COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ANNUAL ACCOUNTS OF THE EUROPEAN UNION FINANCIAL YEAR 2009 Consolidated financial statements and consolidated reports on implementation of the budget /* SEC/2010/0963 final */





EN (...PICT...)|EUROPEAN COMMISSION| Brussels, 20.7.2010 SEC(2010) 963 final COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ANNUAL ACCOUNTS OF THE EUROPEAN UNION FINANCIAL YEAR 2009 Consolidated financial statements and consolidated reports on implementation of the budget TABLE OF CONTENTS NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS 3 (...) IMPLEMENTING AND ACCOUNTING FOR THE EU BUDGET 4 (...) PART I – CONSOLIDATED FINANCIAL STATEMENTS OF THE EUROPEAN UNION AND EXPLANATORY NOTES 5 (...) BALANCE SHEET 5 (...) ECONOMIC OUTTURN ACCOUNT 5 (...) CASHFLOW TABLE 5 (...) STATEMENT OF CHANGES IN NET ASSETS 5 (...) NOTES TO THE FINANCIAL STATEMENTS 5 (...) 1. SIGNIFICANT ACCOUNTING POLICIES 5 (...) 2. NOTES TO THE BALANCE SHEET 5 (...) 3. NOTES TO THE ECONOMIC OUTTURN ACCOUNT 5 (...) 4. NOTES TO THE CASHFLOW TABLE 69 5. CONTINGENT ASSETS & LIABILITIES AND OTHER DISCLOSURES 70 6. FINANCIAL CORRECTIONS AND RECOVERIES FOLLOWING THE DETECTION OF IRREGULARITIES 5 (...) 7. FINANCIAL RISK MANAGEMENT 5 (...) 8. RELATED PARTY DISCLOSURES 5 (...) 9. EVENTS AFTER THE BALANCE SHEET DATE 5 (...) 10. CONSOLIDATED ENTITIES 5 (...) 11. NON-CONSOLIDATED ENTITIES 5 (...) PART II – CONSOLIDATED REPORTS ON THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN UNION AND EXPLANATORY NOTES 5 (...) CONSOLIDATED REPORTS ON IMPLEMENTATION OF THE BUDGET 5 (...) EXPLANATORY NOTES TO THE CONSOLIDATED REPORTS ON IMPLEMENTATION OF THE BUDGET 5 (...) 1. BUDGETARY PRINCIPLES, STRUCTURES AND APPROPRIATIONS 5 (...) 2. EXPLANATION OF THE REPORTS ON THE IMPLEMENTATION OF THE BUDGET 5 (...) NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS The consolidated annual accounts of the European Union for the year 2009 have been prepared on the basis of the information presented by the institutions and bodies under Article 129.2 of the Financial Regulation applicable to the general budget of the European Union. I hereby declare that they were prepared in accordance with Title VII of this Financial Regulation and with the accounting principles, rules and methods set out in the notes to the financial statements. I have obtained from the accounting officers of these institutions and bodies, who certified its reliability, all the information necessary for the production of the accounts that show the European Union's assets and liabilities and the budgetary implementation. I hereby certify that based on this information, and on such checks as I deemed necessary to sign off the accounts of the European Commission, I have a reasonable assurance that the accounts present a true and fair view of the financial position of the European Union in all material aspects. (signed) Philippe Taverne Accounting Officer of the Commission IMPLEMENTING AND ACCOUNTING FOR THE EU BUDGET 1. ANNUAL BUDGET PREPARATION The European Union (EU) Budget finances a wide range of policies and programmes throughout the EU. In accordance with the priorities set by the Member States, the Commission carries out specific programmes, activities and projects in the field. These could range from supporting education projects for the mobility of students and teachers, to projects aimed at supporting better work environment for workers in the EU, to enhance the control of the external borders. Over 90% of the EU budget goes to funding such EU policies and activities, which have been agreed by all the Member States. The direct link between the annual budget and the EU policies is ensured through activity-based budgeting (ABB). The activity-based budget nomenclature, first introduced in the 2004 budget, allows for clear identification of the policy areas of the European Union and the total amount of resources allocated to each of these areas. The policy areas are subdivided into some 200 activities of which over 110 include operating budget headings and are thus reflected in the budget nomenclature as budget chapters. These policy areas are predominantly operational, since their core activities are aimed at benefiting a third-party beneficiary, each within their respective domains of activity. Other policy areas, however, are horizontal and assure the proper functioning of the Commission, such as ‘Coordination and legal advice’‚ and ‘Budget’. The activity structure provides the common conceptual framework for priority setting, planning, budgeting, monitoring and reporting, with the principal aim of enhancing the efficient, economic and effective use of resources. The internal procedure for the adoption of the draft budget starts with its preparation by the Commission before it is passed to the Council who can make amendments if considered necessary. The updated budget then goes to the European Parliament, which may propose amendments or accept or reject the current draft. Once all amendments and updates are agreed (including, if necessary, an entirely new draft proposed by the Commission) the budget is adopted in mid-December by the Parliament. The President of Parliament declares the budget adopted and it can then be implemented. 2. HOW IS THE EU FUNDED? The EU has two main categories of funding: Own resources revenues and sundry revenues. 2.1 Own resource revenues and receivables Own resource revenue accrues automatically to the EU to enable it to finance its budget without the need for a subsequent decision by national authorities. The overall amount of own resources needed to finance the budget is determined by total expenditure less other revenue. The total amount of own resources cannot exceed 1.24 % (1.23% from 2010 onwards) of the gross national income (GNI) of the EU. Own resources can be divided into the following categories: (1) Traditional own resources (TOR) consist of customs duties and sugar levies. These own resources are levied on economic operators and collected by Member States on behalf of the EU. However, Member States keep 25% as a compensation for their collection costs. Customs duties are levied on imports of products coming from third countries, at rates based on the Common Customs Tariff. Sugar levies are paid by sugar producers to finance the export refunds for sugar. TOR usually account for +/- 13% of own resource revenue. (2) The own resource based on value added tax (VAT) is levied on Member States' VAT bases, which are harmonised for this purpose in accordance with EU rules. The same percentage is levied on the harmonised base of each Member State. However, the VAT base to take into account is capped at 50% of each Member State’s GNI. The VAT-based resource usually accounts for around 12% of own resource revenue. (3) The resource based on gross national income (GNI) is used to balance budget revenue and expenditure, i.e. to finance the part of the budget not covered by any other sources of revenue. The same percentage rate is levied on each Member States' GNI, which is established in accordance with EU rules. The GNI-based resource usually accounts for +/- 75% of own resource revenue. With regard to payment of these amounts, separate accounts contain traditional own resources which, under Article 6(3)(b) of Regulation No 1150/2000, have been established by the Member States but not made available to the EU as they have not yet been recovered or guaranteed or because they have been challenged. Each Member State sends the Commission a quarterly statement of these accounts, with the following particulars for each type of resource: – the previous quarter's outstanding balance, – the amounts recovered during the quarter in question, – rectifications of the base (corrections/cancellations) during the quarter in question, – amounts written off, – the balance to be recovered at the end of the quarter in question. When the traditional own resources from the separate account are recovered, they must be made available to the Commission at the latest on the first working day following the 19th day of the second month following the month during which the entitlement was recovered. A write-down of the entitlements in the separate account must be made to reflect the situations when actual recovery is unlikely. This write-down is based on estimations made by Member States themselves in accordance with Article 6(4)(b) of Council Regulation (EC, Euratom) No 1150/2000 which states "Together with the final quarterly statement for a given year, Member States shall forward an estimate of the total amount of entitlements contained in the separate account at 31 December of that year for which recovery has become unlikely." Based on the estimations sent by Member States, a write-down is deducted from the item for receivables from Member States on the asset side of the balance sheet. However, this does not mean that the Commission is waiving recovery of the amounts covered by this value adjustment. Even where recovery looks very unlikely, if not virtually impossible, this does not necessarily mean that the amounts in question are lost to the EU budget as traditional own resources. This is because non-recovered entitlements are lost only if the Member State has exhausted all the avenues it is required to pursue in order to secure recovery. Where the Member State fails to do this, it is held financially liable and required to pay the amount into the EU budget in accordance with Article 17(2) of Regulation No 1150/2000. 2.2 Sundry revenues Sundry revenues arising from the activities of the European Union normally represent less than 10% of total revenue. These are, for instance, competition fines and recovery orders to private and public debtors with regard to the management of EU projects. Penalty payments imposed by the Court of Justice on Member States that fail to comply with a given judgment also fall into this category. The Commission manages hundreds of thousands of projects each year and needs to establish about 13,000 recovery orders per year. Any debt not paid at the due date is subject to default interest. Where debts of third parties other than Member States remain unpaid, Commission (and Council) decisions imposing the obligation to pay are directly enforceable in accordance with the rules of civil procedure in force in the territory where enforcement is to be carried out. Defaulting debtors are subject to debt collecting procedures launched by the Legal Service with the help of external law firms. 3. HOW THE EU BUDGET IS MANAGED AND SPENT 3.1 Primary operational expenditure The European Union's operational expenditure covers the various headings of the financial framework and takes different forms, depending on how the money is paid out and managed. In accordance with the Financial Regulation, the Commission implements the general budget using the following methods: Direct centralised management: this is where the budget is implemented directly by the Commission services. Indirect centralised management: this refers to cases where the Commission confers tasks of implementation of the budget to bodies of EU law or national law, such as the EU agencies of public law or with public service missions. Decentralised management: these are the cases where the Commission delegates certain tasks for implementation of the budget to third countries. Shared management: under this method of management budget implementation tasks are delegated to Member States. The majority of the expenditure falls under this mode “Shared Management” involving the delegation of tasks to Member States, covering such areas as agricultural spending and Structural Actions Joint management: under this method, the Commission entrusts certain implementation tasks to an international organisation. 3.2 The different financial actors The College of Commissioners assumes collective political responsibility but in practice does not exercise itself the budget implementation powers vested in it. It delegates these tasks each year to individual civil servants accountable to the College and subject to the Financial Regulation and the Staff Regulations. The staff concerned – generally Directors-General and Heads of Service - are known as “Authorising Officers by delegation”. They in turn may further delegate budget implementation tasks to “Authorising Officers by sub-delegation”. The responsibility of the Authorising Officers covers the entire management process, from determining what needs to be done to achieve the policy objectives set by the institution to managing the activities launched from both an operational and budgetary standpoint, including signing legal commitments, monitoring performance, making payments and even recovering funds, if necessary. Authorising officers must also arrange for evaluations to be carried out to analyse the viability of their proposals (ex ante evaluation) and to gauge the success and cost-effectiveness of programmes already underway (interim and ex-post evaluations). The results of these evaluations are used to help improve the decision-making process and increase the transparency, accountability and cost-effectiveness of EU intervention. Sound financial management and proper accountability are assured within each DG by the separation of management control (in the hands of the authorising officers) from internal audit and compliance control with clear internal control standards (inspired by COSO international standards), ex-ante and ex-post controls, independent internal auditing on the basis of risk assessments, and regular reporting on activities to the individual Commissioners. The Accounting Officer executes payment and recovery orders drawn up by authorising officers and is responsible for managing the treasury, laying down accounting rules and methods, validating accounting systems, keeping the accounts and drawing up the institution's annual accounts. Furthermore, the Accounting Officer is required to sign the accounts declaring that they provide a true and fair view of the financial position. The Internal Auditor , who is not a financial actor in the strict sense of the term, is appointed by an institution or body to verify the proper operation of budgetary implementation systems and procedures and to advise on risk management issues. He issues independent opinions on the quality of management and control systems and provides recommendations on how to improve operational procedures and promote sound financial management. 3.3 Committing to spend the EU budget Once the budget is approved, DG Budget makes funding available, via the Commission’s accounting system, to the different Commission departments and the Institutions and other bodies in accordance with their policy responsibilities under a system called activity based budgeting. For example, the responsibility for managing budget lines to do with the environment would be delegated by the Commission to the head – or Director-General - of DG Environment (who in this context becomes known as the Authorising Officer by Delegation for the budget lines in question). Before a legal commitment (for example a contract or grant agreement) can be entered into with a third party, there must be a budget line authorising the activity in question in the annual budget. There must also be sufficient funds on the budget-line in question to cover the expenditure. If these conditions are met, the funds required must be reserved in the budget by means of a budgetary commitment made in the accounting system. No money can be spent from the EU budget unless and until the Commission or another EU body and the possible recipient of EU money have entered into a written legal commitment. Under centralised direct management, this legal commitment takes the form of either a contract with a contractor or a grant agreement with a beneficiary. Once approved, the budgetary commitment is recorded in the budgetary accounting system and the appropriations are consumed accordingly. This, however, has no effect on the general accounts (or general ledger) since no charge has yet been incurred. This is because the accounting system of the European Union comprises two separate but linked elements: (a) budget accounts, which provide a detailed record of budget implementation; (b) general accounts, used to prepare the balance sheet and economic outturn. 3.4 Making a payment 3.4.1 General rules No payment can be made unless a budgetary commitment has already been approved by the Authorising Officer dealing with the operation in question. Once a payment is approved in the accounting system, the next step is for the transfer to be made to the beneficiary’s account. The Commission makes over 1.7 million payments a year. The Commission is a participant in SWIFT (Society for Worldwide Interbank Financial Telecommunication). 3.4.2 Pre-financing, cost statements and eligibility of expenditure Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is either used for the purpose for which it was provided during the period defined in the agreement or it is repaid – if the beneficiary does not incur eligible expenditures he has the obligation to return the pre-financing advance to the European Union. Thus pre-financing paid is not a definitive expense until the relevant contractual conditions are met and so is recorded as an asset on the EU balance sheet when the initial payment is made. The amount of the pre-financing asset is reduced (wholly or partially) by the acceptance of eligible costs and amounts returned. Pre-financing is valued at its estimated recoverable amount, taking into consideration the existence of a related guarantee attached to the pre-financing. The expected irrecoverable pre-financing is recognised as a charge in the economic outturn account and a decrease in the pre-financing carrying value in the balance sheet. Interest is generally earned on pre-financing paid out (notable exceptions include amounts paid to Member States or as pre-accession aid). Some time after the payment of the pre-financing, a cost claim will be received by the relevant EU body so as to justify how the pre-financing amount was spent by the beneficiary in accordance with the contract. The rhythm of these cost claims sent during the year is variable depending on the type of action being funded and the contractual conditions, and they are not necessarily received at year-end. Eligibility criteria are defined in the basic act, in the calls for proposal, in other information documents for grant beneficiaries and/or in the contractual clauses of the grant agreements. After analysis, the eligible expenses are taken into charges and the beneficiary is informed about any non eligible amounts. “Eligibility to be checked” amounts thus represent received cost claims for which the eligibility has not yet been checked and therefore where the event giving rise to the expense has not yet occurred. 3.4.3 Accounting treatment at year-end (cut-off) With regard to open pre-financing amounts at year-end, these are valued at the original amount(s) paid less: amounts returned, eligible amounts cleared, estimated eligible amounts not yet cleared at year-end, and value reductions. Cost claims not yet received at year-end are taken into account in the year-end accounting cut-off procedures. In particular an assessment has to be made concerning eligible expenses incurred by beneficiaries of EU funds but not yet reported to the EU. Different methods are used depending on the type of activities and information available so as to arrive at the best estimate of these amounts. Following these cut-off entries, estimated eligible amounts are recorded as accrued charges, while the estimated non-eligible parts remain open on the “eligibility to be checked” accounts. These amounts are shown under current liabilities so as not to overestimate assets and liabilities. 3.5 Recoveries following irregularities detected The Financial Regulation and other applicable legislation, particularly concerning agriculture and cohesion policy, give the right to make checks on expenditure up to many years after it was incurred. Where irregularities are detected, recoveries or financial corrections are applied. The detection of irregularities and their corrections are the last stage in the operation of control systems, and are essential in order to demonstrate sound financial management. The eligibility of expenditure charged to the budget is verified by the relevant EU services, or in the case of shared management, by the Member States, on the basis of the supporting documents stipulated in the applicable legislation or in the conditions of each grant. With the aim of optimising the relationship between the costs and the benefits of control systems, checks on the supporting documents for final claims tend to be more intense than those on interim claims, and thus may detect errors in interim payments which are corrected by adjustment of the final payment. Furthermore, the EU and/or the Member State has the right to verify the probity of the supporting documents by making checks on the claimant's premises, during the implementation of the action financed and/or afterwards (ex-post). There are various procedures foreseen in the applicable legislation for the process of dealing with irregularities detected by the Commission and by the Member States – more detailed information is included in note 6 . 4. YEAR-END REPORTING 4.1 Annual accounts It is the responsibility of the Commission's Accounting Officer to prepare the annual accounts and ensure that they present a true and fair view of the financial position of the EU. The annual accounts comprise the financial statements and the reports on implementation of the budget. They are adopted by the Commission and presented to the Court of Auditors for audit and finally to the Council and Parliament for discharge. 4.2 Annual Activity reports Each Authorising Officer is required to prepare an Annual Activity Report (AAR) on the activities under his responsibility. In this AAR, he reports on policy results and on the reasonable assurance he may have that the resources assigned to the activities described in his report have been used for their intended purpose and in accordance with the principles of sound financial management, and that the control procedures put in place give the necessary guarantees concerning the legality and regularity of the underlying transactions. 5. AUDIT AND DISCHARGE 5.1 Audit The EU’s annual accounts and resource management are overseen by its external auditor, the European Court of Auditors, which draws up an annual report for the Council and the European Parliament. The Court's main task is to conduct an external, independent audit of the European Union's annual accounts. As part of its activities, the Court of Auditors produces: (1) an annual report on the activities financed from the general budget, detailing its observations on the annual accounts and underlying transactions; (2) an opinion, based on its audits and given in the annual report in the form of a statement of assurance, on (i) the reliability of the accounts and (ii) the legality and regularity of the underlying transactions involving both revenue collected from taxable persons and payments to final beneficiaries; (3) special reports giving the findings of audits covering specific areas of management. The Court of Auditors is entitled to access all documents required during the course of its audit. The Court audits all areas of EU activities, right down to examining the legality and regularity of individual transactions and payments. It also audits the annual accounts themselves, reviewing individual balance sheet and economic outturn accounts where necessary as well as the overall presentation of the financial statements. Thus the Court can offer its opinion not only on the figures presented, but also on the system and controls in place. 5.2 Discharge The final control is the discharge of the budget for a given financial year. The European Parliament is the discharge authority within the EU. This means that following the audit and finalisation of the annual accounts it falls to the Council to recommend and then to the Parliament to decide whether to grant discharge to the Commission and other EC bodies for executing the EU budget for the preceding financial year. This decision is based on a review of the accounts and the annual report of the Court of Auditors (which includes an official statement of assurance) and replies of the Commission, and also following questions and further information requests to the Commission. The discharge represents the political aspect of the external control of budget implementation and is the decision by which the European Parliament, acting on a Council recommendation, "releases" the Commission from its responsibility for management of a given budget by marking the end of that budget's existence. This discharge procedure may produce one of two outcomes: the granting or postponement of the discharge. When granting discharge the Parliament may highlight observations they consider important, often recommending actions that the Commission should take concerning these matters. The Commission sets out the measures taken in a follow-up report and an action plan which it sends to both the Parliament and the Council. PART I – CONSOLIDATED FINANCIAL STATEMENTS OF THE EUROPEAN UNION AND EXPLANATORY NOTES Balance Sheet Economic Outturn Account Cashflow Table Statement of changes in Net Assets Notes to the financial statements BALANCE SHEET ||||EUR millions| |Note|31.12.2009|31.12.2008| |NON-CURRENT ASSETS:|||| |Intangible assets|2.1|72|56| |Property, plant and equipment|2.2|4 859|4 881| |Long-term investments|2.3|2 379|2 078| |Loans|2.4|10 764|3 565| |Long-term pre-financing|2.5|39 750|29 023| |Long-term receivables|2.6|55|45| |||57 879|39 648| |CURRENT ASSETS:|||| |Inventories|2.7|77|85| |Short-term investments|2.8|1 791|1 553| |Short-term pre-financing|2.9|9 077|10 262| |Short-term receivables|2.10|8 663|11 920| |Cash and cash equivalents |2.11|23 372|23 724| |||42 980|47 544| |TOTAL ASSETS||100 859|87 192| ||||| |NON-CURRENT LIABILITIES:|||| |Employee benefits|2.12|(37 242)|(37 556)| |Long-term provisions|2.13|(1 469)|(1 341)| |Long-term financial liabilities|2.14|(10 559)|(3 349)| |Other long-term liabilities|2.15|(2 178)|(2 226)| |||(51 448)|(44 472)| |CURRENT LIABILITIES:|||| |Short-term provisions|2.16|(213)|(348)| |Short-term financial liabilities|2.17|(40)|(119)| |Accounts payable|2.18|(93 884)|(89 677)| |||(94 137)|(90 144)| |TOTAL LIABILITIES||(145 585)|(134 616)| ||||| |NET ASSETS||(44 726)|(47 424)| ||||| |Reserves|2.19|3 323|3 115| |Amounts to be called from Member States:|2.20||| |Employee benefits *||(37 242)|(37 556)| |Other amounts **||(10 807)|(12 983)| |NET ASSETS||(44 726)|(47 424)| * Under Article 83 of the Staff Regulations (Council Regulation 259/68 of 29 February 1968 as amended), the Member States shall jointly guarantee the liability for pensions. ** The European Parliament has adopted a budget on 17 December 2009 which provides for the payment of the EU's short-term liabilities from own resources to be collected by, or called up from, the Member States in 2010. ECONOMIC OUTTURN ACCOUNT |||| ||EUR millions| |Note|2009|2008| OPERATING REVENUE|||| Own resource and contributions revenue|3.1|110 537|112 713| Other operating revenue|3.2|7 532|9 731| |||| ||118 069|122 444| |||| OPERATING EXPENSES|||| Administrative expenses|3.3|(8 133)|(7 720)| Operating expenses|3.4|(104 934)|(97 214)| |||| ||(113 067)|(104 934)| |||| SURPLUS FROM OPERATING ACTIVITIES||5 002|17 510| |||| Financial revenue|3.5|835|698| Financial expenses|3.6|(594)|(467)| Movement in employee benefits liability|2.12|(683)|(5 009)| Share of net deficit of associates & joint ventures|3.7|(103)|(46)| |||| ECONOMIC OUTTURN FOR THE YEAR||4 457|12 686| CASHFLOW TABLE |||| ||EUR millions| |Note|2009|2008 *| |||| Economic outturn for the year||4 457|12 686| |||| Operating activities|4.2||| Amortisation||22|19| Depreciation||447|302| (Reversal of) impairment losses on investments||(16)|3| (Increase)/decrease in loans||(7 199)|(1 759)| (Increase)/decrease in long-term pre-financing||(10 727)|(15 008)| (Increase)/decrease in long-term receivables||(10)|82| (Increase)/decrease in inventories||8|3| (Increase)/decrease in short-term pre-financing||1 185|10 321| (Increase)/decrease in short-term receivables||3 257|131| Increase/(decrease) in long-term provisions||128|262| Increase/(decrease) in long-term financial liabilities||7 210|1 775| Increase/(decrease) in other long-term liabilities||(48)|237| Increase/(decrease) in short-term provisions||(135)|(21)| Increase/(decrease) in short-term financial liabilities||(79)|(16)| Increase/(decrease) in accounts payable||4 207|(5 703)| Prior year budgetary surplus taken as non cash revenue||(1 796)|(1 529)| Other non-cash movements||37|37| |||| Increase/(decrease) in employee benefits liability||(314)|4 076| |||| Investing activities|4.3||| (Increase)/decrease in intangible assets and property, plant and equipment ||(463)|(689)| (Increase)/decrease in long-term investments||(284)|(108)| (Increase)/decrease in short-term investments||(239)|(133)| |||| NET CASHFLOW||(352)|4 968| |||| Net increase in cash and cash equivalents||(352)|4 968| Cash and cash equivalents at the beginning of the year|2.11|23 724|18 756| Cash and cash equivalents at year-end|2.11|23 372|23 724| * The 2008 accounts included the cash of the Guarantee Fund as cash not investments STATEMENT OF CHANGES IN NET ASSETS ||||||EUR millions| |Reserves (A)|Amounts to be called from Member States (B)|Net Assets =(A)+(B)| |Fair value reserve|Other reserves|Accumulated Surplus/(Deficit)|Economic outturn of the year|| BALANCE AS AT 31 DECEMBER 2007|7|2 799|(68 888)|7 462|(58 620)| Movement in Guarantee Fund reserve||158|(158)||0| Fair value movements|34||||34| Other||113|(108)||5| Allocation of the economic outturn 2007||4|7 458|(7 462)|0| Budget result 2007 credited to Member States|||(1 529)||(1 529)| Economic outturn for the year||||12 686|12 686| BALANCE AS AT 31 DECEMBER 2008|41|3 074|(63 225)|12 686|(47 424)| Movement in Guarantee Fund reserve||196|(196)||0| Fair value movements|28||||28| Other||(1)|10||9| Allocation of the economic outturn 2008||(15)|12 701|(12 686)|0| Budget result 2008 credited to Member States|||(1 796)||(1 796)| Economic outturn for the year||||4 457|4 457| BALANCE AS AT 31 DECEMBER 2009|69|3 254|(52 506)|4 457|(44 726)| NOTES TO THE FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES 1.1 LEGAL BASIS AND ACCOUNTING RULES The consolidated accounts of the European Union cover the accounts of the European Union, the European Atomic Energy Community and the European Coal & Steel Community (in Liquidation). These accounts are kept in accordance with Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 (OJ L 248 of 16 September 2002), on the Financial Regulation applicable to the general budget of the European Union and Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of this Financial Regulation. In accordance with article 133 of the Financial Regulation, the European Union has prepared its 2009 consolidated financial statements on the basis of accrual-based accounting rules that are derived from International Public Sector Accounting Standards (IPSAS) or by default, International Financial Reporting Standards (IFRS). These accounting rules, adopted by the Accounting Officer of the Commission, have to be applied by all the institutions and EU bodies falling within the scope of consolidation in order to establish a uniform set of rules for accounting, valuation and presentation of the accounts with a view to harmonising the process for drawing up the financial statements and consolidation. The accounts are kept in Euro on the basis of the calendar year. 1.2 ACCOUNTING PRINCIPLES The objective of the financial statements is to provide information about the financial position, performance and cashflows of an entity that is useful to a wide range of users. For the EU as a public sector, the objectives are more specifically to provide information useful for decision making, and to demonstrate the accountability of the entity for the resources entrusted to it. It is with these goals in mind that the present document has been drawn up. Article 124 of the Financial Regulation sets out the accounting principles to be applied in drawing up the financial statements: – going concern basis; – prudence; – consistent accounting methods; – comparability of information; – materiality; – no netting; – reality over appearance; – accrual-based accounting. Preparation of the consolidated financial statements in accordance with the above mentioned rules and principles requires management to make estimates that affect the reported amounts of certain items in the consolidated balance sheet and in the consolidated economic outturn account, as well as the related disclosures of contingent assets and liabilities. 1.3 CONSOLIDATION Impact of the Lisbon Treaty Following the entering into force of the Lisbon Treaty on 1 December 2009 the annual accounts are now entitled the "Annual accounts of the European Union". Regarding the scope of consolidation this change has had no impact. The agencies set-up under the former 2 nd pillar of the EU do not meet the criteria to be consolidated, nor does the European Central Bank (ECB), even if it is considered as an European Institution in the Lisbon Treaty. All these entities thus remain outside the scope of consolidation, as was the case in previous years. Regarding the agencies of the former 3 rd pillar of the European Union two of them, who receive a subsidy from the General Budget of the European Union, are consolidated as was done in previous years (see also note 10 ). The remaining agency under this pillar, Europol, will become an EU body from 2010 onwards. Scope of consolidation The consolidated financial statements of the EU comprise all significant controlled entities (institutions and agencies), associates and joint ventures, this being 40 controlled entities, 3 associates and 4 joint ventures. The complete list of consolidated entities can be found in note 10 . In comparison with 2008, the scope of consolidation has been extended by two executive agencies, two associates and one joint venture, whilst one agency has been liquidated at 31 December 2008. The impact of the additions on the consolidated financial statements is not material. Controlled entities The decision to include an entity in the scope of consolidation is based on the control concept. Controlled entities are all entities over which the European Union has, directly or indirectly, the power to govern the financial and operating policies so as to be able to benefit from these entities' activities. This power must be presently exercisable. Controlled entities are fully consolidated. The consolidation begins at the first date on which control exists, and ends when such control no longer exists. The most common indicators of control within the European Union are: creation through founding treaties or secondary legislation, financing from the general budget, the existence of voting rights in the governing bodies, audit by the European Court of Auditors and discharge by the European Parliament. It is clear that an assessment at entity level needs to be done in order to decide whether one or all of the criteria listed above are sufficient to trigger control. Under this approach, the EU's institutions (except the ECB) and agencies (excluding the agencies of the former 2 nd pillar and Europol) are considered as under the exclusive control of the EU and are therefore included in the consolidation scope. Furthermore the European Coal and Steel Community in Liquidation (ECSC) is also considered as a controlled entity. All inter-company transactions and balances between EU controlled entities are eliminated, while unrealised gains and losses on inter-entity transactions are not material and have therefore not been eliminated. Associates Associates are entities over which the European Union have, directly or indirectly, significant influence but not control over financial and operating policy decisions. It is presumed that significant influence is given if the European Commission holds directly or indirectly 20% or more of the voting rights. Participations in associates are accounted for using the equity method, initially recognised at cost. The European Union's share of its associates' results is recognised in the EU economic outturn account, and its share of movements in reserves is recognised in the EU reserves. The initial cost plus all movements (further contributions, share of results and reserve movements, impairments, and dividends) give the book value of the associate in the EU accounts at the balance sheet date. Distributions received from an associate reduce the carrying amount of the asset. Unrealised gains and losses on transactions between the European Union and its associates are not material and have therefore not been eliminated. The accounting policies of associates may differ from those adopted by the European Union for like transactions and events in similar circumstances. In cases where the European Union holds 20% or more of a venture capital fund, the EU does not seek to exert significant influence. Such funds are therefore treated as financial instruments categorised as available-for-sale and the equity method is not applied. Joint ventures A joint venture is a contractual arrangement whereby the European Union and one or more parties (the "venturers") undertake an economic activity which is subject to joint control. Joint control is the contractually agreed sharing of control, directly or indirectly, over an activity embodying service potential. Participations in joint ventures are accounted for using the equity method initially recognised at cost. The European Union's interest in the results of its jointly controlled entities is recognised in the EU economic outturn account, and its interest in the movements in reserves is recognised in the EU reserves. The initial cost plus all movements (further contributions, share of results and reserve movements, impairments, and dividends) give the book value of the joint venture in the EU accounts at the balance sheet date. Unrealised gains and losses on transactions between the European Union and its jointly controlled entity are not material and have therefore not been eliminated. The accounting policies of joint ventures may differ from those adopted by the European Union for like transactions and events in similar circumstances. Non-consolidated entities the funds of which are managed by the Commission The funds of the Sickness Insurance Scheme for staff of the European Union, the European Development Fund and the Participant's Guarantee Fund are managed by the Commission on their behalf, however since these entities are not controlled by the European Union they are therefore not consolidated in its accounts – see note 11 for further details on the amounts concerned. 1.4 BASIS OF PREPARATION 1.4.1 Currency and basis for conversion Functional and reporting currency The financial statements are presented in millions of euros, the euro being the European Union's functional and reporting currency. Transactions and balances Foreign currency transactions are translated into euros using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the economic outturn account. Different conversion methods apply to the following headings: – property, plant and equipment and intangible assets, which retain their value in euros at the rate that applied at the date when they were purchased; and – pre-financing amounts paid under the European Agricultural Guarantee Fund, which are converted at the exchange rates applying on the 10th day of the month following the month in which they are granted. Year-end balances of monetary assets and liabilities denominated in foreign currencies are converted into euros on the basis of the exchange rates applying on 31 December: EURO Exchange Rates| Currency|31.12.2009|31.12.2008|Currency|31.12.2009|31.12.2008| BGN|1.9558|1.9558|LTL|3.4528|3.4528| CZK|26.4730|26.8750|PLN|4.1045|4.1535| DKK|7.4418|7.4506|RON|4.2363|4.0225| EEK|15.6466|15.6466|SEK|10.2520|10.8700| GBP|0.8881|0.9525|CHF|1.4836|1.4850| HUF|270.4200|266.7000|JPY|133.1600|126.1400| LVL|0.7093|0.7083|USD|1.4406|1.3917| Changes in the fair value of monetary securities denominated in a foreign currency and classified as available-for-sale that relate to a translation difference are recognised in the economic outturn account. Translation differences on non-monetary financial assets and liabilities held at fair value through profit or loss are recognised in the economic outturn account. Translation differences on non-monetary financial assets classified as available-for-sale are included in the fair value reserve. 1.4.2 Use of estimates In accordance with IPSAS and generally accepted accounting principles, the financial statements necessarily include amounts based on estimates and assumptions by management based on the most reliable information available. Significant estimates include, but are not limited to, amounts for employee benefit liabilities, provisions, financial risk on inventories and accounts receivables, accrued income and charges, contingent assets and liabilities, and degree of impairment of intangible assets and property, plant and equipment. Actual results could differ from those estimates. Changes in estimates are reflected in the period in which they become known. 1.5 BALANCE SHEET 1.5.1 Intangible assets Acquired computer software licences are stated at historical cost less accumulated amortisation and impairment losses. The assets are amortised on a straight-line basis over their estimated useful lives, being 4 years. Internally produced intangible assets are currently expensed in the economic outturn account. Costs associated with developing or maintaining computer software programmes are recognised as expenses as incurred, as are scientific research and development costs. 1.5.2 Property, plant and equipment All property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition or construction of the asset. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits or service potential associated with the item will flow to the European Union and its cost can be measured reliably. Repairs and maintenance costs are charged to the economic outturn account during the financial period in which they are incurred. As the European Union does not borrow money to fund the acquisition of property, plant and equipment, there are no borrowing costs related to such purchases. Land and works of art are not depreciated as they are deemed to have an indefinite useful life. Assets under construction are not depreciated as these assets are not yet available for use. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Depreciation rates Type of asset|Straight line depreciation rate| Buildings|4%| Plant, machinery and equipment|10% to 25%| Furniture|10% to 25%| Fixtures and fittings|10% to 33%| Vehicles|25%| Computer hardware|25%| Other tangible assets|10% to 33%| Gains and losses on disposals are determined by comparing proceeds less selling expenses with the carrying amount of the disposed asset. These are included in the economic outturn account. Leases Leases of tangible assets, where the European Union has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The rental obligations, net of finance charges, are included in other liabilities (long and short-term.) The interest element of the finance cost is charged to the economic outturn account over the lease period so as to produce a constant periodic interest rate on the remaining balance of the liability for each period. The assets held under finance leases are depreciated over the shorter of the assets' useful life and the lease term. Leases where the lessor retains a significant portion of the risks and rewards inherent to ownership are classified as operating leases. Payments made under operating leases are charged to the economic outturn account on a straight-line basis over the period of the lease. 1.5.3 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. Intangible assets and property, plant and equipment residual values and useful lives are reviewed, and adjusted if appropriate, at least once per year. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. If the reasons for impairments recognised in previous years no longer apply, the impairment losses are reversed accordingly. 1.5.4 Investments Participations in Associates and Joint Ventures Participations in associates and joint ventures are accounted for using the equity method. The costs of equity are adjusted to reflect the share of increases or reductions in net assets of the associates and joint ventures that are attributable to the European Union after initial recognition if there are indications of impairment and written down to the lower recoverable amount if necessary. The recoverable amount is determined as described under 1.5.3 . If the reason for impairment ceases to apply at a later date, the impairment loss is reversed to the carrying amount that would have been determined had no impairment loss been recognised. Investments in Venture Capital Funds Classification and measurement Investments in Venture Capital Funds are classified as available-for-sale assets (see 1.5.5 ) and accordingly, are carried at fair value with gains and losses arising from changes in the fair value (including translation differences) recognised in the fair value reserve. Fair value considerations Since they do not have a quoted market price in an active market, investments in Venture Capital Funds are valued on a line-by-line basis at the lower of cost or attributable net asset value (“NAV”) as reported by the fund manager up to the balance sheet date, thus excluding any attributable unrealised gain that may be prevailing in the underlying investment portfolio. Investments in Venture Capital Funds still at an early stage are valued based on the same principles, except in the case of unrealised losses due only to administrative expenses where these unrealised losses are not taken into account. Unrealised gains resulting from the fair value measurement are recognised through reserves and unrealised losses are assessed for impairment so as to determine whether they are recognised as impairment losses in the economic outturn account or as changes in the fair value reserve. The fair valued attributable NAV is determined through applying either the European Union's percentage ownership in the fund to the NAV reflected in the most recent report or, to the extent available, the precise share value at the same date, submitted by the respective Fund Manager. 1.5.5 Financial assets Classification The European Union classifies their financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. The classification of the financial instruments is determined at initial recognition and re-evaluated at each balance sheet date. (i) Financial assets at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by the European Union. Derivatives are also categorised in this category. Assets in this category are classified as current assets if they are expected to be realised within 12 months of the balance sheet date. (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the EU provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in non-current assets, except for maturities within 12 months of the balance sheet date. (iii) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the European Union has the positive intention and ability to hold to maturity. During this financial year, the European Union did not hold any investments in this category. (iv) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are classified as either current or non-current assets, depending on the time period in which the EU intends to dispose of them. Investments in unconsolidated entities and other equity investments (e.g. Risk Capital Operations) that are not accounted for using the equity method are also classified as available-for sale-financial assets. Initial recognition and measurement Purchases and sales of financial assets at fair value through profit or loss, held-to-maturity and available-for-sale are recognised on trade-date – the date on which the European Union commits to purchase or sell the asset. Loans are recognised when cash is advanced to the borrowers. Financial instruments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the economic outturn account. The fair value of a financial asset on initial recognition is normally the transaction price (i.e. the fair value of the consideration received). However, when a long-term loan that carries no interest or an interest below market conditions is granted, its fair value can be estimated as the present value of all future cash receipts discounted using the prevailing market rate of interest for a similar instrument with a similar credit rating. In the case of loans granted on borrowed funds, 'back-to-back operations', the differences between the loan and the borrowing conditions and amounts are not material and the "opportunity cost" is not applicable since the EU is not allowed to invest money in the capital markets. For these reasons, these loans are measured at their nominal amount. he transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the economic outturn account. Financial instruments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the European Union has transferred substantially all risks and rewards of ownership. Subsequent measurement Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the ‘financial instruments at fair value through profit or loss’ category are included in the economic outturn account in the period in which they arise. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. In the case of loans granted on borrowed funds, the same effective interest rate is applied to both the loans and borrowings since these loans have the characteristics of 'back-to-back operations' and the differences between the loan and the borrowing conditions and amounts are not material. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the economic outturn account. Available-for-sale financial assets are subsequently carried at fair value. Gains and losses arising from changes in the fair value of available-for-sale assets are recognised in the fair value reserve. When assets classified as available-for-sale are sold or impaired, the cumulative fair value adjustments previously recognised in the fair value reserve are recognised in the economic outturn account. Interest on available­for-sale financial assets calculated using the effective interest method is recognised in the economic outturn account. Dividends on available-for-sale equity instruments are recognised when the EU's right to receive payment is established. The fair values of quoted investments in active markets are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the European Union establishes a fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. In cases where the fair value of investments in equity instruments that do not have quoted market price in an active market cannot be reliably measured, these investments are valued at cost less impairment losses. Impairment of financial assets The European Union assesses at each balance sheet date whether there is objective evidence that a financial asset is impaired. A financial asset is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. (i) Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the economic outturn account. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the economic outturn account. (ii) Assets carried at fair value In the case of equity investments classified as available- for-sale, a significant or permanent (prolonged) decline in the fair value of the security below its cost is considered in determining whether the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the economic outturn account – is removed from reserves and recognised in the economic outturn account . Impairment losses recognised in the economic outturn account on equity instruments are not reversed through the economic outturn account. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the economic outturn account. 1.5.6 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other directly attributable costs and related production overheads (based on normal operating capacity). Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. When inventories are held for distribution at no charge or for a nominal charge, they are measured at the lower of cost and current replacement cost. Current replacement cost is the cost the European Union would incur to acquire the asset on the reporting date. 1.5.7 Pre-financing amounts Pre-financing is a payment intended to provide the beneficiary with a cash advance, i.e. a float. It may be split into a number of payments over a period defined in the particular pre-financing agreement. The float or advance is repaid or used for the purpose for which it was provided during the period defined in the agreement. If the beneficiary does not incur eligible expenditures, he has the obligation to return the pre-financing advance to the European Union. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs and amounts returned, and this amount is recognised as an expense. At year-end, outstanding pre-financing amounts are valued at the original amount(s) paid less: amounts returned, eligible amounts expensed, estimated eligible amounts not yet cleared at year-end, and value reductions. Interest on pre-financing is recognised as it is earned in accordance with the provisions of the relevant agreement. An estimate of the accrued interest revenue, based on the most reliable information, is made at the year-end and included in the balance sheet. 1.5.8 Receivables Receivables are carried at original amount less write-down for impairment. A write-down for impairment of receivables is established when there is objective evidence that the European Union will not be able to collect all amounts due according to the original terms of receivables. The amount of the write-down is the difference between the asset’s carrying amount and the recoverable amount, being the present value of expected future cash flows, discounted at the market rate of interest for similar borrowers. The amount of the write-down is recognised in the economic outturn account. Also recognised is a general write-down for outstanding recovery orders not already subject to a specific write-down. See note 1.5.14 below concerning the treatment of accrued income at year-end. 1.5.9 Cash and cash equivalents Cash and cash equivalents are financial instruments and defined as current assets. They include cash at hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. 1.5.10 Employee benefits Pension obligations The European Union operates defined benefit pension plans. Whilst staff contribute from their salaries one third of the expected cost of these benefits, the liability is not funded. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date. The defined benefit obligation is calculated by actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised immediately in the economic outturn account. Past-service costs are recognised immediately in economic outturn account, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period. Post-employment sickness benefits The European Union provides health benefits to its employees through the reimbursement of medical expenses. A separate fund ("RCAM") has been created for the day-to-day administration. Both current employees, pensioners, widowers and their beneficiaries benefit from the system. The benefits granted to the "inactives" (pensioners, orphans, etc.) are classified as "Post-Employment Employee Benefits". Given the nature of these benefits, an actuarial calculation is required. The liability in the balance sheet is determined on a similar basis as that for the pension obligations (see above). 1.5.11 Provisions Provisions are recognised when the European Union has a present legal or constructive obligation towards third parties as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses. The amount of the provision is the best estimate of the expenditures expected to be required to settle the present obligation at the reporting date. Where the provision involves a large number of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities (“expected value” method). 1.5.12 Financial liabilities Financial liabilities are classified as financial liabilities at fair value through profit or loss or as financial liabilities carried at amortised cost (borrowings). Borrowings are composed of borrowings from credit institutions and debts evidenced by certificates. They are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred, then subsequently carried at amortised cost using the effective interest method; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the economic outturn account over the period of the borrowings using the effective interest method. They are classified as non-current liabilities, except for maturities less than 12 months after the balance sheet date. In the case of loans granted on borrowed funds, the effective interest method may not be applied to loans and borrowings, based on materiality considerations. The transaction costs incurred by the European Union and then recharged to the beneficiary of the loan are directly recognised in the economic outturn account. Financial liabilities categorised at fair value through profit or loss include derivatives when their fair value is negative. They follow the same accounting treatment as financial assets at fair value through profit or loss, see note 1.5.5 . 1.5.13 Payables A significant amount of the payables of the EU are not related to the purchase of goods or services – instead they are unpaid cost claims from beneficiaries of grants or other EU funding. They are recorded as payables for the requested amount when the cost claim is received and, after verification, accepted as eligible by the relevant financial agents. At this stage they are valued at the accepted and eligible amount. Payables arising from the purchase of goods and services are recognised at invoice reception for the original amount and corresponding expenses are entered in the accounts when the supplies or services are delivered and accepted by the European Union . 1.5.14 Accrued and deferred income and charges According to the European Union accounting rules, transactions and events are recognised in the financial statements in the period to which they relate. At the end of the accounting period, accrued expenses are recognised based on an estimated amount of the transfer obligation of the period. The calculation of the accrued expenses is done in accordance with detailed operational and practical guidelines issued by the Commission which aim at ensuring that the financial statements reflect a true and fair view. Revenue is also accounted for in the period to which it relates. At year-end, if an invoice is not yet issued but the service has been rendered, the supplies have been delivered by the EU or a contractual agreement exists (i.e. by reference to a treaty), an accrued income will be recognised in the financial statements. In addition, at year-end, if an invoice is issued but the services have not yet been rendered or the goods supplied have not yet been delivered, the revenue will be deferred and recognised in the subsequent accounting period. 1.6 ECONOMIC OUTTURN ACCOUNT 1.6.1 Revenue Non-exchange revenue This makes up the vast majority of the EU's revenue and includes mainly direct and indirect taxes and own resource amounts. In addition to taxes the European Union may also receive payments from other parties, such as duties, fines and donations. GNI based resources and VAT resources Revenue is recognised for the period for which the European Union sends out a call for funds to the Member States claiming their contribution. They are measured at their “called amount”. As VAT and GNI resources are based on estimates of the data for the budgetary year concerned, they may be revised as changes occur until the final data are issued by the Member States. The effect of a change in estimate is included when determining the net surplus or deficit for the period in which the change occurred. Traditional own resources Receivables and related revenues are recognised when the relevant monthly A statements (including duties collected and amounts due that are guaranteed and not contested) are received from the Member States. At the reporting date, revenue collected by the Member States for the period but not yet paid to the European Union is estimated and recognised as accrued revenue. The quarterly B statements (including duties neither collected nor guaranteed, as well as guaranteed amounts that have been contested by the debtor) received from the Member States are recognised as revenue less the collection costs to which they are entitled (25%). In addition, a value reduction is recognised for the amount of the estimated recovery gap in the economic outturn account. Fines Revenue from fines is recognised when the EU's decision imposing a fine has been taken and it is officially notified to the addressee. If there are doubts about the undertaking's solvency, a value reduction on the entitlement is recognised. After the decision to impose a fine, the debtors have two months from the date of notification: – either to accept the decision, in which case they must pay the fine within the time limit laid down and the amount is definitively collected by the EU; – or not to accept the decision, in which case they lodge an appeal under EU law. However, even if appealed, the principal of the fine must be paid within the time limit of three months laid down as the appeal does not have suspensory effect (Article 242 of the EC Treaty) or, under certain circumstances and subject to the agreement of the Commission's Accounting Officer, it may present a bank guarantee for the amount instead. If the undertaking appeals against the decision, and has already provisionally paid the fine, the amount is disclosed as a contingent liability. However, since an appeal against an EU decision by the addressee does not have suspensory effect, the cash received is used to clear the receivable. If a guarantee is received instead of payment, the fine remains as a receivable. If it appears probable that the General Court may not rule in favour of the EU , a provision is recognised to cover this risk. If a guarantee had been given instead, then the receivable outstanding is written-down as required. The accumulated interest received by the European Union on the bank accounts where received payments are deposited is recognised as revenue, and any contingent liability is increased accordingly. Exchange revenue Revenue from the sale of goods and services is recognised when the significant risk and rewards of ownership of the goods are transferred to the purchaser. Revenue associated with a transaction involving the provision of services is recognised by reference to the stage of completion of the transaction at the reporting date. Interest income and expense Interest income and expense are recognised in the economic outturn account using the effective interest method. This is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. When calculating the effective interest rate, the European Union estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but do not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Dividend income Dividend income is recognised when the right to receive payment is established. 1.6.2 Expenditure Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted by the European Union . They are valued at original invoice cost. Non-exchange expenses are specific to the European Union and account for the majority of its expenditure. They relate to transfers to beneficiaries and can be of three types: entitlements, transfers under agreement and discretionary grants, contributions and donations. Transfers are recognised as expenses in the period during which the events giving rise to the transfer occurred, as long as the nature of the transfer is allowed by regulation (Financial Regulation, Staff Regulations, or other regulation) or a contract has been signed authorising the transfer; any eligibility criteria have been met by the beneficiary; and a reasonable estimate of the amount can be made. When a request for payment or cost claim is received and meets the recognition criteria, it is recognised as an expense for the eligible amount. At year-end, incurred eligible expenses already due to the beneficiaries but not yet reported are estimated and recorded as accrued expenses. 1.7 CONTINGENT ASSETS AND LIABILITIES 1.7.1 Contingent assets A contingent asset is a possible asset that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the European Union . A contingent asset is disclosed when an inflow of economic benefits or service potential is probable. 1.7.2 Contingent liabilities A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the European Union ; or a present obligation that arises from past events but is not recognised because: it is not probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation or, in the rare circumstances where the amount of the obligation cannot be measured with sufficient reliability. 2. NOTES TO THE BALANCE SHEET NON CURRENT ASSETS 2.1 INTANGIBLE ASSETS |EUR millions | |Amount| || Gross carrying amount at 31 December 2008|134| Additions|39| Disposals|(3)| Transfers between asset categories|0| Other changes|1| || Gross carrying amount at 31 December 2009|171| || Accumulated amortisation at 31 December 2008|78| Amortisation charge for the year|22| Disposals|(1)| Transfers between asset categories|0| Other changes|0| || Accumulated amortisation at 31 December 2009|99| || Net carrying amount at 31 December 2009|72| Net carrying amount at 31 December 2008|56| The amounts relate primarily to computer software. 2.2 PROPERTY, PLANT AND EQUIPMENT In some countries the value of the land cannot be distinguished from the value of the building since both were purchased as a whole. The value of the land, which is not subject to depreciation, will not be evaluated separately unless it becomes necessary, i.e. for subsequent expenditure such as construction of a new property or a partial sale. Assets related to the European Geostationary Navigation Overlay Service (EGNOS) are included under plant and equipment at 31 December 2009 following their transfer to the Commission during 2009. These assets have a net book value at this date of EUR 11 million (a gross value of EUR 40 million less accumulated depreciation of EUR 29 million). PROPERTY, PLANT & EQUIPMENT| ||||||||EUR millions| |Land and|Plant and|Furniture and|Computer|Other tangible|Finance leases |Assets under |TOTAL | |buildings|equipment|vehicles|hardware|assets||construction || ||||||||| ||||||||| Gross carrying amount at 31 December 2008|3 902|368|205|466|151|2 621|122|7 835| Additions|39|89|20|57|17|29|141|392| Disposals|(1)|(15)|(20)|(56)|(6)|0|0|(98)| Transfers between asset categories|31|(2)|0|0|3|0|(32)|0| Other changes|1|20|10|8|17|5|0|61| ||||||||| Gross carrying amount at 31 December 2009|3 972|460|215|475|182|2 655|231|8 190| ||||||||| Accumulated depreciation at 31 December 2008|1 616|300|149|349|92|448||2 954| Depreciation charge for the year|127|66|16|60|17|163||449| Depreciation written back|0|0|0|(2)|0|0||(2)| Disposals|(1)|(13)|(14)|(52)|(5)|0||(85)| Transfers between asset categories|0|(1)|0|0|1|0||0| Other changes|0|3|4|4|3|1||15| ||||||||| Accumulated depreciation at 31 December 2009|1 742|355|155|359|108|612||3 331| ||||||||| NET CARRYING AMOUNT AT 31 DECEMBER 2009|2 230|105|60|116|74|2 043|231|4 859| NET CARRYING AMOUNT AT 31 DECEMBER 2008|2 286|68|56|117|59|2 173|122|4 881| Charges still to be paid in respect of finance leases and similar entitlements are shown in long-term and short-term liabilities in the balance sheet (see also notes 2.15 and 2.18.1 ). They break down as follows: Finance Leases|EUR millions| Description|Cumulative charges (A)|Future amounts to be paid|Total Value|Subsequent expenditure on assets| Asset value|Depreciation|Net carrying amount =A+B+C+E| ||< 1 year|> 1 year|> 5 years|Total Liability (B)|A+B|(C)|A+B+C|(E)|| Land and buildings|785|51|257|1 465|1 773|2 558|61|2 619|(598)|2 021| Other tangible assets|14|8|13|1|22|36|0|36|(14)|22| Total at 31.12.2009|799|59|270|1 466|1 795|2 594|61|2 655|(612)|2 043| Total at 31.12.2008|738|52|250|1 520|1 822|2 560|61|2 621|(448)|2 173| 2.3 LONG-TERM INVESTMENTS |||EUR millions| |Note|31.12.2009|31.12.2008| Participations in Associates|2.3.1|382|278| Participations in Joint Ventures|2.3.2|196|145| Guarantee Fund|2.3.3|1 240|1 091| Available-for-Sale assets|2.3.4|561|564| Total Investments||2 379|2 078| This heading covers investments made with a view to supporting the activities of the EU. It also includes the net assets of the Guarantee Fund. 2.3.1 Participations in Associates ||||EUR millions| |EIF|ARTEMIS|Clean Sky|Total| Amount at 31 December 2008|278|0|0|278| Acquisitions|26|10|75|111| Share of net surplus/(deficit)|(2)|(3)|(1)|(6)| Other equity movements|(1)|0|0|(1)| Amount at 31 December 2009|301|7|74|382| Participations in associates are accounted for using the equity method – for further explanation see note 1.3 . The following carrying amounts are attributable to the EU based on its percentage of participation in associates: |||EUR millions| ||31.12.2009|31.12.2008| Assets||420|295| Liabilities||(38)|(17)| Revenue||17|23| Surplus/(Deficit)||(6)|10| European Investment Fund (EIF) The European Investment Fund (EIF) is the European Union's financial institution specialising in providing risk capital and guarantees to SMEs. At 31 December 2009, the Commission has subscribed for a total amount of EUR 861 million (out of EUR 2 940 million) of the share capital of the EIF. This represents 29.29% of the total EIF share capital. The Commission has paid in 20%, the balance being uncalled corresponding to an amount of EUR 689 million – see also note 5.13.2 . Under an agreement between the Commission and the European Investment Bank (EIB) signed in 2005, the Commission is entitled to sell its shares at any time to the EIB at the price corresponding to the EIF valuation divided by the total number of issued shares. The value of the put option is close to nil since the formula used for determining the sale price of the shares is similar to the one used to determine the net equity of the EIF. The EU's shareholding is valued at 29.29% of the EIF's net assets, which at 31 December 2009 amounted to EUR 301 million (2008: EUR 278 million), of which EUR 2 million concerns the result for 2009 (loss). A dividend of EUR 4 million relating to the financial year 2008 was received in 2009. Joint Technology Initiatives Public private partnerships in the form of Joint Technology Initiatives, which were implemented through Joint Undertakings within the meaning of Article 171 of the Treaty have been created in order to implement the objectives of the Lisbon Growth and Jobs Agenda. Joint Technology Initiatives are public-private partnerships set up at European level to address strategic areas where research and innovation are essential to European competitiveness. A new element of the 7th Framework programme for research, technological development and demonstration activities, Joint Technology Initiatives support large-scale multinational research activities. They bring together private and public partners to define common objectives of wide societal relevance and to combine funding and knowledge in order to fulfil these objectives. Joint Technology Initiatives are a new way of working together towards reaching the goals set by EU leaders in the Lisbon strategy on growth and employment. During 2009 the first three Joint Technology Initiatives became operational, the ARTEMIS Joint Undertaking and the Clean Sky Joint Undertaking described below and the IMI Joint Undertaking, classified as joint venture and described under note 2.3.2 . Although ARTEMIS & Clean Sky are legally referred to as joint undertakings, from an accounting perspective they must be considered as associates because the Commission has a significant influence over these entities. ARTEMIS Joint Undertaking This entity was created to implement a Joint Technology Initiative with the private sector on Embedded Computing Systems. The ownership interest of the European Union, represented by the Commission, is at 31 December 2009 100% or EUR 7 million. The maximum indicative contribution of the EU shall amount to EUR 420 million. Clean Sky Joint Undertaking The aim of this entity is to accelerate the development, validation and demonstration of clean air transport technologies in the EU and in particular to create a radically innovative Air Transport System with the target of reducing the environmental impact of air transport. The ownership interest of the European Union, represented by the Commission, is at 31 December 2009 99.41% or EUR 74 million. The maximum indicative contribution of the EU to this venture shall amount to EUR 800 million. 2.3.2 Participations in joint ventures |EUR millions| |GJU|SESAR|ITER|IMI|Total| Amount at 31.12.2008|0|103|42|0|145| Acquisitions|0|28|39|81|148| Share of net result|0|(51)|(46)|0|(97)| Amount at 31.12.2009|0|80|35|81|196| Participations in joint ventures are accounted for using the equity method – for further explanation see note 1.3 . The following carrying amounts are attributable to the EU based on its percentage of participation in joint ventures: |||EUR millions| ||31.12.2009|31.12.2008| Non-current assets||48|0| Current assets||192|154| Non-current liabilities||0|0| Current liabilities||(44)|(9)| Revenue||72|37| Expenses||(169)|(93)| Galileo Joint Undertaking (GJU) in liquidation The Galileo Joint Undertaking (GJU) was put into liquidation at the end of 2006 and the process is still ongoing. The net assets of the GJU in liquidation at year-end amounted to EUR 0. As the entity was inactive and still undergoing liquidation in 2009, there were no revenues or expenditures incurred. The value of the investment at 31 December 2009 (and 31 December 2008) was EUR 0, being the investment of EUR 585 million less the accumulated share of losses, EUR 585 million. The European GNSS Supervisory Authority (GSA), an EU agency created in 2004 and consolidated in the EU accounts, originally took over responsibility from the GJU on 1 January 2007. Following the entry into force of Regulation (EC) No. 683/2008, the Commission took the role of Programme Manager of the European GNSS Programmes from the GSA. The transfer of these activities and tasks from the GSA to the Commission took effect on 1 January 2009. SESAR Joint Undertaking The aim of this Joint Undertaking is to ensure the modernisation of the European air traffic management system and the rapid implementation of the European air traffic management Master Plan by coordinating and concentrating all relevant research and development efforts in the EU. At 31 December 2009, the Commission holds 87.4% or EUR 80 million (2008: EUR 103 million) of the ownership participation in SESAR. The total (indicative) EU contribution foreseen for SESAR (from 2007 to 2013) is EUR 700 million. ITER International Fusion Energy Organisation (ITER International) ITER International involves the EU and China, India, Russia, Korea, Japan and USA. ITER was created to manage the ITER facilities, to encourage the exploitation of the ITER facilities by the laboratories, other institutions and personnel in the fusion energy research and development programmes of the members, to promote public understanding and acceptance of fusion energy, and to undertake any other activities that are necessary to achieve its purpose. The EU (Euratom) contribution to ITER International is given through the Fusion for Energy Agency, including also the contributions from Member States and from Switzerland. The total contribution is legally considered as a Euratom contribution to ITER and the Member States and Switzerland do not have ownership interests in ITER. As the EU legally holds the participation in the joint venture ITER International, the EU must recognise the participation in its consolidated accounts. At 31 December 2009, Euratom holds 47% or EUR 35 million (2008: EUR 42 million) of the ownership participation in ITER. The total (indicative) Euratom contribution foreseen for ITER (from 2007 to 2041) is EUR 7 649 million. IMI Joint Technology Initiative on Innovative Medicines The IMI Joint Undertaking, the third Joint Technology Initiative that became operational during 2009, shall support pre-competitive pharmaceutical research and development in the Member States and associated countries, aiming at increasing the research investment in the biopharmaceutical sector and shall promote the involvement of small and medium-sized enterprises (SME) in its activities. The ownership interest of the European Union, represented by the Commission, is at 31 December 2009 99.1% or EUR 81 million. The maximum indicative contribution of the EU shall amount to EUR 1 billion up to 31/12/2017. 2.3.3 Guarantee Fund Net assets of the Guarantee Fund|EUR millions| |31.12.2009|31.12.2008| Available-for-sale assets|1 050|887| Cash and cash equivalents|191|205| Total assets|1 241|1 092| Total liabilities|(1)|(1)| Net assets|1 240|1 091| The Guarantee Fund for external actions covers loans guaranteed by the EU as a result of a Council Decision, in particular European Investment Bank (EIB) lending operations outside the European Union and loans under macro-financial assistance (MFA loans) and Euratom loans outside the European Union. It is a long-term instrument to cover any defaulting loans guaranteed by the EU and can therefore be seen as a long-term investment. This is evidenced by the fact that nearly 76% of the available-for-sale assets have a maturity of between 1 and 10 years. The Fund is endowed by payments from the general budget of the EU equivalent to 9% of the capital value of the operations, the proceeds from interest on investments made from the Fund's assets, and sums recovered from defaulting debtors for whom the Fund has had to activate its guarantee. Any yearly surplus arising shall be paid back to a special heading in the statement of revenue in the general budget of the EU. The EU is required to include a guarantee reserve to cover loans to third countries. This reserve is intended to cover the requirements of the Guarantee Fund and, where necessary, activated guarantees exceeding the amount available in the Fund, so that these amounts may be charged to the budget. This reserve of EUR 1 472 million corresponds to the target amount of 9% of the loans outstanding at 31 December 2009. The net assets of the Fund at 31 December 2009 total EUR 1 240 million. The difference between the net assets and the amount of the reserve corresponds to the amount to be paid by the EU budget to the Fund, i.e. EUR 232 million. Fair-value changes of the available-for-sale debt security portfolio have been recognised in equity in 2009 totalling EUR 16 million (2008: EUR 15 million.). 2.3.4 Available-for-sale assets This heading includes investments and participations purchased to help beneficiaries develop their business activities. Long-term Available-for-sale assets |EUR millions| |EBRD|RCO|ETF Start up|EFSE|Other|Total| Amounts at 31.12.2008|157|204|133|67|3|564| Acquisitions|0|11|52|26|19|108| Disposals/withdrawals|0|(26)|(4)|0|0|(30)| Revaluation surplus/ (deficit) t/f to equity|0|(14)|(14)|3|0|(25)| Exchange loss|0|(42)|0|0|0|(42)| Impairment loss|0|(1)|(13)|0|0|(14)| Amounts at 31.12.2009|157|132|154|96|22|561| European Bank for Reconstruction and Development (EBRD) The Commission has subscribed to 3% of the EBRD's total capital of EUR 20 billion. At balance sheet date, the called up amount was EUR 157 million, which has been fully paid. Payments outstanding on non-called up capital amount to EUR 443 million (see also note 5.13.1 ). As the EBRD is not quoted on any stock exchange and in view of the contractual restrictions included in the EBRD’s articles of incorporation relating, amongst others, to the sale of participating interests, capped at acquisition cost and only authorised to existing shareholders, the Commission's shareholding is valued at cost less any write-down for impairment. Risk Capital Operations (RCO) Under risk capital operations amounts are granted to financial intermediaries to finance equity investments. They are managed by European Investment Bank and financed under the European Neighbourhood Policy. Other investments The most significant amounts concern the Growth & Employment programme, the MAP programme and the CIP programme, under the trusteeship of the EIF, supporting the creation and financing of start-up SMEs by investing in suitable specialised venture capital funds (EUR 154 million). Also included is EUR 96 million relating to the European Fund for South East Europe, an investment company with variable share capital (SICAV). The overall objective of EFSE is to foster economic development and prosperity in South East Europe through the sustainable provision of additional development finance via local financial intermediaries. A new investment of EUR 19 million relating to the Southeast Europe Energy Efficient Fund (SE4F) has been included in 2009. 2.4 LOANS This heading covers loan amounts owed to the European Union maturing in over one year: |EUR millions| |Note|31.12.2009|31.12.2008| Loans granted from the EU budget & ECSC|2.4.1|169|179| Loans granted from borrowed funds|2.4.2|10 595|3 386| Total loans||10 764|3 565| 2.4.1 Loans granted from the European Union budget and the ECSC in liquidation |EUR millions| |Loans with special conditions|ECSC in Liquidation|Total| Total at 31.12.2008|150|29|179| Repayments|(19)|(5)|(24)| Changes in carrying amount |12|2|14| Total at 31.12.2009|143|26|169| Loans with Special Conditions This item covers loans with special conditions granted at preferential rates as part of co-operation with non-member countries. All amounts fall due more than 12 months after year-end. The effective interest rates on these loans vary between 7.73% and 12.36%. Housing loans of the ECSC in liquidation (ECSC) Housing loans are loans granted by the ECSC from its own funds in accordance with articles 54 and 54.2 of the ECSC Treaty. These loans are granted at a fixed rate of 1% and consequently, considered as loans at preferential rates. The effective interest rates on these loans are 2.806% - 22.643%. For practicable reasons and based on materiality considerations, the transaction price is used as the fair value of these loans at inception, independently from any preferential interest rate granted. 2.4.2 Loans granted from borrowed funds ||||EUR millions| |MFA loans|EuratomLoans|BOP|ECSC inLiquidation|Total| Total at 31.12.2008New loansRepaymentsExchange differencesChange in carrying amount|66325(95)0(6)|4947(11)(1)(5)|2 0047 2000099|3380(88)16(5)|3 4997 232(194)1583| Total at 31.12.2009|587|484|9 303|261|10 635| Amount due < 1 year|40|0|0|0|40| Amount due > 1 year|547|484|9 303|261|10 595| Macro Financial Assistance (MFA) loans MFA is a policy-based financial instrument of untied and undesignated balance-of-payment and/or budget support to partner third-countries geographically close to the EU territory. It takes the form of medium/long term loans or grants or an appropriate combination of both and generally complements financing provided in the context of an IMF-supported adjustment and reform program. The Commission has not received third-party guarantees for these loans, but they are guaranteed by the Guarantee Fund (see note 2.3.3 ). Euratom loans Euratom is a legal entity of the EU and is represented by the European Commission. It grants loans to Member States for the purpose of financing investment projects in the Member States relating to the industrial production of electricity in nuclear power stations and to industrial fuel cycle installations. It also grants loans to non-Member States for improving the level of safety and efficiency of nuclear power stations and installations in the nuclear fuel cycle which are in service or under construction. The Commission has received EUR 481 million (2008: EUR 486 million) of guarantees from third-party guarantors in respect of these loans. Balance of Payment (BOP) loans The BOP facility, a policy based financial instrument, has been reactivated to provide medium-term financial assistance to Member States of the EU during the current economic and financial crisis. It enables the granting of loans to Member States which are experiencing, or are seriously threatened with, difficulties in their balance of payments or capital movements. Only Member States which have not adopted the Euro may benefit from this facility. The maximum total amount of loans authorised is EUR 50 billion and these are guaranteed by the EU general budget. Between November 2008 and end 2009, loans amounting to EUR 14.6 billion were granted. BOP financial assistance of EUR 6.5 billion has been made available for Hungary, of which EUR 2 billion was disbursed in 2008, the maturity date being in December 2011. A further EUR 3.5 billion was disbursed in 2009 (maturity: November 2014 and April 2016). A BOP loan of EUR 3.1 billion was made available to Latvia, EUR 2.2 billion being disbursed during 2009, with maturity dates of April 2014 and January 2015 and EUR 0.5 billion being disbursed in March 2010 (maturity date May 2019). EUR 5 billion was also made available to Romania of which EUR 1.5 billion was disbursed in 2009, with a maturity date of January 2015 and a further EUR 1 billion was disbursed in March 2010 (maturity date May 2019). ECSC in liquidation loans This item mainly includes loans granted by the ECSC in liquidation on borrowed funds in accordance with articles 54 and 56 of the ECSC Treaty as well as three unquoted debt securities issued by the European Investment Bank (EIB) as substitute of a defaulted debtor. These debt securities will be held till their final maturity (2017 and 2019) in order to cover the service of related borrowings. The changes in carrying amount correspond to the change in accrued interests plus the amortisation of the year of premiums paid and transaction cost incurred at inception, calculated according to the effective interest rate method. The effective interest rates (expressed as a range of interest rates) were as follows: Loans|31.12.2009|31.12.2008 | Macro Financial Assistance (MFA)|0.9625%-4.54%|3.022%-5.29%| Euratom|1.071%-5.76%|3.428% -5.76%| BOP|3.125%-3.625%|3.25%| ECSC in liquidation. |0.346%-5.8103%|3.072%-5.8103% (*)| (*) higher bound value related to a fixed rate loan covered by an interest rate swap 2.5 LONG-TERM PRE-FINANCING The timing of the recoverability or utilisation of the pre-financing governs whether it is disclosed as current or long-term pre-financing asset. The utilisation is defined by the project's underlying agreement. All repayments or utilisation due before twelve months of the reporting date is disclosed as short–term pre-financing and therefore as current assets, the balance is long-term. TOTAL PRE-FINANCING||EUR millions| |31.12.2009|31.12.2008| Long-term Pre-financing (see below)|39 750|29 023| Short-term Pre-financing (see note 2.9 )|9 077|10 262| Total Pre-financing |48 827|39 285| Guarantees received in respect of pre-financing: These are guarantees that the European Union in certain cases requests from beneficiaries when paying out advance payments (pre-financing). There are two values to disclose for this type of guarantee, the “nominal” and the “on-going” values. For the “nominal” value, the generating event is linked to the existence of the guarantee. For the “on-going” value, the guarantee’s generating event is the pre-financing payment and/or subsequent clearings. At 31 December 2009 the "nominal" value of guarantees received in respect of pre-financing amounted to EUR 936 million. The "on-going" value of those guarantees was EUR 724 million. At 31 December 2008 these values were EUR 968 million and EUR 769 million respectively. This difference effectively acts as a cover for pre-financing that has been cleared and charged to expenses, but which may have to be recovered in the future. Certain pre-financing amounts paid out under the 7 th Research Framework Programme for research and technological development (FP7) are effectively covered by a Participants Guarantee Fund (PGF) – at 31 December 2009 the amount of pre-financing paid out totalled EUR 2.7 billion. This is a mutual benefit instrument set up to cover the financial risks incurred by the EU and the participants during the implementation of the indirect actions of FP7, its capital and interests constituting a performance security. All participants of indirect actions taking the form of a grant (and thus a pre-financing in the Commission's books) contribute 5% of the total EU contribution to the PGF's capital for the duration of the action. As such the participants are the owners of the PGF, the EU (represented by the Commission) acting as their executive agent. At the end of an indirect action, participants shall recover their contribution to the capital in full, except where the PGF incurs losses due to defaulting beneficiaries – in this case participants shall recover, at a minimum, 80% of their contribution. The Participants Guarantee Fund thus guarantees the financial interest of both the EU and the participants. As at 31 December 2009 a total amount of EUR 561 million has been contributed to the PGF by the participants (2008: EUR 274 million) – see also note 11 . LONG-TERM PRE-FINANCING||EUR millions| Management type|31.12.2009|31.12.2008| Direct centralised management|1 148|1 351| Indirect centralised management|486|275| Decentralised management|347|90| Shared management|37 199|26 764| Joint management|568|543| Implemented by other Institutions & Agencies|2|0| Total Long-Term Pre-financing |39 750|29 023| The most significant long-term pre-financing amounts relate to Structural Actions for the 2007-2013 programming period: the regional development fund (ERDF), the social fund (ESF), the agricultural fund for rural development (EAFRD), the cohesion fund (CF) and the fisheries fund. As many of these projects are long-term in nature, it is necessary that the related advances are available for more than one year. Thus these pre-financing amounts are shown as long-term assets. The amount of the above long-term pre-financing for which the EU is entitled to receive interest from beneficiaries amounts to EUR 1 607 million. The increase in 2009 is due mainly to the payment of a third tranche of pre-financing to Member States for a total amount of EUR 5 billion: EUR 2.6 billion for CF, EUR 1.8 billion for ERDF and EUR 0.6 million for ESF. In addition, extra recovery package payments for a total amount of EUR 6.2 billion were made for each programme, as a result of the economic crisis: EUR 3.9 billion for CF and ERDF and EUR 2.3 billion for ESF. The rise of the amounts concerning decentralised management results mainly from the pre-financing payments made to candidate countries under IPA programmes. 2.6 LONG-TERM RECEIVABLES |EUR millions| |31.12.2009|31