Annual accounts of the European Communities

for the financial year 2001

(drawn up in accordance with Article 78, and Article 81 of the Financial Regulation of 21 December 1977, as last amended by Council Regulation (EC) No 762/2001 of 9 April 2001)

Volume IV

Consolidated statements on budget implementation and consolidated financial statements

(2002/C 296/01)

TABLE OF CONTENTS

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DEVELOPMENT OF THE EUROPEAN COMMUNITIES' ACCOUNTING SYSTEM

As an information system, public-sector accounting has substantially broadened its objectives from a mere record of budget execution to a more dynamic and complete management, setting out the economic, financial and asset/liability implications which arise.

In recent years, it has emerged that the European Communities' accounts needed to be modernised to change from a system of accounts focusing on a mere cash-based description of budget expenditure and revenue operations to a system based on assets and liabilities with the objective of presenting the Communities' financial situation in a more comprehensive form, showing all its assets, entitlements and debts as well as the expenditure and revenue for the financial year(1). The Commission has therefore undertaken to gradually fall into line with the approach adopted by a large number of States and supported by international bodies such as IFAC(2) and OECD, even though it cannot yet apply the corresponding accounting standards at this stage.

However, the Commission has already introduced elements of accrual accounting in the presentation of the financial statements in recent years. At present, this information does not come from an integrated system of accounts. The Accounting Officer's departments have to use non-accounting information from the various Directorates-General to complete the financial balance sheet and draw up the annexes to this balance sheet. This procedure cannot guarantee the exhaustiveness of the data.

In 2000 and 2001 a special effort was made to improve the reliability of the information on fixed assets, inventories, the list of financial intermediaries, the valuation of entitlements and official's pension rights. In addition, the Commission must develop a multiannual plan of action to guarantee the quality of the information provided in the financial statements and implement new, more effective management and control tools.

In simple terms, the reforms focus on the following:

1. Retention of cash-based reports on budget implementation (funds collected and disbursed) and move towards general accounts based on the accrual principle. This dual system has also been adopted by a number of Member States;

2. Integrated accounting: the enhancement of budget accounting should allow transactions to be properly entered in the accounts; no lists from outside the accounts need then be used to draw up the financial statements;

3. Development of the general accounts from a cash-based account into one based on the principle of accrual, which gives a more faithful picture of the actual situation;

4. Definition and adjustment of the scope of consolidation in accordance with international standards;

5. In substance, the EC's financial statements should come into line with international standards. These statements are the product of the accounting system. Their objective is to give a faithful picture of assets, the financial situation, budget execution, the entity's results and the cash flow for the year.

This new approach will be implemented in a number of stages and relate to the financial statements for a number of financial years.

STRUCTURE OF THE ACCOUNTS

1. The consolidated annual accounts of the Communities are drawn up in accordance with Articles 78, 80 and 81 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities, as last amended by Council Regulation (EC) No 762/2001 of 9 April 2001.

They are drawn up by the Commission every year and record the budgetary and accounting data of all the European institutions.

2. The annual accounts of the Communities are set out in four volumes:

Volume I - Commission - Analysis of financial management

Volume II - Part I: Commission - Budget implementation statements

- Part II: Commission and Euratom supply agency - Financial statements

Volume III - European Parliament, the Council, the Court of Justice, the Court of Auditors, the Economic and Social Committee, the Committee of the Regions and the Ombudsman

Volume IV - Consolidated statements on budget implementation and consolidated financial statements

CHAPTER I

CONSOLIDATED STATEMENTS ON THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN COMMUNITIES

2001 BUDGET OUTTURN

The budget outturn for the European Communities is contained in Item 1.A.1 on the liabilities side of the consolidated balance sheet

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CONSOLIDATED SUMMARY OF THE IMPLEMENTATION OF GENERAL BUDGET REVENUE, 2001

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DETAILS TITLE 1: OWN RESOURCES

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DETAILS TITLE 3: SURPLUSES AVAILABLE

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CONSOLIDATED SUMMARY OF BUDGET IMPLEMENTATION - EXPENDITURE

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CONSOLIDATED SUMMARY OF OUTSTANDING COMMITMENTS

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Table 1

COMPARISON OF BUDGET OUTTURN 2001 AND 2000

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Table 2

BUDGET EXECUTION OF COMMITMENT AND PAYMENT APPROPRIATIONS BY INSTITUTION

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Table 3

COMPOSITION AND CHANGE IN COMMITMENT AND PAYMENT APPROPRIATIONS

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Table 4

EXECUTION OF THE YEAR'S COMMITMENT APPROPRIATIONS

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Table 5

EXECUTION OF THE YEAR'S PAYMENT APPROPRIATIONS

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Table 6

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS OUTSTANDING AT 31 DECEMBER 2001

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Note:

Tables 6 to 8 do not contain commitments relating to the allocation accounts. EUR 18,4 million must therefore be added to reach the total of EUR 86763,27 million in outstanding commitments.

Table 7

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS STILL TO BE CLEARED IN THE COURSE OF 2001

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Table 8

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS CLEARED IN THE COURSE OF 2001

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CHAPTER II

CONSOLIDATED BALANCE SHEET

ASSETS

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LIABILITIES

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CHAPTER III

(1) Accrual accounting.

(2) The IFAC (International Federation of Accountants) aims to produce international standards for the States which are directly based on company accounting practice and OECD, even though it cannot yet apply the corresponding accounting standards at this stage.

ANNEX 1

ACCOUNTING PRINCIPLES, RULES AND METHODS

ACCOUNTING PRINCIPLES

1. The aims of a financial statement must be to describe the nature and range of an institution's activities, explain how it is financed and supply definitive information on its operations.

These are certainly the objectives of the consolidated annual accounts produced annually by the European Commission. The manner in which financial operations were conducted in the course of the financial year is described in Volume I (Analysis of financial management).

If they are to present a true and fair picture, financial statements must not only supply relevant information, but do so in a clear and comprehensible manner which allows comparisons between financial years. It is with these goals in mind that the present document has been drawn up.

2. The accounting system of the European institutions comprises general accounts and budget accounts. These accounts are kept in euros on the basis of the calendar year.

2.1. The budget accounts give a detailed picture of the implementation of the budget. They are based on the modified cash accounting principle(1).

2.2. The general accounts show all expenditure and revenue over the financial year and are designed to establish the financial position in the form of a balance sheet at 31 December the previous year.

The general accounts are based on the following principles:

- the principle of going concern;

- the principle of materiality and aggregation of data;

- the principle of substance over form;

- the principle of no-netting between assets and liabilities.

The financial statements take account of certain elements of the principle of prudence and accrual accounting such as value adjustments for entitlements, depreciation and the entry of carryovers in the accounts as charges and debts for the financial year.

ACCOUNTING RULES AND METHODS

1. Legal provisions

The accounts are kept in accordance with the Financial Regulation of 21 December 1977, as last amended by Council Regulation (EC, ECSC, Euratom) No 762/2001 of 9 April 2001 and Commission Regulation (EC) No 3418/93 of 9 December 1993 laying down detailed rules for the implementation of certain provisions of the Financial Regulation, as last amended by Regulation (EC) No 1687/2001 of 21 August 2001.

The same rules of valuation and accounting methods are applied in all the European institutions currently falling within the scope of consolidation (Commission, Parliament, Council, Court of Justice, Court of Auditors, Economic and Social Committee, Committee of the Regions and the Ombudsman) in order to guarantee harmonisation of the accounts and consistency of data.

2. Bases for conversion

2.1. Accounts are kept in euros.

2.2. Assets and liabilities are converted into euros on the basis of the conversion rates applying on 28 December 2001, except for the following:

- tangible and intangible assets, which retain their value in euros at the rate that applied when they were purchased,

- appropriations carried over, some of which are to cover commitments in national currencies converted into euros at the monthly accounting rates for December; the total amount in euros of appropriations carried over cannot be subsequently revalued,

- advances paid under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, which are converted at the exchange rates applying on the 10th day of the month following the month in which they are granted,

- the transitional accounts which retain their value in euros at the accounting rate that applied at the time of the accounting operation,

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2.3. Monetary items other than those listed above are revalued at the closing euro rate on the date the accounts are closed. The revalued figure is treated as follows:

- cash assets: the contra-entry for the positive and negative exchange differences relating to cash assets is recorded in the profit and loss accounts,

- monetary items other than cash assets: when, overall, the negative exchange differences on assets and commitments expressed in a specific currency exceed the positive differences noted on assets and commitments expressed in the same currency, the surplus is recorded in the profit and loss accounts. Otherwise, the surplus is recorded in the transitional liability accounts,

- the result of the revaluation of transactions in currencies forming part of the euro zone has been recorded in the profit and loss accounts. These transactions will no longer be revalued in future years.

3. Revenue

3.1. The amounts of own resources and financial contributions entered in the accounts are those credited in the course of the year to the accounts opened in the Commission's name by the governments of the Member States.

The difference between the amount of VAT own resources, GNP-based resources and financial contributions entered in the budget and the amount actually due is calculated by 1 July of the following year and entered in an amending budget for that year.

3.2. The other revenue entered in the accounts is the amount actually received in the course of the year.

4. Expenditure

4.1. For the purposes of calculating the budget outturn for the year, expenditure comprises payments made against the year's appropriations for payments plus any of the appropriations for that year that are carried over to the following year.

4.2. Payments made against the year's appropriations for payments means payments for which authorisation reaches the Financial Controller by 31 December and which are made by the accounting officer by 15 January of the following year.

In the case of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, the payments are those effected by the Member States between 16 October 2000 and 15 October 2001, provided that the accounting officer was notified of the commitment and authorisation by 31 January 2002.

5. Economic outturn for the year

The economic outturn consists of the budget outturn and the result of the adjustments.

5.1. Budget outturn

The budget outturn comprises two elements: the result of the European Communities and the result of the participation of the EFTA countries belonging to the EEA. It represents the difference between:

- total revenue received for that year;

- total payments made against that year's appropriations plus the total amount of that year's appropriations carried over to the following year(2).

The following are added to or deducted from the resulting figure:

- the net balance of cancellations of payment appropriations carried over from previous years and any payments which, because of fluctuations in the euro rate, exceed non-differentiated appropriations carried over from the previous year,

- the balance of exchange-rate gains and losses recorded during the year.

The budget outturn is paid back to the Member States the following year.

5.2. Result of adjustments

In the course of the year, accounting is based on the cash principle. In order to give a more accurate picture of assets and liabilities, the financial situation and the result, a number of adjustments are necessary.

As a result of these adjustments, the annual accounts can be presented in accordance with the principle of modified accrual accounting based on modified cash budget accounting.

5.3. Result of borrowing and lending activities

6. Rules on valuation

Except where indicated in the explanatory notes to the balance sheet, the various headings are valued as follows:

6.1. Tangible and intangible fixed assets are valued at their historic value converted into euros at the rate applying when they were purchased. Except for land, these fixed assets must also be subject to depreciation for each full year, according to the straight line method (Title IV, Chapter 4 of Regulation (EC) No 2909/2000 of 29 December 2000 on the management in the accounts of the non-financial fixed assets of the European institutions).

6.2. Stocks are valued at the price of the last supplies received. Amounts in foreign currencies are converted into euros.

6.3. Financial assets are valued at their purchase price. If denominated in foreign currency, they are converted at the euro rate applying at the close of the year. In line with the principle of prudence, an adjustment is made where there is a probable loss.

6.4. Entitlements are entered in the accounts at their face value, converted at the euro rate applying at the end of the year, with the exception of entitlements denominated at a fixed rate. Entitlements are entered at the estimated recovery value. A value reduction is thus applied for amounts considered irrecoverable, with account being taken of risks and legal developments.

Two types of value reduction exist:

- a specific value reduction applied when a given amount is deemed irrecoverable, irrespective of any legal developments (the risk of non-recovery is thus examined for each debt);

- a flat-rate value reduction applied when the amount of the irrecoverable debt is still not known.

6.5. Cash investments and disposable assets are valued at their face value converted into euros at the rate applying at the end of the year. For the sake of prudence, an adjustment is made where there is a probable loss.

6.6. Debts are valued at their face value converted into euros at the rate applying at the end of the year if they are denominated in a foreign currency.

7. Payments of advances and payments on account

Payments on account for operational purposes are included in the year's expenditure and do not appear as assets in the balance sheet.

Advances to public or private intermediaries which had not been received by the final beneficiary at 31 December 2001 and which are included in the year's budget expenditure are entered on the assets side of the balance sheet as short-term assets.

8. EFTA participation in the 2001 general budget

The figures in the accompanying tables include the appropriations entered to cover the participation in the Community budget of the EFTA countries belonging to the European Economic Area.

9. Consolidation

The consolidated accounts cover the accounts of the European Parliament, the Council, the Commission (including the Publications Office and the Joint Research Centre), the Court of Justice, the Court of Auditors, the Economic and Social Committee, the Committee of the Regions and the Ombudsman.

The method used is that of full consolidation.

(1) This differs from cash-based implementation because of elements such as carryovers.

(2) In the case of the EFTA-EEA countries, the volume of appropriations carried over from year n to year n+ 1 is known after the accounts have been closed. As a result the calculation of the balance includes carryovers of appropriations from year n-1 to year n.

ANNEX 2

EXPLANATORY NOTES TO THE BUDGET IMPLEMENTATION STATEMENTS

GENERAL BUDGET AND TYPES OF APPROPRIATION

The general budget, the main instrument of the Communities' financial policy, is the instrument which provides for and authorises the Communities' revenue and expenditure every year.

The budgetary procedure is set out in Article 272 of the EC Treaty which stipulates the sequence of stages and the time-limits which must be respected by the two arms of the budgetary authority: the Council and Parliament.

Every year, the Commission estimates all the European institutions' revenue and expenditure for the coming year and draws up a preliminary draft budget which it sends to the budgetary authority.

On the basis of this preliminary draft budget, the Council draws up a draft budget which is then the subject of negotiations between the two arms of the budgetary authority.

The President of Parliament declares that the budget has been finally adopted making the budget enforceable. The task of executing the budget is mainly the responsibility of the Commission.

1. BUDGETARY PRINCIPLES

The general budget of the Communities is governed by a number of basic principles:

- unity: all Community expenditure and revenue must be incorporated in a single budget document;

- universality: this principle comprises two rules:

- the rule of non-assignment, meaning that budget revenue must not be earmarked for specific items of expenditure (total revenue must cover total expenditure);

- the gross budget rule, meaning that revenue and expenditure are entered in full in the budget without any adjustment against each other;

- annuality: the appropriations entered are authorised for a single year and must therefore be used during that year;

- equilibrium: the revenue and expenditure shown in the budget must be in balance (estimated revenue must equal payment appropriations);

- specification: each appropriation is assigned to a specific purpose and a specific objective.

2. BUDGET STRUCTURE

The budget consists of:

(a) a general statement of revenue;

(b) separate sections divided into the statements of revenue and expenditure of each institution: Section I: Parliament; Section II: Council; Section III: Commission; Section IV: Court of Justice; Section V: Court of Auditors; Section VI: Economic and Social Committee; Section VII: Committee of the Regions; Section VIII: Ombudsman.

Each institution's items of revenue and expenditure are classified according to their type or the use to which they are assigned under titles, chapters, articles and items.

3. TYPES OF BUDGET APPROPRIATION

Only the Commission budget contains administrative appropriations and operating appropriations. The other institutions have only administrative appropriations.

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 finance multiannual operations. They cover the total cost, during the current year, of legal obligations entered into for operations extending over more than one financial year.

(a) Non-differentiated appropriations cover:

- all administrative expenditure (part A of the Commission Section and the sections of all the other institutions),

- EAGGF Guarantee appropriations of annual nature,

- certain technical appropriations (in particular: repayments, borrowing and lending guarantees, etc.).

In the case of non-differentiated appropriations, the amount of commitment appropriations is the same as that of payment appropriations.

(b) Differentiated appropriations are intended to cover multiannual operations. The appropriations in Part B of the Commission Section (not including EAGGF) come into this category.

These differentiated appropriations break down into commitment appropriations 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(1).

- payment appropriations: cover expenditure arising from commitments entered into in the current financial year and/or earlier financial years(2).

4. BUDGET IMPLEMENTATION

Article 22(1) of the Financial Regulation states: "The Commission shall implement the budget on its own responsibility in accordance with this Financial Regulation and within the limits of the appropriations allotted".

Article 22(2) states that the Commission shall confer on the institutions the requisite powers for the implementation of the sections of the budget relating to them.

4.1. Execution of revenue:

The budget takes over the forecasts of revenue subject to any changes resulting from the adoption of supplementary and amending budgets which adjust the forecasts in the initial budget in line with the reductions or increases in own resources noted during implementation. The budget revenue covers appropriations for payment.

The revenue outturn comprises established entitlements, revenue actually collected against these established entitlements and the balance to be recovered.

The actual revenue for a financial year corresponds to the revenue collected against entitlements established in the course of the year and amounts collected against entitlements still to be recovered from previous years.

4.2. Execution of expenditure:

As with revenue, expenditure is forecast in the initial budget.

The execution of expenditure shows how appropriations for commitments(3) and appropriations for payments(4) are changed, used, carried over and lapse during the year.

4.2.1. Composition of appropriations available:

- Final budget appropriations: initial budget + supplementary and amending budget + transfers;

- Appropriations for the year: final appropriations + supplementary revenue (contributions by third parties);

- Additional appropriations: supplementary revenue (contributions by third parties) + appropriations carried over from the previous financial year + other appropriations (appropriations for re-use + commitment appropriations made available again following decommitments + appropriations made available again following repayments of amounts paid on account);

- Total appropriations authorised: final budget appropriation + additional appropriations;

- Commitment and payment appropriations carried over from the previous financial year: as a rule, appropriations must be used by the end of the year under the principle of annuality. Amounts not used therefore lapse unless they are carried over on the basis of strict criteria(5).

4.2.2. Utilisation of appropriations:

- Appropriations for commitment: The final appropriations are available during the financial year for entering into commitments.

- Appropriations for payment: The final appropriations are available during the financial year for making payments.

4.2.3. Carryovers to the following year:

- Appropriations for commitments: Appropriations which are not committed may be carried over automatically or with the authorisation of the budgetary authority (non-automatically).

Carryovers of differentiated appropriations must be authorised by the Commission; the budgetary authority must also be notified.

- Appropriations for payments: - non-differentiated appropriations: carryover is generally automatic if it is to cover outstanding commitments; otherwise the budgetary authority has to give prior authorisation;

- differentiated appropriations: unused payment appropriations usually lapse; however, the Commission may decide to carry them over if the payment appropriations for the following year are not sufficient to meet previous commitments or commitments made against commitment appropriations which have themselves been carried over.

4.2.4. Cancellation of appropriations:

Any appropriations for commitment and for payment not used and not carried over are cancelled at the end of the year.

5. OUTSTANDING COMMITMENTS

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.

FINANCIAL PERSPECTIVE

The 2001 financial year was the second covered by the financial perspective 2000 to 2006, concluded on 6 May 1999 between the European Parliament, the Council and the Commission, on the basis of the conclusions of the Berlin European Council of 24 and 25 March 1999 which called for tighter budgetary discipline and improvement of the budgetary procedure.

In concluding an agreement of this type, the institutions agreed in advance on the main budgetary priorities for the following period and established a framework for Community expenditure in the shape of the financial perspective. The financial perspective shows the maximum amount and the composition of foreseeable Community expenditure.

As the initial financial perspective was drawn up in constant 1999 prices, point 15 of the Agreement states that each year the Commission will make a technical adjustment to the financial perspective in line with movements in the GNP of the European Union and prices.

However, it was agreed that a deflator of 2 % would be used for agriculture and the Structural Funds.

The following table shows the adjusted financial perspective at 2001 prices.

The overall ceiling on appropriations for commitments for 2001 comes to EUR 97189 million, equivalent to 1,19 % of GNP.

The corresponding ceiling on the appropriations for payments required comes to EUR 94730 million, i.e. around 1,11 % of GNP.

This leaves a margin of EUR 13643 million between the ceiling on appropriations for payments and the own-resources ceiling, i.e. 0,16 % of GNP, on the basis of current economic forecasts. The margin for 2000 has been updated in relation to the technical adjustment for 2001 by including the latest GNP estimates for 2000 and thus allowing comparisons to be made between a number of years.

However, the ceilings on commitments and payments resulting from that adjustment have not been changed.

The second half of the table sets out, for reference, the adjusted financial framework for EU-21 at 2001 prices.

The GNP figure incorporates the latest estimates available for the GNP of the six countries in the first wave of accession (Poland, Czech Republic, Hungary, Estonia, Slovenia, Cyprus).

The total GNP of these countries for 2001 is estimated at EUR 315 billion.

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STRUCTURAL FUNDS: THE NEW PROGRAMMING PERIOD 2000-2006

The Community's Structural Funds consist of the ERDF, the ESF, the EAGGF Guidance Section and the FIFG(6). The Structural Funds come under heading 2 "Structural operations" of the financial perspective, which also covers the Cohesion Fund. In the budget the Structural Funds are grouped together under Title B2-1.

This programming period is based on the new Structural Funds Regulation, the main elements of which are as follows:

1. STRUCTURAL FUND OBJECTIVES

The Structural Funds are the main instrument for attaining increased economic and social cohesion in the Community. The Union supports three specific objectives with appropriations from the Structural Funds:

Objective 1: Development and structural adjustment of regions whose development is lagging behind

Objective 2: Economic and social conversion of areas in structural difficulty

Objective 3: Adaptation and modernisation of policies and systems for education, training and employment.

There is a special scheme covering restructuring in the fisheries sector outside Objective 1 regions. Rural development projects are implemented across the EU, financed by either the Structural Funds or the common agricultural policy.

The Community initiatives cover the following fields:

(a) Interreg: cross-border, transnational and interregional cooperation intended to encourage the harmonious, balanced and sustainable development of the whole of the Community area.

(b) Urban: economic and social regeneration of cities and of urban neighbourhoods in crisis with a view to promoting a sustainable urban development.

(c) Leader: rural development.

(d) Equal: transnational cooperation to promote new means of combating all forms of discrimination and inequalities in connection with the labour market.

2. FINANCIAL PERSPECTIVE AND PROGRAMMING

The financial perspective for 2000-2006 sets out the overall and annual totals for all the Structural Funds. It was drawn up at constant 1999 prices and is thus adjusted every year by an index of 2 % (with a technical revision, if necessary, in 2003 for 2004-2006) in line with Community inflation.

The initial financial programming was based on the annual allocations in the financial perspective for all the Funds and corresponds to the financing plans in the programming documents initially adopted.

3. COMMITMENT AND PAYMENT PROCEDURES

3.1. Commitment procedure

The budget commitments, made in annual tranches, are based on the initial or revised financial plans in the programming documents. The first annual tranche is committed when the Commission approves the decision relating to the operation.

The Commission then commits the annual tranches by 30 April of each year and automatically decommits any commitments not used within two years.

3.2. Payment procedure

The Commission makes a payment on account amounting to 7 % of the total contribution from the Structural Funds once the programme is adopted. This payment may be subdivided over two budget years. The payment on account will have to be reimbursed if no expenditure is declared within 18 months. The Commission then makes interim payments to reimburse actual expenditure certified by the Member State. The balance of 5 % is paid on the closure of the programme once all the documents required are submitted and approved by the Commission.

Payments are posted to the earliest open commitment.

COMMENTS ON THE CONSOLIDATED STATEMENTS ON THE IMPLEMENTATION OF THE BUDGET FOR THE FINANCIAL YEAR 2001

1. Advances, payments on account and final payments

The amended proposal for a Financial Regulation draws a distinction between four different types of payment:

- payment of the entire amount due,

- prefinancing, which may be divided into a number of payments,

- interim payments,

- payment of the balance of the amounts due.

A distinction must be made in the accounts between these different types of payment at the time they are made; this will have the advantage of removing any uncertainty about the payment.

The Commission will adapt its accounting system when this proposal is finally adopted.

Until then, it has presented the information as in the annual accounts for the previous financial year.

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2. Appropriations relating to contributions by third parties

Appropriations carried over from the previous financial year in respect of contributions by third parties, which by definition never lapse, are included with the additional appropriations for the financial year. This explains the difference between carryovers from the previous year in the 2001 budget implementation statements and those carried over to the following year in the budget implementation statements.

3. 2001 budget outturn

The appropriations for re-use and appropriations made available again following the repayment of payments on account are disregarded when calculating the outturn for the year.

Total budget revenue for the year comes to EUR 95681018503,82 after the costs incurred by the Member States in the collection of own resources (EUR 1391761486,91) are taken into account. Total budget expenditure comes to EUR 82197431606,82 when the negative expenditure under EAGGF Guarantee (EUR 2804019125,79) is taken into account.

The EFTA-EEA appropriations carried over from 2001 to 2002 could not be included in the 2001 balance as this occurred after the closure of the budget implementation statements for 2001.

The payment appropriations carried over which lapse have been increased by the appropriations corresponding to contributions by third parties carried over from 2001 to 2002 (EUR 330125378,03) as these appropriations are included with the appropriations for the financial year.

(1) Appropriations for commitment = commitment appropriations + non-differentiated appropriations.

(2) Appropriations for payment = payment appropriations + non-differentiated appropriations.

(3) Commitment appropriations + non-differentiated appropriations.

(4) Payment appropriations + non-differentiated appropriations.

(5) Article 7 of the Financial Regulation.

(6) ERDF: European Regional Development Fund.

ESF: European Social Fund.

EAGGF: European Agricultural Guidance and Guarantee Fund.

FIFG: Financial Instrument for Fisheries Guidance.

ANNEX 3

EXPLANATORY NOTES TO THE BALANCE SHEET

COMMENTS ON THE CONSOLIDATED BALANCE SHEET FOR THE FINANCIAL YEAR 2001

1. Establishment of the balance-sheet

The balance-sheet is drawn up in accordance with:

- the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities, as last amended by Council Regulation (EC) No 762/2001 of 9 April 2001 (OJ L 111, 20.4.2001) as regards segregating the internal audit function from the ex ante financial control function;

- Commission Regulation (EC) No 3418/93 of 9 December 1993 laying down detailed rules for the implementation of certain provisions of the Financial Regulation (OJ L 315, 16.12.1993), as last amended by Regulation (EC) No 1687/2001 of 21 August 2001 (OJ L 228, 24.8.2001);

- Commission Regulation (EC) No 2909/2000 of 29 December 2000 on the management in the accounts of the non-financial fixed assets of the European institutions (OJ L 336, 30.12.2000);

- Accounting and consolidation manual of the European Communities, drawn up by the Commission, setting out the rules on evaluation and accounting methods to be applied by all the institutions 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.

2. Adjustment of the opening balance-sheet

The balances at 31.12.2000 for some items set out in the Commission's financial statements for 2001 have been changed by comparison with those in the financial statements for 2000.

The balance-sheet total is EUR 212 million lower, mainly because of adjustments to the financial statements for the ECIP(1) programme and the NCI(2).

The opening balance-sheet has been adjusted as follows:

- For ECIP, loans and participations has been recalculated and amounts deducted from "Sundry debtors" and "Amounts available" as they were already recorded under other items;

- As regards the various borrowing and lending instruments, "provisions" have been reclassified as "reserves" as the amounts concerned are in fact reserves for future liabilities which arise during allocation of the surplus.

To reflect the real economic situation, the Commission's assets and liabilities vis-à-vis the EIB have also been reclassified in a transitional account on the liabilities side;

- For loans from risk capital, the balance at 31 December 2000 has been adjusted.

More detailed explanations are provided in the specific financial statements for each instrument and programme concerned (see Volume II - Part II).

Presentation of Item I (Own capital) on the liabilities side of the balance-sheet has been improved. The outturn of the year's borrowing and lending activities is now presented in Item I.A.3.

ASSETS - CONSOLIDATED BALANCE-SHEET

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LIABILITIES - CONSOLIDATED BALANCE-SHEET

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3. Adjustment of the European Communities' system of own resources

The Council Decision of 29 September 2000 on the system of the European Communities' own resources(3) was adopted following the Berlin European Council of 24-25 March 1999.

Article 2(3) of this Decision states that Member States shall retain, by way of collection costs, 25 % of traditional own resources instead of 10 %.

This Decision was to enter into force on the first day of the month following receipt of the last of the notifications from the Member States of the completion of the procedures for the adoption of this Decision in accordance with their respective constitutional requirements.

The Secretary-General received the last notification on 5 February 2002 and the decision thus entered into force on 1 March 2002. The decision was backdated to 1 January 2001.

The 2002 budget must therefore be recalculated and adjustments must be made for 2001.

No correction has been made to the accounting statements for 2001. In view of the principle of budget equilibrium, the outturn for the year is not affected.

ASSETS

II. INTANGIBLE FIXED ASSETS

Intangible fixed assets are identifiable non-monetary assets without physical substance. To be entered on the assets side of the balance sheet, they must be controlled by the institution and generate future economic benefits for the European Communities.

Computer software developed within the institutions does not constitute an intangible fixed asset.

For the first time the Joint Research Centre has entered the computer software of the Geel, Ispra, Petten and Seville sites in the balance sheet with a net book value of EUR 0,18 million. The scientific software at the Karlsruhe site has always been listed in the inventory with the system in which it is installed, while the entry of the administrative software in the inventory and balance sheet is planned for 2002.

DG RELEX has deducted the computer software in the delegations which is not covered by a site licence or acquired under a large account contract. The net book value was EUR 0,1 million.

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III. TANGIBLE FIXED ASSETS

A. Land and buildings

Joint Research Centre:

The value of the land and buildings of the JRC at Geel is based on the same method of evaluation and calculation of depreciation as that applied by Ispra in 2000.

In the absence of historical data on the costs of acquisition and the costs of annual improvements before 1998, the value is based on an evaluation conducted by an outside firm at 31 December 1997. The changes which occurred during the period 1998-2000 could be calculated.

The method of depreciation is as follows:

1. For buildings which had been depreciated in full at 1 January 1998, a new depreciation plan was fixed.

2. For buildings which had not been depreciated in full at 1 January 1998, depreciation was calculated over their residual life having due regard to the revalued value at 1 January 1998.

Delegations:

In some developing countries the value of the land cannot be distinguished from the value of the building.

European Parliament:

In May 1998 Parliament invoked its purchase option in respect of a complex in Brussels (consisting of three buildings) for which the final investment cost (not including land) came to EUR 1097 million.

In two memoranda of understanding with the European Communities dated 23 July 1998, Belgium made a contribution to the purchase of the land and the development and construction costs for the third building. One clause in the memorandum stipulates that, if Parliament moves to other premises, the land will be returned to the Belgian State for EUR 0,025 or for its market value. An adjustment has therefore been made for the value of the land, which is now entered in the balance sheet at EUR 0,025.

Council:

In the balance-sheet at 31.12.2001, the Council transferred the value of the Justus Lipsius building from the item "Fixed assets under construction and advances" to the item "Land and buildings".

The building has been depreciated for the first time since it was occupied in 1995. The total figure comes to EUR 95 million, of which EUR 81 million is for the period between 1995 and 2000 and EUR 14 million forms part of the amount allocated for depreciation in 2001.

B. C. D. Fixtures and fittings, machinery and tools

Furniture and vehicle fleet

Computer equipment

In the course of 2001 the five JRC sites and the Commission's representations in the European Union switched from the old to the new nomenclature of Commission assets, leading to a number of transfers between items.

The physical inventory began in Geel and Seville in 2001, but will have to be continued in 2002. This will be conducted in Petten and Karlsruhe in the course of 2002. In Petten, not all assets could be entered in the inventory in 2001.

DG ADMIN has broken down assets by type rather than the management centre to which they belong as in previous years. The necessary adjustments are shown in the "Adjustments" line in Table III - Tangible fixed assets.

In 2001 DG PRESS depreciated assets held by the Commission's representations in the "Fixtures and fittings, machinery and tools" item for the first time. This depreciation came to EUR 1,4 million, of which EUR 0,1 million was for 2001. In previous years, assets were not depreciated in the year they were put into service; this was corrected in 2001.

E. Leasing, financing and similar entitlements

The criterion for the classification of property covered by leases as fixed assets is based on the extent to which the risks and rewards incident to ownership of the leased asset lie with the lessor or the lessee and depends on the transaction rather than the form of the contract(4).

Assets covered by a finance lease which does not transfer substantially the risks and rewards incident to their ownership to the lessee and assets covered by a lease of over five years are entered in the annex to the financial statements in the chapter for off-balance-sheet commitments.

On 15 November 1994 the Court of Justice signed a lease contract with the Luxembourg Government for three annexes of the Palais building. The Court will rent the buildings for the whole term of the agreement and will be able to exercise the purchase option once the selling price has been paid in full; at the latest this will be on 31 December 2015. The selling price is determined by an independent expert.

These buildings have been entered on the assets side of the balance sheet and the charges to be paid, recorded on the liabilities side, are estimated at EUR 47,19 million on the basis of a valuation by the independent expert. This figure is provisional as negotiations are still under way after certain construction defects were noted.

The value of the three annexes was adjusted in 2001 with deductions of EUR 3 million for fees and other charges paid up to 2000 and EUR 0,26 million in respect of the value of a road by-passing the building.

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The value of the land for the Montoyer building could not be calculated. The depreciation of EUR 3 million in 2001 (EUR 2 million for the ESC and EUR 1 million) for the CoR is thus overvalued by the amount corresponding to the depreciation of the land. The Belliard building will not be depreciated until the work in progress is accepted.

G. Fixed assets under construction and advances in respect of tangible fixed assets

The Court of Auditors has entered EUR 10 million under this item for the funds placed at the disposal of the project manager for the extension to the Court by means of a transfer to a bank account opened for this purpose. The interest produced by this account will be recorded as budget revenue.

The Economic and Social Committee has paid an advance of EUR 26 million to finance renovation of the Belliard building. This figure is included with the fees provided for in the financial leasing contract mentioned in Item E "Leasing, financing and similar entitlements".

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IV. INVESTMENTS

This heading covers equity investments made with a view to establishing permanent links and which are seen as supporting the activities of the European Communities and related amounts receivable, independent of the due date, origin or form.

It also includes permanent guarantees and advances granted and the net assets of the Guarantee Fund. A distinction should be drawn between guarantees granted by the European Community to third parties and the Guarantee Fund, which is designed to cover risks associated with loans granted to non-member countries.

A. Investments in related organisations:

European Bank for Reconstruction and Development (EBRD) subscription

The EBRD was given initial capital of EUR 10 billion, of which 3 % was subscribed by the Community. The proportion of this capital called up - 30 % - has been paid in full.

On 15 April 1996, at their annual meeting, the Bank's governors decided to double the amount of authorised capital. Under this decision, the Community has subscribed for 30000 additional shares with a face value of EUR 10000 each. This operation involves paid-in shares and callable shares in the following proportions: 22,5 % of the subscribed shares represent a full number of paid-in shares and the remainder will be callable shares.

This item covers the full amount of the Commission's subscription to the EBRD's capital which has been called up and paid. Payments outstanding on the proportion of capital called up - EUR 43,9 million - are recorded under short-term liabilities (EUR 8,4 million) and long-term liabilities (EUR 35,5 million). Payments outstanding on non-called up capital, amounting to EUR 442,5 million, are included in the off-balance-sheet commitments.

European Investment Fund (EIF) subscription

Under the Council Decision of 6 June 1994 the European Community, represented by the Commission, subscribes a total of EUR 600 million to the EIF's capital. This represents 30 % of the EIF's capital. The Commission has paid all the called-up capital, which amounts to 20 %.

As with the EBRD subscription, payments outstanding on non-called up capital (80 %), amounting to EUR 480 million, are included in the off-balance-sheet commitments.

B. Other investments:

B.1. Subscriptions and participations

This heading includes subscriptions and participations purchased to help beneficiaries develop their business activities.

ECIP programme equity

This heading covers Community contributions to the provision of equity and subordinated loan capital for joint ventures set up under the European Community Investment Partners Programme (ECIP).

Eurotech capital, Venture consort and JOP

The purpose of the Eurotech capital instrument is to encourage the private funding of transnational high-technology projects developed by small and medium-sized undertakings through a network of risk-capital investors. It covers payments since 1990 in the form of advances repayable in certain circumstances when contracts run out.

The purpose of the Venture consort instrument is to promote the transnational syndication of risk-capital operators in small and medium-sized undertakings. It covers contributions since 1985 for investments in small and medium-sized enterprises (SMEs) engaging in innovatory projects.

The purpose of the Phare-Tacis Joint Venture programme (JOP) is to foster the creation and development of joint ventures in the countries of central and eastern Europe and the new independent States.

Since all three are risk capital operations, it is very difficult to assess the real present value of the contributions. In line with the principle of prudence, a 100 % adjustment has been made for the value of these contributions, which are therefore entered in the balance sheet at zero.

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B.3. Guarantees and advances granted

This heading incorporates fixed assets not included under tangible assets, such as deposits and guarantees paid, permanent advances for building charges, the operating funds advanced to third parties and the Guarantee Fund.

Guarantee Fund

Council Regulation (EC, Euratom) No 2728/94 of 31 October 1994 set up a Guarantee Fund for external actions to repay the Community's creditors in the event of default by beneficiaries of loans granted or guaranteed by the Community.

This facility covers loans guaranteed by the Community as a result of a Council Decision, in particular EIB lending operations outside the European Union and loans under macro-financial assistance and Euratom financial assistance outside the European Union.

The Interinstitutional Agreement of 29 October 1993 on budgetary discipline and improvement of the budgetary procedure provided that the general budget of the European Communities should include a guarantee reserve to cover loans to non-member 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.

The Fund is managed by the European Investment Bank (EIB) under a mandate from the Community.

The Fund is endowed by payments from the Community budget, 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.

The entry in the assets side of the Commission's balance sheet represents the Fund's net assets at 31 December 2001.

Since the Fund may be called on to cover defaulting debtors at any time, a provision has been created for risks and liabilities in line with the principle of prudence. This provision (EUR 1266,2 million) corresponds to the target amount for the Guarantee Fund calculated on the basis of the amount outstanding at 31 December 2001(5).

The rules state that at the end of a year the surplus is to be paid back to a special heading in the statement of revenue in the general budget of the European Communities.

The Guarantee Fund surplus to be repaid to the Community budget during the first quarter of 2002 (EUR 372 million) is entered as own capital.

Guarantees and advances granted

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V. LONG-TERM ASSETS

This heading includes amounts owed to the European Community by Member States, non-member countries and third parties on loans granted for more than one year, either from borrowed funds or from budget appropriations. It also includes amounts owed by third parties under the MEDIA programme.

A. Loans granted from the budget

This item principally covers risk capital loans on special terms granted as part of cooperation with non-member countries. It also covers loans granted under the ECIP programme to promote the setting-up of investment joint ventures in Asia, Latin America, the Mediterranean region and South Africa.

Amounts granted under the MEDIA II programme are also included under this heading. As the contracts stipulate that loan repayments depend on the always uncertain success of the projects, an adjustment has been made for the loans which have been definitively converted into grants.

The item also includes other, much smaller loans granted from the budget: loans for migrant workers and building loans for Community officials.

B. Loans granted from borrowed funds

Under the EC Treaty, the Council, acting unanimously, has the power to adopt guarantee or borrowing programmes if it considers this necessary to attain the objectives of the Community. Community borrowings are direct commitments by the Community itself and not by any individual Member State(6).

As these loans are financial assets covered by borrowings, in order to give a true and fair view of the Union's assets and liabilities, financial position and results, all the operations are now set out in the form of a balance sheet and a charges and incomes account(7).

The balance sheets of these financial operations have been incorporated in the Commission balance sheet by means of full consolidation.

For the borrowing and lending operations, the yield on loans and costs of borrowings in 2001 are as follows:

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Under an agreement with the EIB, the latter bears the risks of the NCI treasury instrument. Consequently, the surplus of loan proceeds over borrowing costs is charged to the EIB.

Changes in volume of loans granted by the European Communities:

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The amounts outstanding on borrowings at 31 December 2001 are entered under long-term liabilities in the case of loans due in more than a year and under short-term liabilities in the case of loans due in less than one year. As the duration of the MEDIA loans is uncertain, the amount outstanding at 31 December 2001 is included under long-term assets.

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C. Other long-term receivables

1. Community pensions

Under Article 83 of the Staff Regulations, benefits paid under the pension scheme are charged to the budget of the Communities (Chapter A-19 (pensions and severance grants) covering all the institutions). Member States jointly guarantee payment of such benefits in accordance with the scale laid down for financing such expenditure (first subparagraph of paragraph 1).

An amount of EUR 15,3 billion payable by the Member States has been entered on the assets side of the balance-sheet for the first time; this explains the sharp rise in the 2001 balance compared with 2000.

Officials contribute one third of the long-term cost of financing the scheme by means of a compulsory levy set at 8,25 % of the basic salary (second subparagraph of Article 83(1)).

2. Financial contribution by the Belgian State

This is the contribution to the purchase and fitting-out of the D3 building for Parliament which came to EUR 176 million and which is to be paid for a minimum of ten years ending in 2008.

VI. STOCKS

The heading mainly covers the scientific and technical equipment of the Joint Research Centre. In line with the principle of prudence, the stocks of heavy water, fissile material and samples for industrial and scientific use are valued every year and entered in the balance sheet at the acquisition price or re-sale cost of the last supplies received or the market price, whichever is the lower(8).

It also includes the stocks of publications held by the Publications Office, valued according to special valuation rules. Value reductions have been made for the first time this year.

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VII. SHORT-TERM ASSETS

B. Current assets

B.2. Amounts owed by Member States

1. EAGGF GUARANTEE

This item includes amounts payable by the Member States in relation to amounts due to the EAGGF Guarantee Section (EUR 2263 million) which have been declared by the Member States and entered in the debtors ledger at the end of the year and EUR 58 million from the clearance decision of December 2001.

In accordance with the principle of prudence, the European Communities must make a provision for the part of this amount which is unlikely to be recovered. Since 2001, Member States have been obliged under Regulation (EC) No 2761/99 to submit a half-yearly statement of the amounts entered in the debtors ledger. A more precise estimate of these entitlements will then be possible.

For 2001, the value reduction has been estimated at EUR 1641 million. The fact that this adjustment is entered in the accounts does not mean that the European Communities is waiving recovery of the amounts covered by the provision.

2. VAT paid by institutions and recoverable from the Member States

This item covers the amounts due in respect of taxes paid by the institutions and recoverable from the Member States. A specific value adjustment of EUR 1,5 million has been calculated.

3. Other receivables from Member States

The figure of EUR 722,8 million represents claims on Member States which have been quantified and duly established. Estimates of amounts receivable have been recorded as a memorandum item in the Commission's accounts for other entitlements which have not yet been identified as certain, of a fixed amount and due. They are shown in Table 3.

The heading also includes own resources - this year totalling EUR 2119,4 million - which, under Article 6(2)(b) of Regulation (EEC) No 1552/89, are established by the Member States but not made available to the Communities as they have not yet been recovered or guaranteed or because they have been challenged. This figure overestimates the Communities' actual entitlements since the separate account for traditional own resources largely consists of amounts where actual recovery is very doubtful.

However, it is very difficult to make a precise calculation of the impact of this overestimate since detailed information on the possibility of recovering these receivables is very scarce and fragmentary. In accordance with the principle of prudence, a value adjustment of EUR 1581 million has been estimated on the basis of previous years' recovery statistics (EUR 1055 million) and examination of individual cases (EUR 526 million). This value adjustment has been deducted from the item for receivables from Member States on the assets side of the balance sheet.

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Table 1

ACCOUNTS: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END-2001

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Table 2

SEPARATED ACCOUNTS: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END-2001

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Table 3

ESTIMATES OF AMOUNTS RECEIVABLE AT END-2001

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B.3. Amounts owed by Community bodies

This heading contains various amounts owed to the European Communities by Community bodies not covered by the scope of consolidation, for which the institutions pay certain expenditure, which will subsequently be repaid.

B.4. Sundry debtors

This item covers amounts owed as a result of the activities of the European Communities, including:

1. The recovery orders entered in the revenue accounts at 31 December 2001 as established entitlements outstanding.

A value adjustment has been entered for irrecoverable entitlements still to be determined. Entitlements due for more than one year are written down by 20 %. A further cut of 20 % is made for each additional year.

2. Unpaid fines imposed by the Commission for infringements against competition rules (EUR 28 billion). After the decision to impose a fine, the debtor has e months from the date of notification:

- either to accept the decision, in which case he must pay the fine within the time limit laid down and the amount is definitively collected by the Commission;

- or not to accept the decision, in which case he lodges an appeal under Community law. However, the principal of the fine must be paid within the time limit laid down as the appeal does not have a suspensory effect (Article 242 of the EC Treaty). In this case, the debtor has two options: he can present a bank guarantee or pay the fine provisionally.

As regards fines still outstanding at 31 December 2001, EUR 338,5 million had been collected provisionally and bank guarantees had been presented to cover EUR 731,6 million(9).

3. All debtors owing sums resulting from loans paid from borrowed funds.

4. At 31 December 2001, the Guarantee Fund no longer registered any default on loans guaranteed and had recovered all its debts from third parties (including interest on late payment).

5. Amounts paid to financial intermediaries but not yet transferred to the final beneficiary. This item includes advance payments from the budget to public or private intermediaries selected by the Commission to carry out the management or forward these payments to the final beneficiaries, either because of provisions contained in the regulations or as a result of contractual provisions. This amount - EUR 980 million (including bank interest of EUR 73 million) - thus corresponds to the funds held by the intermediaries at 31 December 2001.

As the procedure followed was of a non-accounting nature and given the number and geographical spread of the intermediaries, the amount entered in the balance sheet may not be complete. However, the improvement on the information for 2000 should be noted.

Total value adjustments on current assets break down as follows:

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C. Sundry receivables

Basically, this item covers amounts owed to the institutions by its staff, in particular advances on salary and other sums to be recovered.

VIII. CASH INVESTMENTS

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IX. DISPOSABLE ASSETS

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This heading covers all the funds which the Commission keeps in its accounts in each Member State and EFTA country (treasury or central bank), in current accounts and imprest accounts, petty cash and the proceeds of loans made from borrowed funds and loans granted to improve housing conditions for migrant workers.

Funds totalling EUR 1,6 million kept in current accounts with two banks outside the Community which have gone bankrupt will probably prove irrecoverable. As a result, and in accordance with the principle of prudence, an adjustment has been made for these accounts and entered on the assets side (reducing the value of the "Imprest accounts" heading).

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X. TRANSITIONAL ACCOUNTS

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As the payment appropriations carried over are already contained in the result for the financial year, only the expenditure to be charged to the appropriations carried over are included in this item. Other miscellaneous expenditure still to be booked, i.e. expenditure which could not be finally booked before 31 December 2001, is now included with the result of the adjustments and is not covered by this item.

LIABILITIES

I. OWN CAPITAL

The own capital item now consists of:

A. The economic outturn for the financial year:

1. Outturn of the budget

2. Result of adjustments

3. Result of borrowing and lending activities

B. Outturn carried over from previous financial years:

This covers only the cumulative outturn of economic adjustments given that the budget outturn is repaid to the Member States and that the result of borrowing and lending activities is transferred partly to the reserves and partly to the Commission's budget revenue.

C. Reserves:

1. The revaluation reserve comprises the durable revaluations of tangible and intangible fixed assets.

2. The reserve for borrowing and lending activities comprises a special reserve set up in previous years to cover future liabilities resulting from borrowing and lending activities.

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II. PROVISIONS FOR LIABILITIES AND CHARGES

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Lending to third countries

In view of the risks involved in lending to third countries, a provision for risks and liabilities has been set up for the net assets of the Guarantee Fund, not including the surplus funds to be repaid to the general budget in the first quarter of 2002 (see note IV.B.3 on the assets side).

Decommissioning of JRC nuclear facilities

In 2000, a provision for the decommissioning of the JRC nuclear facilities was decided for the closed facilities. The amount for facilities which are still in operation has been included with off-balance-sheet commitments as not all the information needed to calculate the provision is known.

In 2001, a more reliable estimate of the cost of decommissioning was possible. The provision is based on a specific detailed calculation at 31 December 2001 using the technological information and experience available.

At 31 December 2001 the total cost of decommissioning the JRC nuclear facilities was estimated at EUR 570 million, broken down as follows: EUR 190 million for facilities still in operation and EUR 380 million for facilities which have closed (of which EUR 6 million has already been paid). In view of these amounts, the provision came to EUR 564 million at the end of 2001.

Pensions

The rules governing the Community pension scheme are laid down in the Staff Regulations of Officials of the European Communities, in particular Chapter 3 (Pensions) of Title V (Emoluments and social security benefits of officials) and Annex VIII (Pension scheme). They are directly applicable in all the Member States.

The scheme covers different types of pension (retirement, invalidity, survivor's) and the payment of family benefits.

Under Article 83 of the Staff Regulations, benefits paid under the pension scheme are charged to the budget of the Communities (Chapter A-19 (Pensions and severance grants) covering all the institutions). Member States jointly guarantee payment of such benefits in accordance with the scale laid down for financing such expenditure (first subparagraph of paragraph 1).

Officials contribute one third of the long-term cost of financing the scheme by means of a compulsory levy set at 8,25 % of the basic salary (second subparagraph of Article 83(1)).

In previous years, pension rights were mentioned in the off-balance-sheet commitments (point 8).

For the 2001 financial statements, it was decided to enter a provision on the liabilities side of the balance sheet for the estimated calculation of pension rights.

The calculation of the estimate of total pensions liabilities (in line with the financing provided for in Article 83 of the Staff Regulation) is consistent with standard IAS19, an international accounting standard which requires the employer to determine his actuarial commitment on a going concern basis, reflecting service-prorated benefits and taking into account foreseeable salary increases.

The actuarial valuation method used to calculate this liability is known as the projected unit credit method (or accumulated entitlements method).

The estimate of total pension liabilities is based on an actuarial study using the figures at 31 December 1997, but adjusted to 31 December 2001 in line with the additional entitlements acquired in 1998, 1999, 2000 and 2001.

The liabilities cover the pension rights of the following persons:

1. Staff in active employment at 31 December 2001 in all the institutions and agencies covered by the Community pensions scheme;

2. Persons receiving a retirement pension;

3. Persons receiving a survivor's pension;

4. Orphans;

5. Persons receiving an invalidity pension;

6. Members and former Members of the Commission.

The actuarial calculation is based on standard IAS 19 and, in particular, the following parameters:

1. Updated mortality tables;

2. Calculation interest in accordance with standard IAS 19: 3,35 % compound;

3. Closed-group model (participants at 31 December 2001);

4. Application of the principle of married staff in active employment, without taking orphans' pensions into account;

5. The marital situation of persons no longer at work, taking orphans' pensions into account;

6. Elimination of the effect of the weighting, inflation or general revaluation of salaries/pensions;

7. Average salary progression of around 2 %;

8. A pensionable age of 60;

9. The statistics on early retirement and invalidity are based on current data.

The calculations of gross pensions and family allowances are based on the provisions of the Staff Regulations.

In accordance with accounting standard IAS19, the actuarial commitment has been calculated on the basis of a real rate of interest of 3,35 % (the rate at 31.12.2001) and comes to EUR 15,3 billion (including EUR 0,04 billion for the members). If the 1998 rate of 2,5 % had been used, the figure would have been EUR 17,7 billion (including EUR 0,04 billion for the members).

In 2001 the servicing cost comes to EUR 0,7 billion (real interest 2,5 %) and the nominal interest calculated on the actuarial commitment comes to EUR 0,8 billion (nominal interest 4,75 %).

With a 3,82 % rate over 20 years (and a constant real interest rate of 3,9 % for the period up to 1998 as proposed by KPMG), the commitment would be EUR 14,2 billion.

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III. LONG-TERM LIABILITIES

This heading includes liabilities due in more than one year.

Financial liabilities include liabilities contracted by the European Communities under borrowing and lending activities(10).

"Other long-term liabilities" includes all other liabilities whose amounts are known and whose duration is more than a year.

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Staff funds: This heading covers the unemployment fund for temporary staff at all the institutions and the welfare fund for Commission local staff in non-member countries.

Deposits and guarantees received: These are sums deducted as guarantees for the payment of construction work and the guarantee accounts for accounting officers, assistant accounting officers and imprest administrators.

Leasing: This heading contains leasing debts due in more than one year.

EBRD subscriptions: the part of the subscription called in (see note IV.A - Assets).

Other: As it has invoked its purchase option for a building, Parliament must repay the cost of investment (see note III.A - Assets).

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The amounts outstanding on borrowings at 31 December 2001 are entered under long-term liabilities in the case of loans due in more than a year and under short-term liabilities in the case of loans due in less than one year. The debt from borrowings is guaranteed by the Community budget.

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IV. SHORT-TERM LIABILITIES

A. Long-term liabilities falling due in less than one year

This heading includes borrowings which fall due for payment in less than one year's time, long-term leasing debts falling due within the year, subscriptions to EBRD capital and the purchase of Parliament's building complex (see table below).

B. Other financial liabilities

This item covers payments booked to the budget in 2001 but only effected by the accounting officer between the closure of the accounts and 15 January 2002 (Article 6 of the Financial Regulation).

C. Current liabilities

C.1. Member States and EFTA countries

This heading covers amounts owed to EFTA countries belonging to the EEA.

C.2. Community bodies

This item covers amounts owed by the institutions to certain Community bodies which do not come within the scope of consolidation.

C.3. Appropriations to be carried over

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C.4. Sundry creditors

This item covers debts arising from the activities of the European Communities and non-budget recovery orders.

D. Other liabilities

These are mainly amounts owed to staff and revenue to be transferred to various organisations or other third parties.

V. TRANSITIONAL ACCOUNTS

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This item comprises revenue not booked, i.e. revenue which could not be definitively booked to the budget before the close of the year and revenue available for re-use. It also includes accrued interest on borrowings and swaps.

The entitlements for re-use still to be recovered are included under this item as they can be re-utilised. Entitlements from the repayment of payments on account are now included in the result of adjustments in view of the low rate of re-use.

This item also covers conversion gains on currency items, not including cash assets.

(1) ECIP: European Community Investment Partners.

(2) The NCI is a borrowing and lending instrument.

(3) OJ L 253, 7.10.2000.

(4) This item is based on IAS 17 of the International Accounting Standards Committee.

(5) The target amount corresponds to 9 % of the amount outstanding.

(6) Detailed tables on these loans appear in Volume II.

(7) The balance sheets, charges and incomes accounts and changes in the volume of loans relating to financial activities under this heading are shown in detailed tables contained in Volume II.

(8) With the exception of the Petten research centre where the fissile material has been valued at the cost of the last purchase.

(9) See point 11 of Annex 4: Off-balance-sheet commitments.

(10) Detailed tables on borrowing are to be found in Volume II.

ANNEX 4

OFF-BALANCE-SHEET COMMITMENTS

POTENTIAL DEBTS AT 31 DECEMBER 2001

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All these potential debts with the exception of those entered under points 4.1 and 6 will have to be financed from future Community budgets if they fall due. The Community budget is financed by the Member States. The commitments in respect of pensions and the cost fo decommissioning Joint Research Centre facilities are entered under "Provisions" on the liability side of the balance-sheet.

POTENTIAL ASSETS AT 31 DECEMBER 2001(1)

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EXPLANATORY NOTES

OFF-BALANCE-SHEET COMMITMENTS - POTENTIAL LIABILITIES AND ASSETS

In order to improve the financial information of the European Communities, off-balance-sheet commitments are included in the annex to the financial statements. These are commitments made or received which could be of considerable budgetary significance in the medium or long term.

POINT 1: OUTSTANDING COMMITMENTS (RAL)

Commitments against differentiated appropriations still outstanding at 31 December 2001 totalled EUR 86,8 billion of which EUR 0,9 billion is covered by carryovers of payment appropriations from 2001 to 2002. This is the maximum potential commitment.

The overall amount of outstanding commitments has been tending to grow over the last ten years, most of the increase being linked to the increase over the same period in commitment appropriations and corresponding to the deferred completion of the operations covered by the budget commitments. These normal outstanding commitments are the direct and legitimate consequence of the implementation of the Community budget.

In a joint declaration of 20 November 2001, the Commission, Parliament and the Council, all three of whom wished to contain the amounts still to be cleared and eliminate "abnormal outstanding commitments" in the medium term, stressed the fact that abnormal outstanding commitments could be reduced not only by increasing the appropriations for payments, but also by making greater use of decommitment. Potentially abnormal outstanding commitments were defined in this declaration, by common agreement, as consisting of dormant commitments for which no payment had been made over the past two years and old commitments entered in the budget for at least five years.

As a result of this Declaration, the Commission has undertaken to present, along with the preliminary draft budget for 2003 at the latest, an action plan providing for the examination of all potentially abnormal cases entered at the start of the 2002 budget year. This plan will consist of the following elements for each of the lines contained in the annex to the Declaration:

- the number of potentially abnormal cases at 31 December 2001, together with the corresponding amounts;

- the number of cases examined over the previous twelve months;

- for the other cases, an examination schedule for the following dates:

- 30 April 2002;

- 31 August 2002;

- 31 December 2002;

- 30 April 2003.

On each of these dates, the budgetary authority will be informed of the findings of this examination and the decisions taken in respect of these cases: payments, closure, decommitment and specific follow-up.

A working paper on changes in the level of both normal and abnormal commitments outstanding in each heading will then be sent every year to the budgetary authority together with the preliminary draft budget. This paper will also describe the measures taken by the Commission to avoid the recurrence of abnormal outstanding commitments. It would therefore seem possible to start bringing under control, by the end of 2003, the abnormal component of outstanding commitments and to keep the budgetary authority regularly informed of the progress made.

Finally the proposed recasting of the Financial Regulation should introduce strict arrangements for monitoring old and dormant commitments.

The calculation of potentially abnormal outstanding commitments for the main areas concerned at 31 December 2001 was:

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This initial calculation shows that the abnormal component of outstanding commitments amounts to almost EUR 11,7 billion, but is still low compared with total outstanding commitments and is divided unevenly between the headings of the financial perspective. Two thirds of all outstanding commitments, and of potentially abnormal outstanding commitments, are accounted for by the Structural Funds. The measures to reduce abnormal outstanding commitments are concentrated on the Structural Funds and on external action.

POINT 2: LEGAL COMMITMENTS WITHOUT A BUDGET COMMITMENT

These potential debts originated because the Commission decided to enter into commitments in respect of amounts that were not covered by commitment appropriations in the budget.

Under the Interinstitutional Agreement and, more generally, the rules relating to the budget, the following expenditure must be recorded as off-balance-sheet commitments in view of the volume of financial commitments which arises.

- The Structural Funds and the Cohesion Fund represent expenditure targets and the whole allocation shown in the financial perspective is thus intended to be matched by decisions. As a result, potential commitments are evaluated at a maximum (points 2.1 and 2.2).

A second more binding level of commitment arises once there is a legal decision for each programme or project (see table below).

- ISPA: In itself, the ISPA Regulation does not lead to off-balance-sheet commitments as it does not provide for an annual allocation or even a total allocation. This is determined every year by the budgetary authority in line with the financial perspective. The ceilings in heading 7 (pre-accession) are not expenditure targets and the Interinstitutional Agreement allows a degree of flexibility between the various pre-accession instruments. On the other hand, ISPA generates potential debts in connection with the individual projects which involve a number of annual tranches of which only the first is covered by a budget commitment when the decision is adopted (point 2.3).

- Commitments entered into with specified third parties for certain operations outside heading 4, relating to specific amounts over a fixed period (points 2.4 to 2.6).

The other multiannual programmes do not contain any commitments to be included under potential debts: expenditure in future years is conditional on the annual decisions by the budgetary authority or changes in the rules concerned.

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Legal commitments not followed up by a budget commitment total EUR 144098 million and correspond to the difference between the value of the programmes adopted by the Commission at 31 December 2001 and the amount of budget commitments entered into in respect of these programmes in 2000 and 2001.

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POINT 3: EAGGF GUARANTEE

3.1. Expenditure between 16 October 2001 and 31 December 2001

In the case of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund, the payments are those effected by the Member States between 16 October 2000 and 15 October 2001, provided that the accounting officer was notified of the commitment and authorisation by 31 January 2002. Payments made by Member States between 16 October and 31 December 2001 are included in the off-balance-sheet commitments.

3.2. Clearance of accounts

Potential liabilities towards the Member States connected with the clearance procedures. The determination of the final amount of the liability and the year in which it will be charged to the budget will depend on the length of the procedure before the Court of Justice.

POINT 4: REPAYMENT GUARANTEES

4.1. Loans granted by the EIB to third countries from its own resources

As formulated, the guarantee legally covers the loans signed by the EIB at 31 December 2001 (including loans granted to three Member States before accession). However, it should be noted that these loans have not been fully paid out. At 31 December 2001 the amount paid out totalled EUR 13770 million (EUR 13736 million when the countries which have become Member States are excluded) and this, therefore, is the amount of the risk incurred by the Union. Of the EUR 19 363 million paid out up to 31 December 2001, EUR 5593 million has already been repaid.

The loans granted by the EIB from its own resources to third countries are covered by the Community budget guarantee as follows:

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Third-party guarantees have been obtained for the loans granted by the EIB covered by the Community budget guarantee (EUR 19363 million).

4.2. Signed by the EIF

At 31 December 2001 the EIF had signed guarantees totalling EUR 2789,6 million; this represents a maximum potential risk of EUR 836,9 million for the European Community. As the Community contributes a total of EUR 600 million to the capital of the EIF, the latter might, in the worst possible scenario, have to repay EUR 2236,9 million. The proportion of the capital subscribed by the European Community which has not been called up (80 %, amounting to EUR 480 million) is also included in the off-balance-sheet commitments as a potential liability (point 9).

4.3. Loans granted under borrowing and lending activities

The Community has received guarantees from third-party guarantors in respect of guarantees it has granted on loans under its borrowing and lending activities. The guarantees received may be classified as follows:

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The Community has not received third-party guarantees for loans granted under the financial assistance scheme. However, these loans, totalling EUR 1614 million, are guaranteed by the Guarantee Fund.

POINT 5: LONG-TERM LEASES

5.1. Buildings

This heading covers buildings occupied under a long-term leasing contract (with an initial term of more than five years) which do not meet the conditions for entry on the assets side of the balance sheet. The amounts indicated correspond to commitments still to be paid during the term of the contract, except for the Court of Justice's Palais building, which is occupied under an indefinite lease, here, the amounts correspond to the annual rent.

The total for rented buildings breaks down as follows:

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The Commission figure includes property tax of EUR 5,9 billion.

In accordance with the framework contract relating to the construction of one or more extensions to the building of the Court of Auditors, signed on 15 December 1999, the Luxembourg State undertakes to grant the Court a building lease on the land for the first extension at the price of EUR 1 (one) for a period not exceeding 49 years. Any further building leases on other land needed for the other extensions must not exceed the expiry date of the building lease granted for the first extension.

The Luxembourg State also undertakes to sell the land at any time at the market rate determined by a joint expert opinion.

For its part, the Court undertakes to do all it can to purchase the land from the Luxembourg State. It will ask the budgetary authority for the necessary funds.

Because of an administrative delay, the Luxembourg State has not yet followed up its commitments of principle.

POINT 8: CONTRIBUTIONS TO RELATED ORGANISATIONS

Potential debts due to contributions to related organisations.

This sum represents payments outstanding on non-called-up capital subscribed by the Commission to the EBRD and the EIF:

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POINT 9: OTHER POTENTIAL COMMITMENTS

Brussels Capital Region tax

In 1993 the Brussels Capital Region introduced a tax on office workers. The Commission asked the regional authorities about its exemption under the Protocol on privileges and immunities. The initial reply given was favourable.

However, this position was reversed as a result of legal procedures brought by the owners of some of the buildings occupied by the Commission. The Commission might therefore have to pay this tax.

POINT 10: RENOVATION OF THE BERLAYMONT BUILDING

A memorandum of understanding was signed between the European Community, the Belgian State and SA Berlaymont 2000 on 8 July 1997 with the following stipulations:

- The Belgian State would finance the cleaning up of the Berlaymont (removal of asbestos) at a total cost of EUR 89 million;

- As soon as the new Berlaymont building was available, the European Community would reimburse the cost of investment consisting of the value of the building before renovation (a flat-rate EUR 49 million) and the cost of renovation (estimated at EUR 325 million);

- The investment costs are to be reimbursed by the Community in the form of an annual leasehold charge at market conditions for 27 years (estimated at EUR 27 million a year);

- The date for the building's return to service was fixed as a non-binding indication at 30 June 2000.

The Commission is now seeking to update the 1997 memorandum of understanding to fix a ceiling for the renovation costs it must cover and a fixed date for the building's return to service.

A memorandum of understanding was signed between the Commission and the Belgian State on 17 July 2001. This memorandum stipulates that an agreement is to be signed setting a firm maximum price for the Commission to pay and a firm date for the building's return to service. The figure of EUR 374 million could be increased in line with the updating of the programme of requirements laid down for the Berlaymont building in 1997.

POINT 11: FINES

As the fines imposed by the Commission for infringement of competition rules are entered in the result for the financial year, it has been decided, in accordance with the principle of prudence, that fines for which an appeal has been lodged(2) should be included as a potential liability in the off-balance-sheet commitments pending a decision by the Court of Justice. This potential debt will be maintained until a decision which acquires the authority of a final decision. (see explanatory note to the balance sheet - assets VII b.4 -)

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Debts and claims:

The following table, classified by year of Commission decision, shows all the cases involving fines which were still pending at 31 December 2001.

This means that:

1. It does not show cases completely settled by that date.

2. Cases for which there has been a final judgment but which still have to be finalised for various reasons have been removed from this table.

In view of the complicated nature of these cases, the number of companies involved and the possible options, this table cannot reflect historical developments over a number of years. It therefore merely gives the current situation for each case pending in relation to the Commission's initial decision.

The "Miscellaneous" heading contains a number of amounts which, for various reasons, cannot be recovered or have not yet been recovered. They include:

- appeals by the Commission against a ruling by the Court of First Instance cancelling the fines. The Commission appeal is not covered by a bank guarantee or provisional payment;

- debtors who are bankrupt or under judicial administration and for whom a legal procedure is still ongoing;

- fines in the course of recovery, the case being still pending;

- fines imposed in 2001 but not due until 2002, where the level is particularly high as most of the decisions were taken in the final quarter of 2001.

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N.B:

Fines still pending are shown in italics.

POINT 12: FRAUD AND IRREGULARITIES

Structural operations:

The table below is based on the formal reports submitted by the Member States in accordance with Regulation (EC) No 1681/94, with amounts being broken down by Member State. The tables show the difference between amounts identified by the Member States as still to be recovered (calculated on the basis of established entitlements or estimates) and amounts already recovered or declared irrecoverable.

Potential assets linked to fraud and irregularities

Cases reported in accordance with Regulations (EC) No 1681/94 and (EC) No 1831/94 (Structural operations)

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N.B.

Where these amounts are actually recovered, they may be reprogrammed and used to finance other projects under a programme not yet completed.

The figures given in this table represent a theoretical maximum rather than the amounts which will actually be made available to the Community budget, for the following reasons:

- The Member States do not always report the results of their recovery operations (and certainly not promptly).

- Although Member States must inform the Commission of the likelihood of recovery, it is impossible to determine exactly what proportion of the amounts still to be recovered will actually be recovered. National laws sometimes provide for a 30-year limitation period, which may well make the national authorities think twice about formally writing off the debt even if the chances of recovery are only theoretical. For structural operations, Member States must now send the Commission once a year a statement of the amounts awaiting recovery (Article 8 of Regulation (EC) No 438/2001) to give a better picture of the actual situation.

- Even if the Member State concerned launches recovery proceedings in time, a positive outcome is not guaranteed. This is particularly true where recovery orders are contested in the courts.

- Individual projects are co-financed as part of multiannual programmes. As long as a multiannual programme has not been closed, it is impossible to put an exact figure on the amounts to be recovered because the sums involved in irregularities may, in certain circumstances, be reallocated to other, legitimate projects and because payment by instalments, in particular final payments, can sometimes be used as a means of adjusting expenditure. The figures in these tables are provisional figures based on the reports received and processed up to the end of March 2002. These figures may therefore be changed in line with further reports arriving late.

The prospects of recovery in individual cases cannot be assessed with sufficient accuracy from the information forwarded by the Member States. The Commission will be able to draw conclusions, probably from next year onwards, after closure of the programmes for the period 1994-1999.

On the date when the revenue and expenditure account was drawn up, the annual report on the fight against fraud for 2001 had not yet been adopted.

Agriculture - EAGGF Guarantee:

As regards entitlements resulting from the establishment of fraud and irregularities involving EAGGF Guarantee reported by the paying agencies in accordance with Regulation (EC) No 595/91, EUR 1952,6 million has been entered as amounts receivable from Member States on the assets side of the balance-sheet. Notification of this information has been made obligatory for 2001. This explains the considerable difference between the statement for 2000 (EUR 0,97 million) and that for 2001.

The Member States must also report cases of fraud and irregularities to the Commission. However, the figures available when the accounts closed did not reveal any potential entitlements apart from those already entered on the assets side of the balance sheet. In accordance with the principle of prudence, no potential entitlements have been entered in the off-balance-sheet commitments.

POINT 13: AGRICULTURAL STOCKS

The situation as regards stocks was carried forward to 30 September 2001 and the additional depreciation entered.

The expected selling prices for products from public stocks might change in line with the market situation. The situation update of market prices in February 2002 shows a potential gain of EUR 148,72 million compared with the year-end.

The expected development of cereal prices accounts for 56,5 % of the total increase. The partial recovery of the beef market accounts for 30,7 % of the increase. These two sectors make up 87,2 % of the potential gain.

At 30 September 2001, there was a net potential gain of EUR 148,72 million for the disposal of agricultural stocks.

VOLUME, BOOK VALUE, FORESEEABLE SALES, VALUE OF STOCKS AND POTENTIAL LOSSES/GAINS

AT 30. September 2001

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(1) Once these assets (with the exception of those entered under points 4 and 6) are certain of a fixed amount and due, they will be added to budget revenue for the year in which they are collected. They will thus increase the budget outturn earmarked for the Member States.

(2) Even if the appeal for fines imposed in 2001 was made in 2002 before the closure of accounts.