EN Official Journal of the European Union C 334/1

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS

CONSOLIDATED ANNUAL ACCOUNTS OF THE EUROPEAN UNION — FINANCIAL YEAR 2012

2013/C 334/01

CONTENTS

Note accompanying the consolidated accounts

EU budget: From preparation to discharge

PART I: Consolidated financial statements and explanatory notes

Balance Sheet

Statement of Financial Performance

Cashflow Statement

Statement of Changes in Net Assets

Notes to the Financial Statements

PART II: Aggregated reports on the implementation of the budget and explanatory notes

Result of the implementation of the EU budget and explanatory notes

Aggregated reports on the implementation of the budget

NOTE ACCOMPANYING THE CONSOLIDATED ACCOUNTS The consolidated annual accounts of the European Union for the year 2012 have been prepared on the basis of the information presented by the institutions and bodies under Article 148.2 of the Financial Regulation applicable to the general budget of the European Union. I hereby declare that they were prepared in accordance with Title IX 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 fairly, in all material aspects, the financial position, the results of the operations and the cashflow of the European Union. [signed] Manfred KRAFF Accounting Officer of the Commission 24 July 2013

EU BUDGET: FROM PREPARATION TO DISCHARGE

The consolidated annual accounts of the European Union (EU) provide information on the activities of the institutions, agencies and other bodies of the EU from a budgetary and accrual accounting perspective. These accounts do not comprise the annual accounts of Member States.

1. ANNUAL BUDGET

The EU Budget finances a wide range of policies and programmes throughout the EU. In accordance with the priorities set by the Member States in the multi-annual financial framework (MFF), 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 support for farmers, to productive investments creating or maintaining jobs, to development aid, 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 allows for clear identification of the policy areas of the EU 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, 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 economic, efficient and effective use of resources.

The budget is prepared by the Commission and agreed normally in mid-December by the Parliament and the Council in accordance with the procedure of Article 314 of the Treaty on the Functioning of the EU.

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

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 1,23 % of the gross national income (GNI) of the EU. Own resources can be divided into traditional own resources, the own resource based on value added tax (VAT) and the resource based on gross national income (GNI).

2.2 Sundry revenues

Sundry revenues arising from the activities of the EU 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. 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) can adopt decisions imposing the obligation to pay which 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 of the Commission with the help of external law firms.

3. HOW THE EU BUDGET IS MANAGED AND SPENT

3.1 Primary operational expenditure

The EU'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. For the 2012 accounts, the Commission classifies its expenditure as follows:

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 covering such areas as agricultural spending and Structural Actions.

Joint management: under this method, the Commission entrusts certain implementation tasks to an international organisation.

From 2014 onwards, these classifications will change following the coming into force of the updated Financial Regulation.

3.2 The different financial actors within the Commission

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 adopting legal commitments, monitoring performance, making payments and recovering funds, if necessary. Sound financial management and proper accountability are assured within each of the Services by the separation of management control (in the hands of the authorising officers) from internal audit and compliance control with clear internal control standards (based on 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.

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. On the basis of Article 66 of the Financial Regulation, the Commission adopts a summary report (synthesis report) on the AAR’s, the overall opinion of the Internal Auditor, by which the Commission takes overall political responsibility for the management of the EU budget in line with Article 317 of the TFEU. This report and the AAR’s are available at: http://ec.europa.eu/atwork/planning-and-preparing/synthesis-report/index_en.htm.

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 annual accounts declaring that they present fairly, in all material aspects, the financial position, the results of the operations and the cashflows.

3.3 Committing to spend the EU budget

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 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 Authorising Officer has adopted a legal commitment.

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 financial accounts (or general ledger) since no expense has yet been incurred.

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 1,8 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 legal commitment. The float or advance is either used for the purpose for which it was provided during the period defined in the legal commitment or it is repaid – if the beneficiary does not incur eligible expenditures he has the obligation to return the pre-financing advance to the EU. Thus pre-financing paid is not a definitive expense until the relevant 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.

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 legal commitment. The rhythm of these cost claims sent during the year is variable depending on the type of action being funded and the 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 or in the grant decision. After analysis, the eligible amounts are taken into expenses and the beneficiary is informed about any non-eligible amounts.

4. BORROWING AND LENDING ACTIVITIES

The EU is empowered by basic acts deriving from the EU Treaty to adopt borrowing programmes to mobilise the financial resources necessary to provide financial assistance to Member States and non-Member States. The European Commission, acting on behalf of the EU, currently operates three main programmes, the European Financial Stabilisation Mechanism (EFSM), Balance of payments (BOP) and Macro Financial Assistance (MFA), under which it may grant loans and fund these by issuing debt instruments in the capital markets or with financial institutions. Since the funds raised are back-to-back operations there is no direct impact on the EU budget, however, from a legal point of view, the debt service of the borrowings remains the obligation of the EU.

5. PROTECTION OF THE EU BUDGET: FINANCIAL CORRECTIONS AND RECOVERIES

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 errors, irregularities or fraud are detected, recoveries or financial corrections are applied. The detection of errors, irregularities or fraud and their corrections are the last stage in the operation of control systems, and are essential in order to demonstrate sound financial management.

In the case of grants, 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 in direct centralised management 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 obligation 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 errors, irregularities or fraud detected by the Commission and by the Member States – more detailed information is included in note 6 of the financial statements.

6. FINANCIAL REPORTING

The annual accounts of the EU comprise two separate but linked parts:

(a) Financial statements.

(b) Reports on implementation of the budget, which provide a detailed record of budget implementation.

The annual accounts are adopted by the Commission and presented to the Court of Auditors for audit and finally to the European Parliament and Council as part of the discharge process.

In addition to the above annual reporting, monthly budget implementation reports are also prepared.

6.1 Financial Statements

It is the responsibility of the Commission's Accounting Officer to prepare the EU's financial statements and ensure that they present fairly, in all material aspects, the financial position, the result of the operations and the cashflows of the EU. These are drawn up in accordance with EU Accounting Rules that are based on International Public Sector Accounting Standards (IPSAS). For more information, see note 1 of the financial statements.

6.2 Budgetary accounts

It is the responsibility of the Commission's Accounting Officer to prepare the reports on implementation of the budget both on a monthly and annual basis. Only the Commission budget contains administrative appropriations and operating appropriations. The other Institutions have only administrative appropriations. Furthermore, the budget distinguishes between two types of appropriation: non-differentiated appropriations and differentiated appropriations. Non-differentiated appropriations are used to finance operations of an annual nature (which comply with the principle of annuality). Differentiated appropriations were introduced in order to reconcile the principle of annuality with the need to manage multi-annual operations. They are intended to cover mainly multi-annual operations. Differentiated appropriations are split into commitment and payment appropriations:

— commitment appropriations: cover the total cost of the legal obligations entered into for the current financial year for operations extending over a number of years. However, budgetary commitments for actions extending over more than one financial year may be broken down over several years into annual instalments.

— payment appropriations: cover expenditure arising from commitments entered into in the current financial year and/or earlier financial years.

With the introduction of differentiated appropriations, a gap developed between commitments entered into and payments made: this gap, corresponding to outstanding commitments, represents the time-lag between when the commitments are entered into and when the corresponding payments are made. It is known as the RAL ("Reste à Liquider").

7. AUDIT AND DISCHARGE

7.1 Audit

The EU’s annual accounts and resource management are audited by its external auditor, the European Court of Auditors, which draws up an annual report for the European Parliament and the Council. The Court's main task is to conduct an external, independent audit of the EU'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.

7.2 Discharge

The final step of a budget lifecycle 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 European Parliament to give a discharge to the Commission and other EU bodies for implementing the EU budget for the preceding financial year. This decision is based on an examination of the annual accounts, the Commission's annual evaluation report and the annual report of the Court of Auditors 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 (and other EU bodies) 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 three outcomes: the granting, postponement or the refusal of the discharge. Integral part of the annual budgetary discharge procedure in the European Parliament are the hearings with Commissioners who are questioned by the Members of the European Parliament's Budgetary Control Committee regarding the policy areas under their responsibility. The final discharge report including specific request to the Commission for action is adopted in Plenary. The Council discharge recommendation is adopted by ECOFIN. Both, the European Parliament's discharge report as well as the Council discharge recommendations are subject to an annual follow up report in which the Commission outlines the concrete actions it has taken to implement the requests made by the European Parliament and the Council’s recommendations.

PART I

CONSOLIDATED FINANCIAL STATEMENTS AND EXPLANATORY NOTES (1)

CONTENTS

Balance Sheet

Statement of Financial Performance

Cashflow Statement

Statement of Changes in Net Assets

Notes to the Financial Statements:

1. Significant Accounting Policies

2. Notes to the Balance Sheet

3. Notes to the Statement of Financial Performance

4. Notes to the Cashflow Statement

5. Contingent Assets & Liabilities and Other Significant Disclosures

6. Protection of the EU Budget

7. Financial Support Mechanisms

8. Financial Risk Management

9. Related Party Disclosures

10. Events after the Balance Sheet Date

11. Scope of Consolidation

BALANCE SHEET

EUR millions Note 31.12.2012 31.12.2011 NON-CURRENT ASSETS Intangible assets 2.1 188 149 Property, plant and equipment 2.2 5 978 5 071 Investments accounted for using the equity method 2.3 392 374 Financial assets 2.4 62 311 43 672 Receivables and recoverables 2.5 564 289 Pre-financing 2.6 44 505 44 723 113 938 94 278 CURRENT ASSETS Inventories 2.7 138 94 Financial assets 2.8 1 981 3 721 Receivables and recoverables 2.9 14 039 9 477 Pre-financing 2.10 13 238 11 007 Cash and cash equivalents 2.11 10 674 18 935 40 070 43 234 TOTAL ASSETS 154 008 137 512 NON-CURRENT LIABILITIES Pension and other employee benefits 2.12 (42 503) (34 835) Provisions 2.13 (1 258) (1 495) Financial liabilities 2.14 (57 232) (41 179) Other liabilities 2.15 (2 527) (2 059) (103 520) (79 568) CURRENT LIABILITIES Provisions 2.16 (806) (270) Financial liabilities 2.17 (15) (51) Payables 2.18 (90 083) (91 473) (90 904) (91 794) TOTAL LIABILITIES (194 424) (171 362) NET ASSETS (40 416) (33 850) Reserves 2.19 4 061 3 608 Amounts to be called from Member States (2) 2.20 (44 477) (37 458) NET ASSETS (40 416) (33 850)

STATEMENT OF FINANCIAL PERFORMANCE

EUR millions Note 2012 2011 OPERATING REVENUE Own resource and contributions revenue 3.1 130 919 124 677 Other operating revenue 3.2 6 826 5 376 137 745 130 053 OPERATING EXPENSES Administrative expenses 3.3 (9 320) (8 976) Operating expenses 3.4 (124 633) (123 778) (133 953) (132 754) SURPLUS/(DEFICIT) FROM OPERATING ACTIVITIES 3 792 (2 701) Financial revenue 3.5 2 157 1 491 Financial expenses 3.6 (1 942) (1 355) Movement in pension and other employee benefits liability (8 846) 1 212 Share of net deficit of joint ventures and associates 3.7 (490) (436) ECONOMIC RESULT OF THE YEAR (5 329) (1 789)

CASHFLOW STATEMENT

EUR millions Note 2012 2011 Economic result of the year (5 329) (1 789) Operating activities 4.2 Amortisation 39 33 Depreciation 405 361 (Increase)/decrease in loans (16 062) (27 692) (Increase)/decrease in receivables and recoverables (4 837) 1 605 (Increase)/decrease in pre-financing (2 013) (1 534) (Increase)/decrease in inventories (44) (3) Increase/(decrease) in provisions 299 234 Increase/(decrease) in financial liabilities 16 017 27 781 Increase/(decrease) in other liabilities 468 (45) Increase/(decrease) in payables (1 390) 6 944 Prior year budgetary surplus taken as non-cash revenue (1 497) (4 539) Other non-cash movements 260 (75) Increase/(decrease) in pension and employee benefits liability 7 668 (2 337) Investing activities 4.3 (Increase)/decrease in intangible assets and property, plant and equipment (1 390) (693) (Increase)/decrease in investments accounted for using the equity method (18) 118 (Increase)/decrease in available for sale financial assets (837) (1 497) NET CASHFLOW (8 261) (3 128) Net increase/(decrease) in cash and cash equivalents (8 261) (3 128) Cash and cash equivalents at the beginning of the year 2.11 18 935 22 063 Cash and cash equivalents at year-end 2.11 10 674 18 935

STATEMENT OF CHANGES IN NET ASSETS

EUR millions Reserves (A) Amounts to be called from Member States (B) Fair value reserve Other reserves Accumulated Surplus/(Deficit) Economic result of the year BALANCE AS AT 31.12.2010 (61) 3 545 (48 163) 17 232 (27 447) Movement in Guarantee Fund reserve 165 (165) 0 Fair value movements (47) (47) Other 2 (30) (28) Allocation of the 2010 economic result 4 17 228 (17 232) 0 2010 budget result credited to Member States (4 539) (4 539) Economic result of the year (1 789) (1 789) BALANCE AS AT 31.12.2011 (108) 3 716 (35 669) (1 789) (33 850) Movement in Guarantee Fund reserve 168 (168) 0 Fair value movements 258 258 Other 21 (19) 2 Allocation of the 2011 economic result 6 (1 795) 1 789 0 2011 budget result credited to Member States (1 497) (1 497) Economic result of the year (5 329) (5 329) BALANCE AS AT 31.12.2012 150 3 911 (39 148) (5 329) (40 416)

NOTES TO THE FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

1.1 LEGAL BASIS AND ACCOUNTING RULES

The accounts of the European Union (EU) are kept in accordance with Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 (3), on the financial rules applicable to the general budget of the Union (hereinafter referred to as the 'Financial Regulation') and Commission Delegated Regulation (EU) No 1268/2012 of 29 October 2012 (4) laying down detailed rules of application of this Financial Regulation.

In accordance with article 143 of the Financial Regulation, the EU prepares its financial statements on the basis of accrual-based accounting rules that are based on International Public Sector Accounting Standards (IPSAS). 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 entity, 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.

The overall considerations (or accounting principles) to be followed when preparing the financial statements are laid down in EU accounting rule 2 and are the same as those described in IPSAS 1, that is: fair presentation, accrual basis, going concern, consistency of presentation, aggregation, offsetting and comparative information.

Preparation of the 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 balance sheet and statement of financial performance, as well as the disclosures of contingent assets and liabilities.

1.3 CONSOLIDATION

Scope of consolidation

The consolidated financial statements of the EU comprise all significant controlled entities (institutions and agencies), associates and joint ventures, this being 51 controlled entities, 5 joint ventures and 4 associates. The complete list of consolidated entities can be found in note 11.1. In comparison with 2011, the scope of consolidation has been extended by 1 controlled entity (agency). 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 EU 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 EU are: creation of the entity through founding treaties or secondary legislation, financing of the entity 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 for each entity needs to be made 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 2nd pillar) 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 material 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.

Joint ventures

A joint venture is a contractual arrangement whereby the EU 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 EU's interest in the results of its jointly controlled entities is recognised in the statement of financial performance, and its interest in the movements in reserves is recognised in the reserves. The initial cost plus all movements (further contributions, share of economic results and reserve movements, impairments, and dividends) give the book value of the joint venture in the accounts at the balance sheet date.

Unrealised gains and losses on transactions between the EU and its jointly controlled entities are not material and have therefore not been eliminated. The accounting policies of joint ventures may differ from those adopted by the EU for like transactions and events in similar circumstances.

Associates

Associates are entities over which the EU has, directly or indirectly, significant influence but not control. It is presumed that significant influence is given if the EU 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 EU's share of its associates' results is recognised in the statement of financial performance, and its share of movements in reserves is recognised in the reserves. The initial cost plus all movements (further contributions, share of economic results and reserve movements, impairments, and dividends) give the book value of the associate in the 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 EU and its associates are not material and have therefore not been eliminated.

The accounting policies of associates may differ from those adopted by the EU for like transactions and events in similar circumstances. In cases where the EU holds 20 % or more of an investment capital fund, it does not seek to exert significant influence. Such funds are therefore treated as financial instruments and categorised as available-for-sale financial assets.

Non-consolidated entities the funds of which are managed by the Commission

The funds of the Sickness Insurance Scheme for staff of the EU, 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 EU they are therefore not consolidated in its accounts – see note 11.2 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 EU'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 statement of financial performance.

Different conversion methods apply to 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.

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 31.12.2012 31.12.2011 BGN 1,9558 1,9558 CZK 25,1510 25,7870 DKK 7,4610 7,4342 GBP 0,8161 0,8353 HUF 292,3000 314,5800 LVL 0,6977 0,6995 LTL 3,4528 3,4528 PLN 4,0740 4,4580 RON 4,4445 4,3233 SEK 8,5820 8,9120 CHF 1,2072 1,2156 JPY 113,6100 100,2000 USD 1,3194 1,2939

Changes in the fair value of monetary financial instruments denominated in a foreign currency and classified as available-for-sale that relate to a translation difference are recognised in the statement of financial performance. Translation differences on non-monetary financial assets and liabilities held at fair value through profit or loss are recognised in the statement of financial performance. Translation differences on non-monetary financial instruments 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. Internally developed intangible assets are capitalised when the relevant criteria of the EU accounting rules are met. The costs capitalisable include all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Costs associated with research activities, non-capitalisable development costs and maintenance costs are recognised as expenses as incurred.

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 EU and its cost can be measured reliably. Repairs and maintenance costs are charged to the statement of financial performance during the financial period in which they are incurred.

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:

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 or losses on disposals are determined by comparing proceeds less selling expenses with the carrying amount of the disposed asset and are included in the statement of financial performance.

Leases

Leases of tangible assets, where the EU 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 (non-current and current.) The interest element of the finance cost is charged to the statement of financial performance 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 statement of financial performance 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/depreciation and are tested annually for impairment. Assets that are subject to amortisation/depreciation 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 EU 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

Investments in Venture Capital Funds are classified as available-for-sale financial 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.

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”). 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 statement of financial performance or as changes in the fair value reserve.

1.5.5 Financial assets

Classification

The EU 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 EU. 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 EU has the positive intention and ability to hold to maturity. During this financial year, the EU 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 expects to dispose of them which is usually the remaining maturity at the balance sheet date. 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 EU 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. For all financial assets not carried at fair value through profit or loss transactions costs are added to the fair value at initial recognition. Financial assets carried at fair value through profit or losses are initially recognised at fair value and transaction costs are expensed in the statement of financial performance.

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.

Loans granted on borrowed funds are measured at their nominal amount, which is considered to be the fair value of the loan. The reasoning for this is as follows:

— The “market environment” for EU lending is very specific and different from the capital market used to issue commercial or government bonds. As lenders in these markets have the opportunity to choose alternative investments, the opportunity possibility is factored into market prices. However, this opportunity for alternative investments does not exist for the EU which is not allowed to invest money on the capital markets; it only borrows funds for the purpose of lending at the same rate. This means that there is no alternative lending or investment option available to the EU for the sums borrowed. Thus, there is no opportunity cost and therefore no basis of comparison with market rates. In fact, the EU lending operation itself represents the market. Essentially, since the opportunity cost "option" is not applicable, the market price does not fairly reflect the substance of the EU lending transactions. Therefore, it is not appropriate to determine the fair value of EU lending with reference to commercial or government bonds.

— Furthermore as there is no active market or similar transactions to compare with, the interest rate to be used by the EU for fair valuing its lending operations under EFSM, BOP and other such loans, should be the interest rate charged.

— In addition, for these loans, there are compensating effects between loans and borrowings due to their back-to-back character. Thus, the effective interest for the loan equals the effective interest rate for the related borrowings. The transaction costs incurred by the EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

Financial instruments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the EU has transferred substantially all risks and rewards of ownership.

Subsequent measurement

(i) 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 statement of financial performance in the period in which they arise.

(ii) 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 statement of financial performance.

(iii) Held to maturity – the EU currently holds no held to maturity investments.

(iv) 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 financial assets are recognised in the fair value reserve. When assets classified as available for sale financial assets are sold or impaired, the cumulative fair value adjustments previously recognised in the fair value reserve are recognised in the statement of financial performance. Interest on available for sale financial assets calculated using the effective interest method is recognised in the statement of financial performance. 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 EU 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 EU 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.

(a) 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 statement of financial performance. 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 statement of financial performance.

(b) Assets carried at fair value

In the case of equity investments classified as available for sale financial assets, 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 statement of financial performance – is removed from reserves and recognised in the statement of financial performance. Impairment losses recognised in the statement of financial performance on equity instruments are not reversed through the statement of financial performance. If, in a subsequent period, the fair value of a debt instrument classified as available for sale financial asset 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 statement of financial performance.

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 EU 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 EU. The amount of the pre-financing is reduced (wholly or partially) by the acceptance of eligible costs (which are recognised as an expense) and amounts returned.

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 EU 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. The amount of the write-down is recognised in the statement of financial performance. A general write-down, based on past experience, is also made 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.

1.5.10 Pension and other employee benefits

Pension obligations

The EU 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 statement of financial performance. Past-service costs are recognised immediately in statement of financial performance, 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 EU provides health benefits to its employees through the reimbursement of medical expenses. A separate fund 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 EU 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 statement of financial performance 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 EU and then recharged to the beneficiary of the loan are directly recognised in the statement of financial performance.

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. Upon verification and acceptance of the eligible costs, the payables 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 EU.

1.5.14 Accrued and deferred income and charges

According to the EU 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 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 STATEMENT OF FINANCIAL PERFORMANCE

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 EU 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 Commission 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 Commission 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 statement of financial performance.

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 278 of the EU 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 Commission 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 statement of financial performance 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 EU 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 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 Expense

Exchange expenses arising from the purchase of goods and services are recognised when the supplies are delivered and accepted by the EU. They are valued at original invoice cost. Non-exchange expenses are specific to the EU and account for the majority of its expenses. 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 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 EU. 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 EU; 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 31.12.2011 301 Additions 89 Disposals (11) Other changes 0 Gross carrying amount at 31.12.2012 379 Accumulated amortisation at 31.12.2011 (152) Amortisation charge for the year (39) Disposals 4 Other changes (4) Accumulated amortisation at 31.12.2012 (191) Net carrying amount at 31.12.2012 188 Net carrying amount at 31.12.2011 149

The above amounts relate primarily to computer software.

2.2 PROPERTY, PLANT AND EQUIPMENT

Included under assets under construction at 31 December 2012 are EUR 660 million (2011: EUR 219 million) of assets relating to the Galileo project, the EU's Global Navigation Satellite System, being built with the assistance of the European Space Agency (ESA). When completed, the system will comprise 30 satellites, 2 control centres and 16 ground stations. The amount on the balance sheet reflects the capitalisable costs incurred by the Commission on this project since 22 October 2011, the date on which the first two satellites of the system were successfully launched. Prior to this date, and as explained in previous annual accounts, the Commission considered the project to be in a research phase, thus in accordance with the EU accounting rules all costs incurred were expensed. Since the beginning of the project and until the end of the current financial framework, the foreseen budget amounts to EUR 3 837 million. For the next financial framework, a further EUR 5 400 million is foreseen to be spent on; fully deploying the system, exploiting it, delivering Galileo services until 2020 and preparing the next generation of the constellation, and this will be entirely financed by the EU budget. In 2012 an amount of EUR 13 million of non-capitalisable development cost has been recognised as expenses.

At the balance sheet date four satellites in total have been launched since October 2011 and once the subsequent testing of these is complete, this will end the In-Orbit Validation ("IOV") phase of the project. This phase had been jointly funded by the EU and ESA and according to the grant agreement concluded between the two parties, ESA shall make an official transfer of the constructed assets to the EU. This legal transfer will require the ESA Council's agreement, noting that all except two Member States of ESA (Norway and Switzerland), are also EU Member States. At this time, the Commission has no reason to believe that such a transfer would be blocked by member(s) of ESA.

PROPERTY, PLANT AND EQUIPMENT

EUR millions Land and buildings Plant and equipment Furniture and vehicles Computer hardware Other tangible assets Finance leases Assets under construction Total Gross carrying amount at previous year-end 4 118 528 229 557 228 2 685 645 8 990 Additions 96 42 22 52 11 511 583 1 317 Disposals (26) (23) (21) (54) (11) 0 0 (135) Transfers between asset categories 102 8 0 12 0 (14) (111) (3) Other changes 24 3 3 11 3 (1) 1 44 Gross carrying amount at year-end 4 314 558 233 578 231 3 181 1 118 10 213 Accumulated depreciation at previous year-end (1 999) (425) (166) (396) (137) (796) (3 919) Depreciation charge for the year (138) (45) (20) (67) (21) (114) (405) Depreciation written back 0 0 0 0 0 1 1 Disposals 3 23 21 51 10 5 113 Transfers between asset categories — 0 0 (11) 0 14 3 Other changes (3) (2) (1) (13) (2) (7) (28) Accumulated depreciation at year-end (2 137) (449) (166) (436) (150) (897) (4 235) Net carrying amount at 31.12.2012 2 177 109 67 142 81 2 284 1 118 5 978 Net carrying amount at 31.12.2011 2 119 103 63 161 91 1 889 645 5 071

Charges still to be paid in respect of finance leases and similar entitlements are shown in non-current and current liabilities in the balance sheet (see notes 2.15 and 2.18.1). They break down as follows:

FINANCE LEASES

EUR millions Description Cumulative charges Future amounts to be paid Total Value Subsequent expenditure on assets Asset value Depreciation Net carrying amount (A) > 1 year > 1 year > 5 years Total Liability (B) (A+B) (C) (A+B+C) (D) = (A+B+C+D) Land and buildings 992 63 342 1 686 2 091 3 083 61 3 144 (877) 2 267 Other tangible assets 18 7 11 1 19 37 — 37 (20) 17 Total at 31.12.2012 1 010 70 353 1 687 2 110 3 120 61 3 181 (897) 2 284 Interest element 85 307 502 893 Total future minimum lease payments at 31.12.2012 155 660 2 189 3 003 Total future minimum lease payments at 31.12.2011 153 608 1 859 2 620

2.3 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

EUR millions Note 31.12.2012 31.12.2011 Participations in joint ventures 2.3.1 42 62 Participations in associates 2.3.2 350 312 Total 392 374

2.3.1 Participations in joint ventures

EUR millions GJU SESAR ITER IMI FCH Total Amount at 31.12.2011 0 0 0 25 37 62 Contributions — 70 116 98 54 338 Share of net result — (70) (106) (91) (91) (358) Amount at 31.12.2012 0 0 10 32 0 42

Participations in joint ventures are accounted for using the equity method. The following carrying amounts are attributable to the EU based on its percentage of participation:

EUR millions 31.12.2012 31.12.2011 Non-current assets 226 211 Current assets 106 123 Non-current liabilities 0 0 Current liabilities (291) (314) Revenue 8 8 Expenses (427) (379)

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 on-going. As the entity was inactive and still undergoing liquidation in 2012, there were no revenues or expenses incurred.

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 2012, the Commission held 46,12 % of the ownership participation in SESAR. The total (indicative) Commission contribution foreseen for SESAR (from 2007 to 2013) is EUR 700 million. The cumulative unrecognised share of losses is EUR 157 million.

ITER International Fusion Energy Organisation (ITER)

ITER involves the EU and China, India, Russia, South Korea, Japan and USA. ITER was created to; manage the ITER facilities, to encourage the exploitation of the ITER facilities, 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 since 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 Commission must recognise the participation in its accounts. At 31 December 2012, the Commission held 44,25 % of the ownership participation in ITER. The total (indicative) Euratom contribution foreseen for ITER (from 2007 to 2041) is EUR 8 949 million.

Joint Technology Initiatives

Public private partnerships in the form of Joint Technology Initiatives, which were implemented through Joint Undertakings within the meaning of Article 187 of the Treaty, have been created in order to implement the objectives of the Lisbon Growth and Jobs Agenda. IMI and FCH are included under this heading but three others, ARTEMIS, Clean Sky and ENIAC, although legally referred to as joint undertakings, from an accounting perspective must be considered as associates (and so included as such in note 2.3.2) because the Commission has a significant influence, not joint control, over them.

IMI Joint Technology Initiative on Innovative Medicines

The IMI Joint Undertaking supports pre-competitive pharmaceutical research and development in the Member States and associated countries, aiming at increasing the research investment in the biopharmaceutical sector and promotes the involvement of small and medium-sized enterprises (SME) in its activities. At 31 December 2012, the Commission held 78,58 % of the ownership participation in IMI. The maximum indicative contribution of the Commission shall amount to EUR 1 billion up to 31.12.2017.

FCH Fuel Cells and Hydrogen Joint Undertaking

The objective of the FCH Joint Undertaking is to combine resources from the public and private sectors to strengthen research activities with a view to increasing the overall efficiency of European research efforts and accelerate the development and deployment of fuel cell and hydrogen technologies. At 31 December 2012, the Commission held 80,6 % of the ownership participation in FCH. The maximum indicative contribution of the EU shall amount to EUR 470 million up to 31.12.2017. The cumulative unrecognised share of losses is EUR 12 million.

2.3.2 Participations in associates

EUR millions EIF ARTEMIS Clean Sky ENIAC Total Amount at 31.12.2011 292 0 0 20 312 Contributions — 22 97 16 135 Share of net surplus/(deficit) 9 (22) (97) (22) (132) Other equity movements 35 — — — 35 Amount at 31.12.2012 336 0 0 14 350

Participations in associates are accounted for using the equity method. The following carrying amounts are attributable to the EU based on its percentage of participation:

EUR millions 31.12.2012 31.12.2011 Assets 505 460 Liabilities (191) (162) Revenue 33 28 Deficit (177) (182)

European Investment Fund (EIF)

The European Investment Fund (EIF) is the EU's financial institution specialising in providing risk capital and guarantees to SMEs. The Commission has paid in 20 % of its participation, the balance being uncalled corresponding to an amount of EUR 720 million.

EUR millions EIF Total EIF capital Commission subscription Total Share Capital 3 000 900 Paid-in (600) (180) Uncalled 2 400 720

ARTEMIS Joint Undertaking

This entity was created to implement a Joint Technology Initiative with the private sector on Embedded Computing Systems. The maximum indicative contribution of the Commission shall amount to EUR 420 million. The cumulative unrecognised share of losses is EUR 5 million (95,2 % ownership participation).

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 maximum indicative contribution of the Commission shall amount to EUR 800 million. The cumulative unrecognised share of losses is EUR 48 million (62,89 % ownership participation).

ENIAC Joint Undertaking

The aim of ENIAC is to define a commonly agreed research agenda in the field of nano-electronics in order to set research priorities for the development and adoption of key competences in that area. These objectives will be pursued by pooling resources from the public and private sectors to support R&D activities in the form of projects. The total commitment of the EU shall amount to EUR 450 million. At 31 December 2012, the Commission held 95,90 % of the ownership participation in ENIAC.

2.4 NON-CURRENT FINANCIAL ASSETS

EUR millions Note 31.12.2012 31.12.2011 Available for sale financial assets 2.4.1 4 870 2 272 Loans 2.4.2 57 441 41 400 Total 62 311 43 672

2.4.1 Non-current available for sale financial assets

EUR millions 31.12.2012 31.12.2011 Guarantee Fund (5) 1 327 1 475 ECSC in liquidation 1 102 — BUFI investments 832 — Risk Sharing Finance Facility (RSFF) 593 — Loan Guarantee Instrument for TEN-T projects (LGTT) 52 — European Chemicals Agency 52 — European Bank for Reconstruction & Development 188 188 Risk Capital Operations 123 134 ETF Start up 305 234 Other available for sale investments 296 241 Total 4 870 2 272

In order to better present the economic reality, from 2012 onwards, all available for sale financial assets, are presented according to their remaining maturity at the balance sheet date. Assets with a maturity of greater than 1 year at the reporting date are shown as non-current, whereas assets maturing before end 2013 are shown as current (see note 2.8). The above 2012 amount for the Guarantee Fund is, unlike in 2011, shown excluding cash and cash equivalents (2011: EUR 302 million) and the related liability (2011: EUR 1 million). Had the current approach been followed in the 2011 accounts, the comparatives would have been as follows:

EUR millions 31.12.2012 31.12.2011 Guarantee Fund (6) 1 327 973 ECSC in liquidation 1 102 982 BUFI investments 832 588 Risk Sharing Finance Facility (RSFF) 593 365 Loan Guarantee Instrument for TEN-T projects (LGTT) 52 47 European Chemicals Agency 52 91 European Bank for Reconstruction & Development 188 188 Risk Capital Operations 123 134 ETF Start up 305 234 Other available for sale investments 296 241 Total 4 870 3 843

Guarantee Fund

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 EU and loans under macro-financial assistance (MFA) and Euratom loans outside the EU. It is a long-term instrument to cover any defaulting loans guaranteed by the EU. 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 as revenue for the EU budget.

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 corresponds to the target amount of 9 % of the loans outstanding at year-end.

ECSC in liquidation

Regarding the ECSC in liquidation amounts, all available for sale financial assets are debt securities denominated in EUR and quoted in an active market. At 31 December 2012 debt securities (expressed at their fair value) reaching final maturity in the course of 2013 amount to EUR 490 million (2011: EUR 481 million).

BUFI investments

Provisionally cashed fines are since 1 January 2010 managed by the Commission in a specifically created fund (BUFI) and invested in financial instruments categorised as available for sale financial assets.

Risk-Sharing Finance Facility RSFF

The Risk-Sharing Finance Facility is managed by the EIB and the Commission's investment portfolio is used to provision financial risk for loans and guarantees given by the EIB to eligible research projects. In total, a Commission budget of up to EUR 1 billion is foreseen for the period 2007 to 2013, of which up to EUR 800 million are from the “Cooperation” and up to EUR 200 million from the “Capacities” specific programmes. The EIB has committed itself to provide the same amount.

At 31 December 2012 the Commission had contributed, including also EFTA and third country contributions, EUR 1 006 million to the RSFF. The contributions have been invested by the EIB in bonds (fair value of EUR 754 million at 31 December 2012) and cash & term deposits (EUR 314 million). The amount disclosed as a contingent liability (note 5.2.1), EUR 948 million, represents the estimated maximum loss at 31 December 2012 that the Commission would suffer in case of defaults on loans or guarantees given by the EIB within the framework of the RSFF. It should be noted that the Commission's overall risk is limited to the amount it contributes to the Facility.

Loan Guarantee Instrument for TEN-T Projects (LGTT)

The Loan Guarantee Instrument for Ten-T Projects issues guarantees so as to mitigate revenue risk in the early years of TEN-Transport projects. Specifically the guarantee would fully cover stand-by credit lines, which would only be drawn upon in cases where project cash flows are insufficient to service senior debt. The instrument is a joint financial product of the Commission and the EIB and the TEN-T regulation has earmarked EUR 500 million from the EU budget to be allocated during the period 2007-2013. The EIB will allocate another EUR 500 million, so in total the amount available will be EUR 1 billion to the instrument.

At 31 December 2012 the Commission had contributed EUR 155 million to the LGTT. This has been invested by the EIB in bonds (fair value of EUR 75 million at 31 December 2012) and term deposits (EUR 88 million). At end 2012, EUR 523 million of loans have been signed and are thus covered by the guarantee. The amount disclosed as a contingent liability (note 5.2.1), EUR 39 million, represents the estimated maximum loss at 31 December 2012 that the Commission would suffer in case of defaults on loans given by the EIB within the framework of the LGTT operations. This represents 7,4 % of the total amounts guaranteed. It should be noted that the Commission's overall risk is limited to the amount it contributes to the Instrument.

European Bank for Reconstruction and Development (EBRD)

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.

EUR millions EBRD Total EBRD capital Commission subscription Total Share Capital 29 601 900 Paid-in (6 202) (188) Uncalled 23 399 712

Risk Capital Operations

Under Risk Capital Operations amounts are granted to financial intermediaries to finance equity investments. They are managed by EIB and financed under the European Neighbourhood Policy.

ETF start up

The ETF start-up covers the Growth & Employment programme, the MAP programme, the CIP programme and the Technology Transfer Pilot Project, under the trusteeship of the EIF, supporting the creation and financing of start-up SMEs by investing in suitable specialised venture capital funds. At year-end, a further EUR 122 million relating to ETF Start-up had been committed to, but not yet been drawn down by the other parties.

Other available for sale investments

The main amounts included under other non-current available for sale investments above are the European Fund for South East Europe (EUR 113 million), the Green for Growth Fund (EUR 39 million) and the GEEREF Fund (EUR 68 million).

2.4.2 Non-current loans

EUR millions Note 31.12.2012 31.12.2011 Loans granted from the EU budget & ECSC 2.4.2.1 162 170 Loans granted from borrowed funds 2.4.2.2 57 279 41 230 Total 57 441 41 400

2.4.2.1 Loans granted from the European Union budget and the ECSC in Liquidation

EUR millions Loans with special conditions ECSC housing loans Total Total at 31.12.2011 151 19 170 New loans — — — Repayments (17) (4) (21) Exchange differences 1 — 1 Changes in carrying amount 11 1 12 Total at 31.12.2012 146 16 162

Loans with special conditions are 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 14,507 %.

2.4.2.2 Loans granted from borrowed funds

EUR millions MFA Euratom BOP EFSM ECSC in Liquidation Total Total at 31.12.2011 595 451 11 625 28 344 266 41 281 New loans 39 — — 15 800 — 15 839 Repayments (84) (24) — — (46) (154) Exchange differences — — — — 5 5 Changes in carrying amount (1) (2) (2) 332 (4) 323 Total at 31.12.2012 549 425 11 623 44 476 221 57 294 Amount due < 1 year 15 — — — — 15 Amount due > 1 year 534 425 11 623 44 476 221 57 279

The large increase in these amounts is due to the EFSM loans disbursed during 2012 and is mirrored by an increase in the EU's borrowings (see note 2.14). For more information on borrowing and lending activities, see note 7.

2.5 NON-CURRENT RECEIVABLES AND RECOVERABLES

EUR millions 31.12.2012 31.12.2011 Member States 545 268 Other 19 21 Total 564 289

Of the above receivables, EUR 550 million (2011: EUR 273 million) relate to non-exchange transactions.

The increase in amounts due from Member States relates to EAGF and EAFRD rural development non-executed clearance of accounts decisions.

2.6 NON-CURRENT PRE-FINANCING

EUR millions Note 31.12.2012 31.12.2011 Pre-financing 2.6.1 40 790 40 625 Prepaid expenses 2.6.2 3 715 4 098 Total 44 505 44 723

2.6.1 Pre-financing

The timing of the recoverability or utilisation of the pre-financing governs whether it is disclosed as current or non-current pre-financing. 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 current pre-financing.

Guarantees received in respect of pre-financing

These are guarantees that the Commission requests from beneficiaries that are not Member States, in certain cases 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 2012 the "nominal" value of guarantees received in respect of pre-financing amounted to EUR 1 348 million while the "on-going" value of those guarantees was EUR 1 083 million (2011: EUR 1 330 million and EUR 1 083 million respectively).

Certain pre-financing amounts paid out under the 7th Research Framework Programme for research and technological development (FP7) are effectively covered by a Participants Guarantee Fund (PGF) – the amount of pre-financing paid out in 2012 totalled EUR 4 billion (2011: EUR 3,3 billion). This fund is a separate entity from the EU and is not consolidated in these accounts – note 11.2.3.

EUR millions Management Type 31.12.2012 31.12.2011 Direct centralised management 1 249 1 219 Indirect centralised management 1 042 774 Decentralised management 677 697 Shared management 37 214 37 249 Joint management 592 686 Implemented by other Institutions & Agencies 16 — Total 40 790 40 625

The most significant non-current pre-financing amounts relate to Structural Actions for the 2007-2013 programming period: the regional development fund (ERDF) and the cohesion fund (CF) EUR 23,9 billion, the social fund (ESF) EUR 6,5 billion, the agricultural fund for rural development (EAFRD) EUR 6,1 billion and the fisheries fund (EFF) EUR 0,6 billion. 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 non-current assets.

Pre-financing represents a large portion of the EU's total assets, and thus receives proper and regular attention. It should be noted that the level of pre-financing amounts in the various programmes must be sufficient to ensure the necessary float for the beneficiary to start the project, while also safeguarding the financial interests of the EU and taking into consideration legal, operational and cost-effectiveness constraints. All these elements have been given due consideration by the Commission in an effort to improve the follow-up of pre-financing.

2.6.2 Prepaid expenses

EUR millions 31.12.2012 31.12.2011 Financial Engineering Instruments 2 717 3 378 Aid Schemes 998 720 Total 3 715 4 098

Under the framework of the structural funds programmes 2007-2013, payments can be made from the EU budget to Member States so as to contribute to Financial Engineering Instruments (be it in the form of loans, equity investments or guarantees) set up and managed under the responsibility of the Member States. Monies that are unused by these instruments at year-end are the property of the EU (as with standard pre-financing) and are thus treated as an asset on the Commission’s balance sheet. However, the basic legal acts do not oblige the Member States to provide periodic reports to the Commission on the use made of these advances, and in some cases not even identify them in the statements of expenditure submitted to the Commission. Thus, and on the basis of information received from Member States on the utilisation of funds, an estimation is made at each year-end of the value of this asset.

Amounts included under the Aid Schemes heading are the Commission’s estimate of open advances for various aid schemes (state aid, market measures of EAGF).

CURRENT ASSETS

2.7 INVENTORIES

EUR millions 31.12.2012 31.12.2011 Scientific materials 81 78 Other 57 16 Total 138 94

2.8 CURRENT FINANCIAL ASSETS

EUR millions Note 31.12.2012 31.12.2011 Available for sale financial assets 2.8.1 1 858 3 619 Loans 2.8.2 123 102 Total 1 981 3 721

2.8.1 Current available for sale financial assets

Available for sale financial assets are purchased for their investment return or yield, or held to establish a particular asset structure or a secondary source of liquidity and may therefore be sold in response to needs for liquidity or changes in interest rates. The following table provides an overview of available for sale financial assets with a remaining maturity before end 2013:

EUR millions 31.12.2012 31.12.2011 Guarantee Fund 268 — ECSC in liquidation 490 1 463 BUFI investments 845 1 358 Risk Sharing Finance Facility (RSFF) 160 547 Loan Guarantee Instrument for TEN-T projects (LGTT) 23 97 European Chemicals Agency 69 151 Other available for sale investments 3 3 Total 1 858 3 619

As explained under note 2.4.1, the presentation of available for sale financial assets has been changed from 2012 onwards. Had the same approach been followed in the 2011 accounts, the comparatives would have been as follows:

EUR millions 31.12.2012 31.12.2011 Guarantee Fund 268 201 ECSC in liquidation 490 481 BUFI investments 845 770 Risk Sharing Finance Facility (RSFF) 160 182 Loan Guarantee Instrument TEN-T projects (LGTT) 23 49 European Chemicals Agency 69 60 Other available for sale investments 3 3 Total 1 858 1 746

2.8.2 Current loans

Included under this heading are loans with remaining final maturities less than 12 months after the balance sheet date (see note 2.4.2.2 above for more details). Also included under this heading are term deposits of the European External Action Service (EUR 42 million) and the ECSC in liquidation (EUR 22 million).

2.9 CURRENT RECEIVABLES AND RECOVERABLES

EUR millions Note 31.12.2012 31.12.2011 Fines 2.9.1 4 090 3 125 Member States 2.9.2 6 270 2 693 Accrued income and deferred charges 2.9.3 3 368 3 267 Other receivables & recoverables 2.9.4 311 392 Total 14 039 9 477

The total above contains an estimated EUR 13 729 million (2011: EUR 8 955 million) relating to non-exchange transactions.

2.9.1 Fines

This concerns amounts to be recovered relating to fines issued by the Commission of EUR 4 357 million (2011: EUR 3 369 million) less a write-down of EUR 267 million (2011: EUR 244 million).

Guarantees totalling EUR 2 513 million had been received for the fines outstanding at 31 December 2012 (2011: EUR 3 012 million) in respect of these receivables. It should be noted that EUR 1 471 million of the receivables were due for payment after 31 December 2012.

2.9.2 Member States

EUR millions 31.12.2012 31.12.2011 EAGF and Rural Development receivables: EAGF 1 172 1 439 EAFRD 14 23 TRDI 44 37 SAPARD 136 142 Write-down (814) (771) Total 552 870 VAT paid and recoverable 44 41 Own resources: Established in the A account 45 29 Established in the separate account 1 294 1 263 Own resourced to be received 3 617 — Write-down (773) (779) Other 16 114 Total 4 199 627 Other receivables from Member States: Pre-financing recovery expected 1 220 963 Other 255 192 Total 1 475 1 155 Total 6 270 2 693

EAGF and Rural Development receivables

This item primarily covers the amounts owed by Member States at 31 December, as declared and certified by the Member States at 15 October. An estimation is made for the receivables arising after this declaration and up to 31 December. The Commission also estimates a write-down for the amounts owed by beneficiaries that are unlikely to be recovered. The fact that such an adjustment is made does not mean that the Commission is waiving future recovery of these amounts. A deduction of 20 % is also included in the adjustment, and corresponds to what Member States are allowed to retain to cover administrative costs.

Own resources receivables

The significant increase of receivables from Member States is mainly explained by EUR 3 617 million of own resources to be received at 31 December 2012 relating to the Amending Budgets 5 and 6/2012. These Amending Budgets were adopted on 21 November 2012 and 12 December 2012 respectively. According to Article 10 of Regulation (EC, Euratom) No 1150/2000 the entries corresponding to the readjustments of GNI contributions were carried out on the first working day of January 2013.

It should be noted that Member States are entitled to withhold 25 % of traditional own resources as collection costs, thus the above figures are shown net of this deduction. Based on the estimations sent by Member States, a write-down has been deducted from receivables from Member States. However, this does not mean that the Commission is waiving recovery of the amounts covered by this value adjustment.

2.9.3 Accrued income and deferred charges

EUR millions 31.12.2012 31.12.2011 Accrued income 3 002 2 952 Deferred charges 351 296 Other 15 19 Total 3 368 3 267

The main amount under this heading is accrued income:

EUR millions 31.12.2012 31.12.2011 Own resources 2 388 2 644 Agricultural assigned revenue November & December 218 111 Cohesion, Regional & Rural Development Funds: financial corrections 276 16 Other accrued income 120 181 Total 3 002 2 952

2.9.4 Other receivables and recoverables

Included under this heading are mainly recoveries of pre-financing amounts, recovery of expenses as well as other revenue from administrative and operational actions.

2.10 CURRENT PRE-FINANCING

EUR millions Note 31.12.2012 31.12.2011 Pre-financing 2.10.1 9 548 8 089 Prepaid expenses 2.10.2 3 690 2 918 Total 13 238 11 007

2.10.1 Pre-financing

EUR millions Management Type 31.12.2012 31.12.2011 Direct centralised management 3 289 3 048 Indirect centralised management 3 908 3 037 Decentralised management 301 330 Shared management 1 008 761 Joint management 844 803 Implemented by other Institutions & Agencies 198 110 Total 9 548 8 089

The current pre-financing balance has two distinct components: the gross pre-financing and the accruals made on this pre-financing (made to reflect the related expenditure estimated that has been incurred at year-end). Both elements have to be taken into consideration for a proper analysis of the variation of the current net pre-financing balance from one year to another.

On the one hand, the year 2012 marked a further decrease of EUR 3 billion in gross current pre-financing under shared management due to the significant advancement in the closure process of the previous programming period 2000-2006. On the other hand, the accruals on this pre-financing have decreased by EUR 3,3 billion, which led to an overall increase of EUR 0,3 billion in the net current pre-financing. The reason for these movements lies in the overlapping of the previous programming period 2000-2006 (which is now in its closure phase) with the current programming period 2007-2013. Whereas pre-financing related to the previous programming period is estimated to have been entirely used (i.e. net balance zero), the pre-financing of the current programming period is estimated to be only partially used as at 31 December 2012. The remaining part is estimated to be used in 2013 or later.

A similar situation is noted for direct centralised management, where the gross pre-financing has decreased by EUR 741 million, while the net pre-financing has slightly increased by EUR 241 million.

2.10.2 Prepaid expenses

EUR millions 31.12.2012 31.12.2011 Financial Engineering Instruments 1 358 1 126 Aid Schemes 2 332 1