10/03 | 14/11/03 | Done |

13 | Data / process gap addressed | IT/Accounting | 15/09/03 | 31/01/04 | 15/09/03 | 31/01/04 | Done |

14 | User requirements finalised | User Req. | 09/07/03 | 30/09/03 | 09/07/03 | 30/09/03 | Done |

15 | Priority gaps are addressed, obsolete systems identified | DG’s | 15/07/03 | 15/01/04 | 15/07/03 | 15/01/04 | Done |

16 | Accounting Standards, chart of accounts and manual final draft issued | Accounting | 16/10/03 | 30/06/04 | 16/10/03 | 31/07/04 | Done |

16a | Accounting Rules | Accounting | 16/10/03 | 30/06/04 | 16/10/03 | 30/06/04 | Done |

16b | CoA | Accounting | 16/10/03 | 30/06/04 | 16/10/03 | 30/06/04 | Done |

16c | Accounting Manual | Accounting | 15/11/03 | 30/06/04 | 15/11/03 | 30/06/04 | Done |

17 | Final 2005 IT architecture defined | IT | 20/11/03 | 15/01/04 | 20/11/03 | 15/01/04 | Done |

18 | Implementation plan prepared | IT | 15/07/03 | 02/01/04 | 15/07/03 | 02/01/04 | Done |

19 | Detail DG plans prepared | DG’s | 15/10/03 | 28/02/04 | 15/10/03 | 28/02/04 | Done |

19a | HL DG impact assessment and plans prepared | DG's | 15/10/03 | 15/01/04 | 15/10/03 | 15/01/04 | Done |

19b | Detailed DG plans prepared | DG's | 15/01/04 | 28/02/04 | 15/01/04 | 28/02/04 | Done |

20 | Technical blueprint completed and prototype validated | IT | 03/11/03 | 15/02/04 | 03/11/03 | 15/02/04 | Done |

21 | Integrated Central system validated | IT | 01/02/04 | 31/05/04 | 01/02/04 | 31/12/04 | Done |

22 | Sectorial systems improved, interfaces completed and tested | DG’s | 15/01/04 | 31/12/04 | 15/01/04 | 31/12/04 | Mostly done |

22a | DG's Functional requirements finalised | Accounting/User Req. | 15/01/04 | 15/02/04 | 15/01/04 | 15/02/04 | Done |

22b | Interfaces technical requirements ready | IT | 01/03/04 | 31/05/04 | 01/03/04 | 31/05/04 | Done |

22c1 | Local systems improved and tested | DG's | 01/02/04 | 30/10/04 | 01/02/04 | 31/12/04 | Mostly done |

22c2 | Interfaces developed and tested | DG's | 01/04/04 | 31/12/04 | 01/04/04 | 31/12/04 | Mostly done |

23 | Manual processes are defined and tested | DG’s | 15/01/04 | 29/09/04 | 15/01/04 | 29/09/04 | Done |

24 | DG Budget processes validated | Accounting | 04/02/04 | 30/06/04 | 04/02/04 | 30/06/04 | Done |

25 | Consolidation | Accounting | 06/01/04 | 27/08/04 | 06/01/04 | 31/12/05 | 60% |

26 | Integration tests performed | IT | 01/06/04 | 31/07/04 | 01/06/04 | 31/12/04 | Done |

27 | User acceptance tests made | IT | 01/09/04 | 30/09/04 | 01/09/04 | 31/12/04 | Done |

28 | Data migration prepared | IT | 05/04/04 | 10/11/04 | 05/04/04 | 31/12/04 | Done |

29 | IT Systems realised | IT | 01/02/04 | 31/08/04 | 01/02/04 | 25/10/04 | Done |

30 | User trainings completed | IT | 01/10/04 | 30/11/04 | 01/10/04 | 31/12/04 | Key users done |

31 | Accounting Standards, chart of accounts and manual finalised | Accounting | 01/12/03 | 05/11/04 | 01/12/03 | 31/12/05 | Done |

32 | Trainings completed | Project man. | 05/11/03 | 30/11/04 | 05/11/03 | 28.02.05 | In progress |

33 | Closing instructions sent | Accounting | 08/11/04 | 01/12/04 | 08/11/04 | 14/12/04 | Done |

34 | DG’s processes and systems signed off | Accounting | 01/07/04 | 31/12/04 | 01/07/04 | 31/12/04 | Done at high level |

34a | Local systems signed-off | Accounting | 01/07/04 | 30/11/04 | 01/07/04 | 31/12/04 | Done at high level |

34b | Interfaces signed-off | Accounting | 30/09/04 | 31/12/04 | 30/09/04 | 31/12/04 | Done at high level |

35 | Final preparation completed | IT | 01/10/04 | 31/12/04 | 01/10/04 | 31/12/04 | Done |

36 | First part of the programme closed | Project Man. | 28/12/04 | 07/01/05 | 28/12/04 | 07/02/05 | Done |

ANNEX 3 : ACCOUNTING FRAMEWORK: ACCOUNTING RULES

Financial statements: This standard follows the IPSAS 1 requirements, as adapted to the requirements of the Financial Regulation. For instance, the complete set of financial statements includes the following components:

(a) Balance Sheet

(b) Economic outturn

(c) Statement of changes in Capital

(d) Cash Flow Table

(e) Accounting Principles, Rules and Methods and Notes to the Financial Statements and

(f) Segment Reporting (included in the notes to the financial statements).

Group accounting: The scope of the consolidation is a significant issue that is addressed in this rule. This rule defines three major categories of entities that should be consolidated: controlled entities (meaning those over which the European Communities have an exclusive control), associate entities (those where the European Communities have a significant influence on the entity) and joint ventures (the European Communities have a joint control). For each category, the European Communities would have to adopt a specific accounting procedure: global consolidation, equity method or proportionate consolidation. The European Development Fund is excluded from the scope of consolidation, but will be disclosed in the notes to the accounts as funds managed by the Commission on behalf of the Member States and their ACP partners.

Foreign currency conversion: the European Communities have to deal with transactions that are denominated in a foreign currency. A transaction should be initially recorded by applying the exchange rate at the date of transaction. At each reporting date, the European Communities would have to update this valuation and calculate an exchange difference. Both realised and unrealised exchange gains or losses should be recognised in the statement of financial performance at the reporting date.

Property, plant and equipment: This rule sets the accounting requirements regarding the recognition and measurement of property, plant and equipment. It establishes that an item of property, plant and equipment should be recognised as an asset when it is probable that future economic benefits or service potential associated with the asset will flow to the entity; and the cost or fair value of the asset to the entity can be measured reliably. Buildings, land, and hardware are considered as fixed assets.

The generating event for the recognition of an item of property, plant or equipment is the transfer of property, which is generally equivalent to the date of delivery. Regarding the measurement, the rule sets out the nature of the costs to be included in the purchase price and explains how to identify assets under construction.

Depreciation expense is recognized on a systematic basis over the asset's useful life i.e. pro- rata temporis, reflecting the pattern in which the asset's benefits are consumed by the European Communities.

In addition to the depreciation, specific events can have an impact on the value of the asset (effect of time, obsolescence, falling market value, etc ...). When an impairment indicator is activated, additional depreciation should be recognised. Thus, the value of property, plant and equipment is not an historical value but can vary as time goes by.

Intangible assets: Intangible assets follow almost the same rules as property, plant and equipment. Nevertheless, there is often more uncertainty about the valuation of intangible assets (for instance, when recognising a patent or when developing an own intangible asset such as computer software). This rule sets out the necessary requirements that intangible assets must fulfil to be considered as assets.

Leases: For accounting purposes, this rule divides leases into two types: finance leases and operating leases. Finance leases should be recognised as fixed assets, as this type of leasing substantially transfers all risks and rewards incident to ownership. Operating leases are considered as rents. This rule recalls that since finance leases are fixed assets, depreciation and when necessary impairment must be assessed and recorded.

Inventories: this rule explains that inventories are assets in the form of materials or supplies to be consumed in the production process or to be consumed or distributed in the rendering of services or held for sale or distribution in the ordinary course of operations, or in the process of production for sale or distribution. Consequently, the scope of inventories is not very broad and administrative supplies should not be recognised as inventories. This rule describes how to recognise and derecognise inventories and give illustrative examples. It should be mentioned that the LIFO ("Last In, First Out") method is not authorised by IPSAS. Finally, this rule includes also in appendix a compliance analysis of the inventories of the European Communities. This analysis includes the accounting requirements for the inventories of agricultural stocks.

Receivables and revenues: The transition to accrual accounting has significant consequences on the receivables generating events. First, the rule distinguishes between “exchange transactions” and “non-exchange transactions”. “Exchange transactions” include the delivery of services and goods but also revenues from royalties or interests. “Non-exchange transactions” are specific to public sector bodies, as there is no transfer of property. Those kinds of revenues include traditional own resources, VAT, GNI, fines, etc...

The rule identifies for each category of event the generating event and the accounting consequences at the reporting date. It is necessary at each reporting date to estimate the recoverability of the European Communities’ receivables. When there is a risk that the receivable may not be recovered, then a value reduction should be recognised.

Pre-financing: Pre-financing is intended to provide the beneficiary with a float. As a consequence, the rule states that a pre-financing is not an expense that should be recorded in the statement of financial performance, but should be recognised as an asset when the pre-financing is paid to the beneficiary. The pre-financing would subsequently be derecognised with the interim and final payments.

As a pre-financing is a receivable, the European Communities have at each reporting date to assess if this asset is recoverable or not. When there is a risk that it may not be recovered, a value reduction should be recognised in the accounts.

Payables and expenses: This rule details the accounting rules related to payables and expenses. First, it recalls that the generating event is the delivery of goods or the delivery of service. This position implies that at each reporting date, the European Communities would have to recognize an accrued charge for all goods/services delivered during the period but not yet recognised and a deferred charge for all goods/services recognised but not related to the period.

Moreover, the analysis of the European Communities’ business events shows that some events need very specific treatment as they are “non-exchange transactions” (e.g. grants, EAGGF, Structural funds, etc...). Consequently, this standard gives detailed accounting requirement for the recognition and measurement of those events.

Provisions, contingent assets and liabilities: International Standards are very restrictive regarding provisions as there needs to be a clearly identifiable obligating event (a past event that leads to a present obligation). Although provisions are very restrictive, this rule establishes that the European Communities would have to disclose a large amount of information regarding contingent assets and liabilities. For example, contingent assets and liabilities include guarantees received or given. Provisions and contingent assets and liabilities should be updated at each reporting date. A detailed compliance analysis of existing provisions, contingent assets and liabilities is presented in the appendix.

Basis of preparation: this document recalls the basic concepts that have to be applied when applying IPSAS.

Financial instruments: this rule deals with the accounting requirements for transactions such as participations, swaps, futures, etc. It presents the various IFRS and IPSAS requirements applicable to the European Communities. The contentious issues which have delayed the adoption of IAS 39 by the Commission do not affect the Community's accounts.

Cash and cash equivalents: this rule gives illustrative examples of cash transactions to recognise during the year and at the reporting date. Those examples deal with cheques, deposits, money transfers and internal transfers.

Employee benefits: this rule details the scope of the employee benefits to be included in the provision; refers to the actuarial methodology to implement and the accounting schemes; and explains what is the generating event.

Net result for the period, fundamental errors and changes in accounting policies: this rule is useful to assess the work to be done regarding the opening balance. It explains when and how it would be possible for the European Communities to amend its accounts once published and approved by the relevant authority.

Related party disclosure: In order to improve transparency, this rule requires the disclosure of information about related parties (e.g. agencies) and key management personnel. For example, it requires that the remuneration of this personnel should be disclosed in the notes to the financial statements.

ANNEX 4 MAIN TASKS TO BE EXECUTED FROM JANUARY 2005

Accounts and accounting procedures

- Complete the 2005 opening balances, verify their coherence and obtain the validation by each responsible AOD

- Accounting manual to be reviewed in the light of experience

- Consolidation manual, cut-off procedures, estimation of provisions for outstanding claims

- Detailed users manuals to be derived from training material prepared in 2004

- Training (2nd phase)

- Integration of external offices and delegations into the central system

- Adopt accounting rules and a procedure manual for the EDF

Validation of local systems

- Review of the operation of the systems in practice: DGs will be visited in order to validate the local systems.

- Establish service level agreements with each AOD

IT Systems

- ABAC will progressively be improved for user-friendliness and interoperability, a single web-based workflow will be introduced, and the IT architecture will be concentrated on two platforms only (SAP and JAVA).

- ABAC Contracts: further management functionality will be developed and implemented, it will be integrated with e-procurement, and non-latin scripts will be provided for

- The Early Warning System will be adapted to the new environment

- ABAC Dunning to manage recoveries and establishment of accrued interest should be implemented.

- Local budget lines will be rationalised and reduced in number.

- MUS-DICE, a sample selection tool, will be integrated with ABAC

- Security will be reviewed

- Performance will be monitored and data-handling capacity increased

- Prepare and test a new disaster recovery plan

- Archiving criteria will be developed and applied

- Implementation of the planning and monitoring of multi-annual programmes and projects. The module SAP Project system will be implemented at least for JRC and the structural funds in 2005.

- Migration by July 2005 of the financial activities managed by ECFIN in GLOBUS (current accounting system in ECFIN) to the SAP CFM (Corporate Finance Management) and FI modules. (These activities are already accrual-based and the 2005 accounts of loans and borrowings will be compliant with IAS (International accounting standards), including opening balances).

- SAP ECCS (Enterprise Controlling Consolidation System): employed by end-2005 for the consolidation of the accounts of all institutions and agencies

- Data warehouse: a single data warehouse will be developed to ensure that all Commission services access the same reporting tool. The aim is to develop a prototype for the end of 2005 and to put the single data warehouse in place during 2006.

- Implementation from January 2006 of the EDF accounting in Aidco Local system (CRIS) and in the ABAC SAP FI (financial) module (the 2005 accounts will be based on information in the present Aidco accounting system, OLAS).

- Migrate to the next generation of SAP's budget module (BCS)

Data preparation

The legal entities file will be completed to include all those benefiting from all significant contracts committed since 1999.

Financial reporting

Based on the user needs, reporting tools will be developed to support senior management needs and the needs of day-to-day users. The data dictionary will be completed, and business intelligence tools deployed. The system should present all information linked to an individual file, and provide costing and forecasting tools.

[1] COM(2002) 755.

[2] On the periods to 30 June 2003 -SEC(2003) 790 -, to 31 December 2003 -SEC(2004) 118 -, and to 30 June 2004 - COM(2004) 565, 18.8.2004.

[3] Articles 133, 134 and 181(2), last sub-paragraph, of Regulation (EC, Euratom) No 1605/2002 of 25 June 2002.