Definitive annual accounts of the European Communities

Financial year 2002

Volume I

Consolidated statements on budget implementation and consolidated financial statements

(2003/C 316/01)

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. 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(1) and OECD.

A number of decisions taken in 2002 will place the Communities in the forefront of the international movement towards modernisation of the accounts from 2005.

The new Financial Regulation(2) lays down the broad outlines of the new accounting framework for the European Communities from 2005. The transitional provisions of the Financial Regulation include the general rule that the provisions of Title VII of part one - Accounting - shall apply gradually depending on technical possibilities in order to be fully effective for the budgetary year 2005. This gradual application relates in particular to the new principles governing the institutions' accounts.

A dual system will be introduced on this date. While the budget accounts will still be subject to the cash principle, the general accounts will be fully fledged accrual accounts from 2005.

The Commission communication of 17 December 2002 on the modernisation of the accounting system sets out the measures, timetable and resources needed for the reform of the accounts. A new accounting framework will be drawn up. The rules and methods applicable will be based on internationally accepted standards for the public sector - the IPSAS standards - and, for accounting transactions which are not yet covered, on the IAS standards. They will be subject to the opinion of an accounting standards committee providing independent professional guidance. The critical event for each transaction will be defined and the information architecture will be reviewed to ensure that each accounting event is fully registered at source. The financial statements can then be produced automatically. Each DG's internal control will be extended to the accounting aspects. Finally, the scope of consolidation will be extended.

However, the Commission has anticipated this reform and already introduced elements of accrual accounting in the presentation of the financial statements in recent years, without yet being able to apply the corresponding standards in full.

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.

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.

This approach was continued more intensely in 2002. The presentation of the annual accounts and the explanatory notes have been supplemented, new balance-sheet and off-balance-sheet items have been included, the valuation of the shareholding in the EIF has been brought into line with IPSAS standards and the consolidation procedures have been improved.

STRUCTURE OF THE ACCOUNTS

1. The consolidated annual accounts are drawn up in accordance with Article 121 of the Financial Regulation of 25 June 2002 applicable to the general budget of the European Communities.

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 three volumes:

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

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

The annual accounts now comprise three volumes. In accordance with Article 122 of the new Financial Regulation, the report on budgetary and financial management during the year no longer forms part of the annual accounts as in the past, but accompanies the annual accounts.

Under the transitional provisions of the new Financial Regulation, for accounts relating to financial years prior to 2005, the Commission accounting officer must, in accordance with Article 129(2) and Article 181(2) of the Financial Regulation, consolidate the definitive accounts. Then the Commission must, in accordance with Article 129(3) and Article 181(2) approve them and send them to the European Parliament and the Court of Auditors by 15 October of the following year.

The final accounts will be published in the Official Journal of the European Union together with the statement of assurance given by the Court of Auditors by 30 November 2003 in accordance with Articles 129 and 181 of the Financial Regulation.

CHAPTER I

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

2002 BUDGET OUTTURN

The EFTA-EEA outturn is shown under heading IV.C.1 on the liabilities side of the consolidated balance sheet.

The outturn of the budget for the European Community is shown under heading I.A.1 on the liabilities side of the consolidated balance sheet.

An explanation of the EFTA-EEA regime can be found in the explanatory notes, Annex 2.

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SUMMARY OF IMPLEMENTATION OF GENERAL BUDGET - REVENUE 2002

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TITLE 1: OWN RESOURCES

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TITLE 3: SURPLUSES, BALANCES AND ADJUSTMENTS

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ITEM 1500: CORRECTION OF BUDGETARY IMBALANCES

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2002 FINANCIAL YEAR: COMPARISON OF CONSOLIDATED BUDGET IMPLEMENTATION REVENUE 2002 AND 2001

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TITLE 1: OWN RESOURCES

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TITLE 3: SURPLUSES, BALANCES AND ADJUSTMENTS

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1. CONSOLIDATED SUMMARY OF BUDGETARY IMPLEMENTATION OF EXPENDITURE

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2. CONSOLIDATED SUMMARY OF BUDGETARY IMPLEMENTATION OF EXPENDITURE

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3. CONSOLIDATED SUMMARY OF BUDGETARY IMPLEMENTATION OF EXPENDITURE

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4. CONSOLIDATED SUMMARY OF COMMITMENTS OUTSTANDING

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Table 1

COMPARISON OF BUDGET IMPLEMENTATION 2002 AND 2001

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Table 2

IMPLEMENTATION OF BUDGET COMMITMENT AND PAYMENT APPROPRIATIONS BY INSTITUTION

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Table 3:

Commitment and payment appropriations: composition and changes

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Table 4:

Implementation of the commitment appropriations for the year

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Table 5:

Implementation of payment appropriations for the year

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Table 6:

Breakdown of commitments outstanding

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CHAPTER II

CONSOLIDATED FINANCIAL STATEMENTS OF THE EUROPEAN COMMUNITIES:

BALANCE SHEET

ASSETS

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LIABILITIES

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CHAPTER III

(1) International Federation of Accountants.

(2) OJ L 248, 16.9.2002.

ANNEX 1

ACCOUNTING PRINCIPLES, RULES AND METHODS

ACCOUNTING PRINCIPLES

1. Legal provisions

The accounts are kept in accordance with Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities and Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of this Financial Regulation. The annual accounts for 2002 are the first drawn up in accordance with the new Financial Regulation, on the basis of the transitional provisions mentioned below.

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. The new Financial Regulation

The new Financial Regulation adopted by the Council on 25 June 2002 (OJ L 248 of 16 September 2002, p. 1, with a corrigendum in OJ L 25 of 30 January 2003, p. 43) brings together the provisions on the presentation of accounts and accounting in Title VII of Part One.

In theory, the new Financial Regulation is applicable from 1 January 2003, but Article 181 contains a number of transitional provisions, some of which relate to the presentation of the accounts.

This is particularly the case with the timetable for the presentation of accounts which will be shifted forward by about one month from 2005 onwards to give the discharge authority the same amount of time for its deliberations. Article 128 thus stipulates that, starting with the accounts for 2005, the Commission's accounting officer must submit the consolidated provisional accounts by 31 March of the following year, on the basis of the provisional accounts which each institution and each agency have sent by 1 March. These accounts are sent to the Court of Auditors which may make its observations by 15 June (Article 129). On the basis of these observations, the Commission adopts the final consolidated accounts by 31 July and they are then published by 31 October together with the Court of Auditors' statement of assurance.

The transitional provisions lay down the general rule that the provisions of Title VII of Part One shall apply gradually depending on technical possibilities in order to be fully effective for the budgetary year 2005. This gradual application relates in particular to the new principles governing the institutions' accounts.

Under the transitional provisions of the new Financial Regulation, for accounts relating to financial years prior to 2005, the Commission accounting officer must, in accordance with Article 129(2) and Article 181(2) of the Financial Regulation, consolidate the definitive accounts. Then the Commission must, in accordance with Article 129(3) and Article 181(2) approve them and send them to the European Parliament and the Court of Auditors by 15 October of the following year.

The definitive accounts for 2002 are presented in line with this distinction: Volume I contains the definitive consolidated accounts, Volume II the Commission's definitive accounts and Volume III the definitive accounts of the other institutions and bodies.

3. Accounting principles

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.

If they are to present a true and fair view, 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.

The accounting system of the European institutions comprises general accounts and budget accounts. These accounts shall be kept in euro on the basis of the calendar year.

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

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.

Article 124 of the Financial Regulation sets out the accounting principles for drawing up the financial statements:

- going concern basis;

- consistent accounting methods;

- comparability of information;

- materiality;

- no netting;

- reality over appearance;

- accrual-based accounting;

- prudence.

However, the transitional provisions of the Financial Regulation indicate that these principles will apply gradually depending on technical possibilities in order to be fully effective for the budgetary year 2005.

For example, the financial statements for 2002 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. The financial statements will gradually evolve so that the principle of accrual-based accounting will take full effect from 2005.

ACCOUNTING RULES AND METHODS

1. Bases for conversion

1.1. Accounts are kept in euros.

1.2.

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Different conversion methods apply to the following headings:

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

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

- pre-financing 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;

1.3. 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;

1.4. Revenue (and expenditure) in other currencies is converted using a monthly rate.

2. Revenue

2.1. 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.

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

3. Expenditure

3.1. 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.

3.2. 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 2001 and 15 October 2002, provided that the accounting officer was notified of the commitment and authorisation by 31 January 2003. EAGGF guarantee expenditure may be subject to a clearance decision following controls in the Member States.

4. Economic outturn for the year

The economic outturn shows the result of the Communities' activities by applying a number of elements of the accrual accounting principle. The explanatory notes specify which elements have been taken into account.

The new Financial Regulation states that the accrual accounting principle will be gradually introduced by 2005. One of the objectives of the plan to modernise the accounts is the transition from an accounting system based on the modified cash principle to an accounting system based on the accrual principle.

The economic outturn consists of the budget outturn, the result of the adjustments and the result of borrowing and lending activities.

4.1. 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. In accordance with Article 15 of Regulation No 1150/2000 on own resources, this outturn represents the difference between:

- total revenue received for that year;

- and 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.

4.2. 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. These adjustments correct the items of capital spending and receipts charged to expenditure and revenue in accordance with the cash-based principle and allow non-budget expenditure and revenue to be entered in the accounts.

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.

4.3. Result of borrowing and lending activities

Borrowing and lending activities are off-budget operations provided for in the Treaty. Pursuant to the principle of budgetary equilibrium, the Community may not finance its activities by borrowing.

However, a number of provisions of the Treaties establishing the Communities have led to the creation of various instruments authorising the Commission, on behalf of the Community, to borrow on the financial markets to make loans in order to enable the final recipients to benefit from the advantageous conditions which the Community can secure on these markets.

The result of "borrowing and lending activities" is mentioned separately as part of the economic outturn. The result is paid back to the general budget of the Communities. A reserve has also been set up for future risks.

5. Rules on valuation

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

5.1. Tangible and intangible fixed assets are valued at their acquisition price, with the exception of assets produced by the European Communities, which are valued at their production cost, and assets acquired free of charge are valued at their market value. Tangible and intangible fixed assets are valued at their historic value converted into euros at the rate applying when they were purchased. The book value of a fixed asset is equal to its acquisition price or production cost, plus or minus revaluations, depreciation and other amounts written off.

Assets covered by finance leases are valued at the date of entry into force of the lease at the lower of the following two values: the market value of the asset or the discounted value of the minimum lease payments due, in accordance with Article 21 of Regulation (EC) No 2909/2000 of 29 December 2000.

Except for land, assets under construction, pre-financing paid out and works of art, 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) at the following rates:

Depreciation rates

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5.2. Stocks:

Office supplies and other consumer goods are valued at the price of the last supplies received.

Scientific equipment: 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.

Publications: stocks of publications are valued at the re-sale cost. The re-sale cost includes all direct and indirect production costs. Production costs are purchase expenditures, conversion expenditures and other costs.

5.3. 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.

5.4. 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 financial instruments which, according to IPSAS 15, must be valued at their correct level. Value adjustments are calculated and entered in the accounts for this purpose. A value reduction is thus applied for amounts considered irrecoverable.

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 not known. Entitlements due for more than one year are written down by 20 %. A further cut of 20 % is made for each additional year. After five years entitlements which have not yet been received are thus completely written down.

5.5. 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.

5.6. 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.

6. Pre-financing

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 2002 and which are included in the year's budget expenditure are entered on the assets side of the balance sheet as short-term assets.

7. 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.

Article 121 of the Financial Regulation provides for the consolidation of the institutions and certain agencies set up in the Member States of the European Union. The scope of consolidation will be extended in 2005 to the agencies mentioned in Article 185 of the Financial Regulation. An analysis conducted as part of the modernisation of the Communities' accounting system, in particular after the gradual introduction of IPSAS standards between now and 2005, will determine whether other bodies and entities are to be consolidated. The issue of whether or not certain other entities are to be consolidated will be referred, for an opinion, to the Accounting Standards Committee, a forum of experts in public-sector accounts set up as part of the modernisation project.

Pending the entry in force of the Treaty of Nice on 1 February 2003, the Member States have temporarily entrusted the European Commission with the management of the ECSC in liquidation. As a result, the financial statements of the ECSC in liquidation were not consolidated at the end of 2002, but were annexed to the financial documents which the Commission draws up every year in accordance with Article 275 of the EC Treaty and the Financial Regulation applicable to the general budget of the European Communities.

(1) This differs from cash-based accounting because of elements such as carryovers and the establishment of entitlements.

(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.

Unless otherwise stated, the following budgetary provisions refer to the new Financial Regulation adopted by the Council on 25 June 2002 (OJ L 248, 16 September 2002, p. 1 and corrigendum OJ L 25, 30 January 2003, p. 43) which applies with effect from 1 January 2003. The explanations below refer as a rule to this new Financial Regulation if the provisions are comparable to the old regulation. Where there is a change, the regulation in force is mentioned. Where appropriate the new provision is also mentioned.

1. BUDGETARY PRINCIPLES

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

- unity and budget accuracy: 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;

- unit of account: the budget is drawn up and implemented in euros and the accounts are presented in euros;

- sound financial management: budget appropriations are used in accordance with the principle of sound financial management, namely in accordance with the principles of economy, efficiency and effectiveness;

- transparency: the budget is established and implemented and the accounts presented in compliance with the principle of transparency - the budget and amending budgets are published in the Official Journal of the European Union.

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. STRUCTURE OF THE ACCOUNTS

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 manage 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 the administrative sections of the budget (Part A of the Commission Section and the whole of every other section);

- EAGGF Guarantee appropriations of an 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(1) for operations extending over a number of years(2).

- payment appropriations: cover expenditure arising from commitments entered into in the current financial year and/or earlier financial years(3).

4. ORIGIN OF APPROPRIATIONS

The main source of appropriations is the EU budget for the current year. However, there are other types of appropriation resulting from the provisions of the Financial Regulation. They come from previous financial years or outside sources.

4.1. Appropriations voted and changes to the initial budget

- Appropriations initially voted in the budget

- Transfers

Appropriations may be transferred between lines in accordance with the rules laid down in Articles 22 to 24 of the Financial Regulation(4).

- Supplementary and/or amending budgets

The budget adopted may be amended or increased by an amending budget which changes the allocation of appropriations without altering the total or by a supplementary budget which increases the initial allocation. The rules are set out in Articles 37 and 38 of the Financial Regulation.

- EFTA appropriations

The agreement on the European Economic Area provides for financial contribution by its members to certain activities in the Community budget. The budget lines concerned and the amounts projected are published in Annex III of the EU budget. The lines concerned are increased by the EFTA contribution. Appropriations not used at the end of the year are cancelled and returned to the EEA countries.

4.2. Appropriations carried over from previous year

- Automatic carryovers

These are payment appropriations which may be carried over automatically for one financial year only in accordance with Article 9(4) of the Financial Regulation.

- Appropriations carried over by decision of the institutions

The Commission may decide to carry over appropriations from the previous budget in one of two cases: if the preparatory stages have been completed (Article 9(2)(a) of the Financial Regulation) or if the legal base is adopted late (Article 9(2)(b)). Both commitment and payment appropriations may be carried over (Article 9(3) of the Financial Regulation).

4.3. Revenue from third parties and work for third parties

- Revenue from third parties

As with the EFTA appropriations, other countries have concluded agreements with the European Union involving a financial contribution to Community activities. The amounts received are considered to be revenue from third parties which is allocated to the budget lines concerned (often in the field of research) and may be carried over without limit (Article 10 and Article 18(a) and (d) of the Financial Regulation).

- Work for third parties

As part of their research activities, the Community research centres may work for outside bodies. (Article 161(2) of the Financial Regulation). Like the revenue from third parties, the work for third parties is assigned to specific budget lines and may be carried over without limit (Article 10 and Article 18(d) of the Financial Regulation).

4.4. Appropriations for re-use

These appropriations arise from the refund of amounts paid in error. These amounts are assigned to the budget line which incurred the initial expenditure. At present, these appropriations may be carried over for a period of one year only (Article 27(2) of the 1977 Financial Regulation)(5). From 2003, the new Financial Regulation converts them into assigned revenue (Article 10 and Article 18(e), (f), (g), (h), (i), and (j) of the Financial Regulation), which may be carried over without limit.

4.5. Appropriations made available again as a result of repayment of payments on account

These are Community funds which have been repaid by the beneficiaries. These amounts are re-entered by a Commission decision (Article 7(7) of the 1977 Financial Regulation, Article 18(2) of the Financial Regulation). The amounts entered must be used in the course of the financial year. Repayments of payments on account will, from 1 January 2003, be entered as assigned revenue (Article 10 and Article 18(2) of the Financial Regulation), which may be carried over without limit.

4.6. Commitment appropriations made available again as a result of decommitments

This involves the re-entry of commitment appropriations which have been decommitted. Amounts are re-entered by way of exception if they are indispensable for completion of the programme (Article 7(6) of the 1977 Financial Regulation; Article 157 of the Financial Regulation).

5. COMPOSITION OF APPROPRIATIONS AVAILABLE:

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

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

- Additional appropriations: revenue from third parties (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;

6. BUDGET IMPLEMENTATION

Article 48(1) of the Financial Regulation states: "The Commission shall implement... the budget in accordance with this Regulation, on its own responsibility and within the limits of the appropriations authorised.".

Article 50 states that the Commission shall confer on the institutions the requisite powers for the implementation of the sections of the budget relating to them.

6.1. 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 revenue established 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.

6.2. Execution of expenditure

As with revenue, expenditure is forecast in the initial budget. The execution of expenditure shows how appropriations for commitments(6) and appropriations for payments(7) are changed, used, carried over and lapse during the year.

6.2.1. Utilisation of appropriations:

- Appropriations for commitment: The appropriations authorised are available during the financial year for entering into commitments. The EFTA contribution forms part of the appropriations authorised. Their use is thus included in all the tables.

- Appropriations for payment: The appropriations authorised are available during the financial year for making payments. The EFTA contribution forms part of the appropriations authorised. Their use is thus included in all the tables.

6.2.2. Carryovers to the following year:

Appropriations for commitments:

Some types of appropriation which are not committed may be carried over automatically. This is the case with revenue from third parties and appropriations for re-use (Article 10 of the Financial Regulation). Carryovers may be authorised by the institutions:

- if most of the preparatory stages of the commitment procedure have been completed by 31 December (Article 9(2)(a) of the Financial Regulation); or

- if the legal base is adopted in the final quarter of the financial year (Article 9(2)(b) of the Financial Regulation.

The budgetary authority must be notified of this decision (Article 9(5) of the Financial Regulation).

Appropriations for payments:

- non-differentiated appropriations: carryover is generally automatic if it is to cover outstanding commitments (Article 9(4) of the Financial Regulation);

- differentiated appropriations: unused payment appropriations usually lapse; however, they may be carried over by Commission decision if the payment appropriations for the following financial year will not cover existing commitments or commitments linked to commitment appropriations which have themselves been carried over (Article 9(3) of the Financial Regulation).

6.2.3. Cancellation of appropriations:

Any appropriations for commitment and for payment not used and not carried over are cancelled at the end of the year (Article 9(1) of the Financial Regulation).

7. 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 2002 financial year was the third covered by the financial perspective 2000-2006, 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 overall ceiling on appropriations for commitments for 2002 comes to EUR 100672 million, equivalent to 1,10 % of GNP.

The corresponding ceiling on the appropriations for payments for EU-15 comes to EUR 100078 million, i.e. around 1,10 % of GNP.

The second half of the table sets out, for reference, the adjusted financial framework for EU-25 at 2004 prices.

The following table shows the adjusted financial perspective for EU-15 at 2002 prices and the adjusted financial perspective for EU-25 at 2004 prices.

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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(8). 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 2000-06 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 2004-06) 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 2002

REVENUE

The revenue of the general budget of the European Union can be divided into two main categories: own resources and other revenue. This is laid down in Article 269 of the Treaty establishing the European Community, which states that: "Without prejudice to other revenue, the budget shall be financed wholly from own resources".

The main bulk of budgetary expenditure is financed by own resources. Other revenue represents only a minor part of total financing.

There are three categories of own resources: traditional own resources, the VAT resource and the GNP resource. Traditional own resources, in turn, comprise agricultural duties, sugar levies and customs duties.

A correction mechanism in respect of budgetary imbalances is also part of the own resources system.

1. Traditional own resources, Title 1 of the statement of revenue

Traditional own resources: All established amounts of traditional own resources must be entered in one or other of the accounts kept by the competent authorities.

- In the ordinary account provided for in Article 6(3)(a) of Regulation No 1150/2000: all amounts recovered or guaranteed.

- In the separate account provided for in Article 6(3)(b) of Regulation No 1150/2000: all amounts not yet recovered and/or not guaranteed; amounts guaranteed but challenged may also be entered in this account.

For the separate account, the Member States send the Commission a quarterly statement which includes:

- the balance to be recovered during the previous quarter,

- the amounts recovered during the quarter in question,

- rectifications of the base (corrections/cancellations) during the quarter in question,

- amounts written off,

- balance to be recovered at the end of the quarter in question.

The information sent in by the Member States does not allow the amounts recovered during the year to be assigned to the year in which the entitlements arose. Hence the column for amounts received against carryovers in the table "Summary of the implementation of general budget revenue, 2002" includes amounts received during the year and the amount of entitlements cancelled and replaced by the new amount of entitlements declared by the Member States when making their new statement. A value reduction is applied to own resources entitlements (see explanatory note to item VII.B.2 in the balance sheet).

When the traditional own resources from the separate account are recovered, they must be entered in the Commission's account with the treasury or the body appointed at the latest on the first working day following the 19th day of the second month following the month during which the entitlement was recovered.

2. VAT resources and GNP resources

VAT own resources derive from the application of a uniform rate, for all countries, to the harmonised VAT base determined in accordance with the rules of Article 2(1)(c) of the Council Decision of 29 September 2000. The VAT base is capped at 50 % of GNP for all Member States.

The GNP resource is a variable resource intended to supply the revenue required, in any given year, to cover expenditure exceeding the amount collected from traditional own resources, VAT resources and miscellaneous revenue. The revenue derives from the application of a uniform rate to the aggregate GNP of all the Member States.

VAT and GNP resources are determined on the basis of forecasts of VAT and GNP bases made when the preliminary draft budget is being prepared. These forecasts are subsequently revised; the figures are updated during the budget year in question by means of an amending budget.

The final figures for the VAT and GNP bases are available in the course of the year following the budget year in question. The Commission calculates the differences between the amounts due by the Member States by reference to the final bases and the sums actually paid on the basis of the (revised) forecasts. These VAT and GNP balances, either positive or negative, are called in by the Commission from the Member States for 1 December of the year following the budget year in question.

Corrections may still be made to the final VAT and GNP bases in subsequent years. The balances calculated earlier are adjusted and the difference is called in at the same time as the VAT and GNP balances for the previous budget year.

3. UK correction

This mechanism reduces the own resources payments of the UK in proportion to what is known as its "budgetary imbalance" and increases the own resources payments of the other Member States correspondingly. The budgetary imbalance correction mechanism in favour of the United Kingdom was instituted by the European Council in Fontainebleau (June 1984) and the resulting Own Resources Decision of 7 May 1985. The purpose of the mechanism was to reduce the budgetary imbalance of the UK through a reduction in its payments to the Community.

The explanatory table for Chapter 15 in the consolidated summary of the implementation of the revenue budget shows each Member State's contribution to the UK correction.

4. 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(9) 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 entered into force on 1 March 2002, backdated to 1 January 2001. The 2002 budget takes account of the new collection costs which amount to EUR 5748,6 million, including EUR 2023 million which relate to the adjustment backdating the collection costs to 1 January 2001.

EXPENDITURE

This section describes the main categories of Community expenditure, classified by heading of the financial perspective.

Heading 1 - Agriculture

Expenditure under heading 1 is financed by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF).

Heading 2 - Structural operations: the objective of economic and social cohesion

This expenditure is for structural aid measures, designed to promote better economic and social cohesion within the Community. The Community contribution must be accompanied by national funding and so involves cooperation between the Commission and Member States' authorities.

Heading 3 - Internal policies

It is primarily since the adoption of the Single European Act and with a view to speeding up the completion of the internal market that the Community has broadened some of its existing policies - in the field of research, for example - or launched new policies. Since 1993 these internal policies have been brought together under a single heading of the financial perspective, forming an extremely diversified group.

Heading 4 - External action

This heading of the financial perspective covers all Community expenditure in favour of third countries, except for enlargement-related expenditure on the candidate countries and expenditure under the European Development Fund (EDF). Enlargement-related aid has been given a specific heading in the financial perspective for 2000-06 (see "Heading 7: Pre-accession aid"). Some of these measures are of a horizontal nature (thematic), whereas others are defined by geographical areas.

The Community contribution of EUR 120 million to the Global Health Fund to combat AIDS, tuberculosis and malaria was paid in two instalments of EUR 60 million each, one paid in 2002 from general budget appropriations and the other in 2003 from the European Development Fund (EDF) budget. The EDF is not included in the Community budget.

Heading 5 - Administrative expenditure

This heading of the financial perspective covers all the expenditure on the running of the seven Community institutions. For the institutions other than the Commission, these costs make up the bulk of their expenditure.

Heading 6 - Reserves

This heading covers three types of reserve designed to leave the necessary margins available, beneath the total ceiling on expenditure of the financial perspective, to meet expenditure which could not be foreseen when the budget was drawn up. Each reserve has a clearly identified object in a specific field.

Heading 7 - Pre-accession aid

As regards enlargement-related expenditure for the ten candidate countries from central and eastern Europe, a new heading 7 has been created to cover the three pre-accession instruments established in the financial perspective for 2000-06: the agricultural instrument (Sapard), the structural instrument (ISPA) and the PHARE programme.

1. Payments on account and payments of balances

The new 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 Accounting Officer will lay down accounting rules for the entry of pre-financing on the assets side of the balance sheet on the basis of Article 3(5) of the Regulation laying down detailed rules for the implementation of the Financial Regulation. The Commission will adapt its accounting system when these rules are adopted. Until then, it has presented the information as in the annual accounts for the previous financial year.

Pre-financing not used at 31.12.2002:

- EAGGF Guarantee - modulations: these are the "modulations" adopted by the Member States under Article 3(2) and Article 4 of Regulation (EC) No 1259/99. Under the common agricultural policy, Member States are allowed to reduce payments due to farmers under certain aid schemes and to finance additional rural development measures with the sums withheld. Amounts not used by the end of the third financial year following that during which they are withheld must be repaid to the Commission. The effect of this arrangement is to subtract from the financing of aid schemes under heading 1a (Agricultural expenditure) of the financial perspective sums appearing as such in the consolidated accounts on implementation of the budget and to assign them in reality to heading 1b (Rural development and accompanying measures).

EAGGF Guarantee prefinancing modulations

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Structural Operations

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Pre-accession aid: Sapard and ISPA

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Financial intermediaries:

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Financial instruments:

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2. Appropriations carried over relating to contributions and work by third parties

Appropriations carried over from the previous financial year in respect of contributions and work 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 2002 budget implementation statements and those carried over to the following year in the budget implementation statements.

3. 2002 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.

The EFTA-EEA appropriations carried over from 2002 to 2003 could not be included in the 2002 balance as this occurred after the closure of the budget implementation statements for 2002.

Total budget revenue for the year comes to EUR 101183 million. The costs incurred by the Member States in the collection of own resources amount to EUR 5748 million. The collection costs include EUR 2023 million backdated to 1 January 2001. Total budget expenditure comes to EUR 83770 million, when the negative expenditure under EAGGF Guarantee (EUR 597 million) is taken into account. This negative expenditure comprises: amounts recovered as a result of fraud and irregularities, correction of advances made on the basis of Article 7(4) of Regulation (EC) No 1258/1999, any profit deriving from sales from public stocks, the additional levy on surplus milk production and the financial consequences of clearance of accounts decisions.

The payment appropriations carried over which the Communities have cancelled include the appropriations corresponding to contributions by third parties carried over from 2001 to 2002 (EUR 550 million) as these appropriations are included with the appropriations for the financial year (see also paragraph 4.3. Revenue from third parties and work for third parties).

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(1) For the Structural Funds: only the annual tranche is counted.

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

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

(4) Regulation No 1605/2002 of 25 June 2002.

(5) Financial Regulation of 21 December 1977.

(6) Commitment appropriations + non-differentiated appropriations.

(7) Payment appropriations + non-differentiated appropriations.

(8) ERDF: European Regional Development Fund.

ESF: European Social Fund.

EAGGF: European Agricultural Guidance and Guarantee Fund.

FIFG: Financial Instrument for Fisheries Guidance.

(9) OJ L 105, 7.10.2000.

ANNEX 3

EXPLANATORY NOTES TO THE BALANCE SHEET

COMMENTS ON THE CONSOLIDATED BALANCE SHEET FOR THE FINANCIAL YEAR 2002

Establishment of the balance-sheet

The balance sheet is drawn up in accordance with:

- Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities;

- Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of the Financial Regulation;

- Commission Regulation 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 valuation 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.

In connection with the modernisation of the Communities' accounting system and the shift towards application of the IPSAS standards for 2005, gradual changes in accounting methods are both inevitable and necessary. Some changes have already been made to the methods applied to produce the 2002 annual accounts. These changes are explained in the notes and comparative figures are provided.

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.

The intangible fixed assets of the Court of Justice, with a net book value or EUR 19690,47 (acquisition value of EUR 29217,63 depreciation of EUR 9527,16) have been reclassified as tangible fixed assets. These amounts appear under the heading "Transfers between headings"in the "Computer software" and "Tangible fixed assets" tables below.

A computer licence, governed by an interinstitutional framework contract for database management is shown for the first time in the balance sheet at 31 December 2002.

For the Commission this is the first year that DG Fish has entered the Seaguard/Arcview software in the balance sheet. The net book value is EUR 6400. This software, purchased in earlier years but not appearing in the balance sheet at 31 December 2001, is included under the heading "other changes".

Some software of the Joint Research Centre, acquired before 2002, could not be entered in the balance sheet before the closure of the 2002 financial year. In 2002 they are included in the acquisitions during the year. Depreciation for years prior to 2002 is included in the amount of depreciation recorded in 2002. Karlsruhe entered computer software in the balance sheet for a net book value of EUR 18316,48.

Depreciation of intangible fixed assets (computer software) for the Publications Office is spread over three years (33 %), the standard practice for the Office's software.

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III. TANGIBLE FIXED ASSETS

A. Land and buildings:

Joint Research Centre

In the absence of historical data on the costs of acquisition and the costs of annual improvements before 1998, acquisition values are based on a valuation conducted by an outside firm at 31 December 1997. It has been possible to calculate the changes which occurred during the period 1998-2002.

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. They were revalued and depreciated over a period of ten years up to 2007.

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.

This method of valuation and depreciation, applied by Ispra in 2000, was used to value land and buildings of the JRC at Geel at end-2001.

Delegations

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

The Commission's share of the building for the Delegation in Dar es Salaam (Tanzania), worth EUR 0,9 million, has been transferred from the heading "Assets under construction and pre-payments made" to "Land and buildings".

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. A clause stipulates that if Parliament were to relocate, either the land would be returned to the Belgian State for a payment of EUR 0,025, or the land and buildings would be put up for sale so that the market value of the land could be paid to the Belgian State. 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

The Council building was not definitively accepted in 2002. The value may be revised after final acceptance.

As regards the land of this building, the Council's General Secretariat based itself on Article 24 of Commission Regulation No 2909/2000 which lays down the principle that there is no need to value a plot of land or a building which has been transferred subject to conditions precedent.

The transfer conditions are that should the Council relocate, either:

- the land would be returned to the Belgian State for a payment of EUR 0,025, or

- the land and buildings would be put up for sale and the Communities undertake to pay the Belgian State the market value of the land.

B. C. D. Plant, machinery and tools

Furniture and vehicles

Computer hardware

Commission

The heading "Other changes" comprises the retrospective entries and value corrections for the JRC.

The depreciation figure recorded by DG Press in 2002 includes some of the adjustments for earlier years. Shelving is still entered under "Furniture and vehicles". In 2003 it will be reclassified as "Other tangible fixed assets".

This is the first year that computer hardware acquired on the DG Taxud budget, used for specific purposes and located outside Commission premises appears under tangible fixed assets. The net book value at 31 December 2002 is EUR 433897,83. The net book value at 31 December 2001 was EUR 602666,70. This value has been included under "Other changes".

Following the physical stocktaking already carried out in the Delegations, there is a correction under "Other changes" for items acquired before 2002 which had not been entered in the inventories of the Delegations concerned at 31 December 2001.

For 20 % of the Delegations, there is no information about tangible fixed assets for 2002. The new LID WEB application and the physical stocktaking in Delegations scheduled for 2003 should resolve this problem.

E. Finance leases 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(1).

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 off-balance-sheet commitments annex to the financial statements.

As shown in the "Tangible fixed assets" table below, the acquisition value at year-end is EUR 2023,1 million. The table concerning charges still to be paid in respect of finance leases and similar entitlements below gives the details: the total is made up of EUR 1943 million "Land and buildings", EUR 78,8 million "Plant, machinery and tools", EUR 970030,90 "Furniture and vehicles" and EUR 31666,43 "Computer hardware".

A new leasing contract was signed by the Commission in 2002 for a new plot of land and building. The leasing contract covers the period from 24 April 2002 to 30 April 2029 with a purchase option for the Commission. The discounted value of the minimum payments due is EUR 9,85 million.

A new Commission building in Dublin, with a discounted value of minimum payments due of EUR 35,80 million, is included under this heading. The contract was signed in March 2002 for 20 years with a purchase option for the Commission.

The Charlemagne case is now before the courts. The dispute, which is with the previous owner of the Charlemagne building, relates to the acceptance of the work carried out. Because of this dispute it has not been possible to finalise the arrangements for taking up the purchase option contained in the contract for the acquisition of the building. There is therefore a risk, should the court's judgment not be in the Commission's favour or if complications arise in relations with the previous owner, that the Commission will not have the possibility of becoming owner of the building at the end of the 27-year lease period, even though the annual payment covers this possibility. The opportunity cost of this eventuality is estimated to be EUR 8 million.

The main building occupied by the Publications Office is not included in the balance sheet but in the "Off-balance-sheet commitments - potential liabilities" annex to the financial statements. Although the Office has two purchase options (in 2006 and in 2010) with values based on the market value, it is not considered that the risks and rewards incident to ownership of the asset are substantially transferred to the Office. The classification will be reviewed in 2006, when the first purchase option may be taken up.

In March 1994 the European Parliament signed a long-term leasing contract with a purchase option for a complex in Strasbourg. In accordance with Commission Regulation 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 p. 75), this complex has been entered in the balance sheet as the risks and rewards incident to ownership of the asset are substantially transferred to the lessee. The asset was valued on the date on which the lease entered into force at the discounted value of the minimum lease payments due. On the balance sheet date, Parliament and the developer had not managed to agree on a final cost for the complex. The value entered in the balance sheet is an estimate of the cost. This value was calculated in the light of the actual payments made and payment forecasts based on documents from banks and of a rate of discount deriving either from the interest rate charged by the banks or an estimate.

As stated above, the costs for the building and the specific fittings of the complex in Strasbourg are estimates. According to the data available in 2002, a distribution of values of EUR 2,5 million was transferred from specific fittings to the building. Up to 31 December 2001 an annual depreciation rate of 25 % was applied to specific fittings; hence the net value of these fittings at 31 December 2001 was zero. On the basis of additional information obtained, the depreciation of the specific fittings was recalculated using the rates of 25 %, 12,5 % and 10 % depending on the category of equipment, and these were entered in the balance sheet at 31 December 2002 with a net value of EUR 13,7 million.

On 15 November 1994 the Court of Justice signed a lease/purchase 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; and no later than 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 38,73 millions 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.

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The 2001 depreciation for the Montoyer building has been revised and corrected by EUR 0,9 million under "Other changes". In 2001, depreciation was erroneously calculated on the total value of the building and the land rather than on the value of the building alone.

There will be no depreciation for one of these buildings 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 18 million under this item for the funds required for the planned extension of the Court's building. The bulk of the funds has been placed at the disposal of the project manager by means of a transfer to a bank account opened for this purpose. The interest yielded 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 finance leasing contract mentioned in Item E "Finance leases and similar entitlements".

TANGIBLE FIXED ASSETS

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Charges still to be paid in respect of finance leases and similar entitlements are shown in long-term and short-term liabilities in the balance sheet. They break down as follows:

FINANCIAL FIXED ASSETS

ITEMS TO BE INCLUDED IN THE BALANCE SHEET

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IV. FINANCIAL FIXED ASSETS

This heading covers equity investments made with a view to establishing permanent links and/or seen as supporting the activities of the European Communities.

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 30.000 additional shares with a face value of EUR 10.000 each. This operation involves paid-in shares and callable shares in the following proportions: 22,5 % of the subscribed shares represent a whole number of paid-in shares and the remainder will be callable shares.

This item covers the full amount of the Commission's subscription (EUR 157,5 million) to the EBRD's capital which has been called up and paid. Payments outstanding on the proportion of capital called up - EUR 35,4 million - are recorded under short-term liabilities (EUR 8,4 million) and long-term liabilities (EUR 27 million). Payments outstanding on non-called up capital, amounting to EUR 442,5 million, are included in the off-balance-sheet commitments.

The 3 % shareholding in the EBRD is valued at cost, as it represents a financial instrument as defined in IPSAS 15 and IAS 39.

European Investment Fund (EIF) subscription

The EIF is the European Union's financial institution specialising in risk capital and guarantees to SMEs.

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 %.

Under an agreement between the Commission and the EIB signed in 2000, the European Community has a "put option"on its shares in the EIF. On 30 June 2005 the Commission will be entitled to sell its shares at a unit price of EUR 315000, which is 57,5 % above the purchase price.

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.

The equity method was applied for the first time in 2002 to value the Communities' share in the EIF, in accordance with IPSAS 7. The cost method had been applied in the past. Under the equity method the shareholding is initially recorded at cost and is then adjusted to take into account changes subsequent to the investor's acquisition of a share of the net assets of the controlled entity. The outturn account reflects the investor's share of the results of the controlled entity.

Under the equity method, the shareholding is valued at 30 % of the EIF's own capital. The EIF's provisional balance sheet for 2002 carries a total of EUR 555 million of own capital, including profits of EUR 18,7 million for the year. The Communities' share is 30 % of this amount (EUR 166,5 million), of which EUR 5,6 million concerns the result for 2002.

If the cost method had been applied as in past years, the holding would have remained the same as the 2001 amount, i.e. EUR 120 million, representing 30 % of subscribed and called-up capital valued at cost.

The difference (EUR 46,5 million) is accounted for as an adjustment as regards the share of the year's result (EUR 5,6 million) and in the adjustments carried forward as regards the remainder (EUR 40,9 million).

B. Other financial fixed assets

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).

The ECIP programme was halted early, the only extension being its winding-up. The programme cannot be definitively wound up until the last joint venture has been completed. Most of the operations have already been wound up, recovered or converted into definitive grants.

It has proved impossible to calculate the real value of ECIP equity contributions. In accordance with the principle of prudence, a 100 % adjustment has been applied.

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 pre-financing 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 enterprises. 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 accordance 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.

Other financial instruments

In 2002, for the first time, subscriptions and participations of other financial instruments have been entered in the balance sheet. In the past such operations were treated solely as budget expenditure for the year.

The "SME Finance Facility / SME financing mechanism"under the trusteeship of the EBRD is designed to encourage investment funds to grow and to retain over the long term the capital investments they make in SMEs in the Phare candidate countries. The programme is financed jointly by the Commission, the European Bank for Reconstruction and Development (EBRD), the Council of Europe Development Bank (CEB), in association with the Kreditanstalt für Wiederaufbau (KfW) and the European Investment Bank (BEI).

The "Growth & Employment - ETF Start up facility" (1998-2000 programme) and "MAP Equity - ETF Start up facility", under the trusteeship of the EIF (2001-2005 programme) support the creation and financing of SMEs in the start-up phase by investing in suitable specialised venture capital funds.

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B.3. Guarantees and advances granted

This heading covers fixed assets such as deposits and guarantees paid, permanent advances for building charges 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.

In accordance with Article 6 of the Regulation the Commission entrusted financial management of the Fund to the European Investment Bank (EIB) under an agreement signed between the Community and the EIB on 23 November 1994 in Brussels and on 25 November 1994 in Luxembourg.

Regulation (EC, Euratom) No 2728/94 on the Guarantee Fund, as amended by Council Regulation (EC, Euratom) No 1149/1999 of 25 May states that with effect from 1 January 2000 the Fund is endowed by payments from the general budget equivalent to 9 % of the capital value of the operations. The same Regulation sets the target amount at 9 %. In accordance with the Regulation, "if, at the end of a year, the target amount is exceeded, the surplus shall be paid back to a special heading in the statement of revenue in the general budget of the European Communities".

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 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 on the assets side of the Commission's balance sheet (EUR 1645 million) represents the Fund's net assets at 31 December 2002. For the sake of readability, this amount comprises the repayable surplus in excess of the target amount at 31 December 2002 (EUR 263 million).

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 1382 million) corresponds to the target amount(2) for the Guarantee Fund calculated on the basis of the amount outstanding at 31 December 2002. The difference between the amount of the Fund shown on the assets side and the amount of the provision corresponds to the surplus to be repaid to the budget (EUR 263 million); it is entered under own capital.

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V. LONG-TERM ASSETS

This heading covers amounts owed to the European Communities and maturing in over one year.

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.(3) 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.

Also included are amounts granted under the MEDIA I, MEDIA II and MEDIA Plus (third phase of the MEDIA programme) programmes for measures to promote the development of the audiovisual industry. 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.

MEDIA I (1991-1995) loans are included under this heading for the first time. Up to 2001, MEDIA I loans came under "Other long-term assets" (EUR 26,8 million). The reason was that the Commission had no contractual link with the recipients of the support. The support contracts were signed by and on behalf of the decentralised structure to which the Commission had entrusted the management of support. As the Commission concluded agreements with the loan management bodies to take over direct management of the loans when the MEDIA I programme ended, they now come under "Loans granted from the budget". The corresponding figures for 2001 have been reclassified.

The ECIP programme was halted early, the only extension being its winding-up. The programme cannot be definitively wound up until the last joint venture has been completed. Most of the operations have already been wound up, recovered or converted into definitive grants.

It has proved impossible to calculate the real value of ECIP assets. In accordance with the principle of prudence, a 100 % adjustment has been applied.

Loans for migrant workers are also included under this heading.

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.

Under an agreement with the EIB, the latter bears the risks of the NCI treasury instrument.

Changes in volume of loans granted by the European Communities:

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The amounts outstanding on borrowings at 31 December 2002 are entered under long-term assets in the case of loans due in more than a year and under short-term assets in the case of loans due in less than one year.

MEDIA I loans totalling EUR 26,8 million under heading V.C. "Other long-term assets"up to 2001 have been transferred to heading V.A. "Loans granted from the budget" (see notes to heading V.A on the assets side).

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C. Other long-term assets

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). Officials contribute one third towards the long-term financing of the scheme by means of a compulsory levy set at 8,25 % of the basic salary (second subparagraph of Article 83(1)). Member States jointly guarantee payment of such benefits in accordance with the scale laid down for financing such expenditure (first subparagraph of paragraph 1). For this reason an amount of EUR 15,3 billion receivable from the Member States was entered for the first time on the assets side of the balance sheet in 2001.

In line with changes in the rate on which the calculation is based (2,28 % at 31 December 2002 compared with 3,35 % used for 2001), the amount entered has risen to EUR 19,5 billion in 2002.

The method applied in 2002 to account for Community pensions is the same as in 2001: a provision on the liabilities side to cover the debt, and an entry on the assets side to reflect the undertaking given by Member States to the Communities to pay Community pensions. Under the plan for modernising the accounting system, the method to be applied will be adopted by the Commission's Accounting Officer after obtaining the opinions of the Accounting Officers of the other institutions and the Accounting Standards Committee.

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 is to be paid over ten years ending in 2008.

VI. STOCKS

The stock of vaccines and antigens held at the Food and Veterinary Office has a net book value of EUR 6504850. It was valued in accordance with the implementing rules for the Commission's accounting and consolidation manual (valuation at most recent acquisition price) and incorporated into the balance sheet for the first time in 2002.

The heading mainly covers the scientific and technical equipment of the Joint Research Centre. The fissile materials at Petten were valued at EUR 2,08 million using the purchase price, since they are consumed on a regular basis. Write-downs totalling EUR 35,97 million were made in respect of the Joint Research Centre in Geel in accordance with the rules in the Commission's accounting and consolidation manual. The stock of heavy water at Ispra has not been included in the balance sheet, since it has no commercial value.

The stock of publications held by the Publications Office is valued using special rules. Write-downs have been made.

The value of the publications stock that figures on the balance sheet relates to publications stock held and/or managed by the Office for which a charge is made (paying stock). Publications to be distributed free of charge are not taken into account.

Traditionally, publications from the paying stock have been valued on the basis of the cost price. The cost price is defined as equivalent to one third of the selling price.

The Office's balance sheet at 31 December 2001 included for the first time a provision bringing the value of the publications stock down to its market value. The market value was calculated by analysing the 2001 turnover of publications in stock on 31 December 2000. The analysis revealed that less than 0,5 % of the pre-2001 publications had been commercially distributed in 2001.

The same analysis was carried out for 2002. As this bore out the 2001 findings, the decision was taken to write down the value of the paying stock to zero. This calculation does not take account of the stock disposal costs that will have to be met for publications not sold.

The write-downs in respect of printshop stock were made as follows:

- for pre-2000 deliveries, a 33 % reduction was applied for each year of non-utilisation;

- for deliveries received in 2000 and 2001, the write-down was calculated on the basis of the utilisation in 2002 of stock on hand at 31 December 2001;

- for deliveries in 2002, there was no write-down.

European Parliament

The value of the stocks of office supplies is calculated on the basis of the average weighted price of the articles rather than on the most recent acquisition price. The net book value at 31 December 2002 is EUR 659043.

The Economic and Social Committee and the Committee of the Regions have broken down their joint stock of office supplies 61,5 %/38,5 % respectively.

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VII. SHORT-TERM ASSETS

B. Current assets

B.1. Advances paid to Member States

This amount represents an advance of EUR 355 million paid to the UK authorities in connection with the costs of the eradication of foot and mouth disease - see also note 15, off-balance-sheet commitments.

B.2. Amounts owed by Member States

(a) EAGGF Guarantee:

This item covers:

- the amounts owed by beneficiaries of EAGGF Guarantee assistance (EUR 2376 million) as declared and certified by the Member States and entered in the debtors ledger at the end of the year (15 October 2002) in accordance with Regulation (EC) No 2761/99. The Member States are not required to make the amounts available to the Commission unless they are recovered. The above figure does not include the EUR 43,3 million declared by the Member States as irrecoverable. This amount represents claims which paying agencies have had to abandon or are statutorily unable to recover.

- Member States estimated the total amount unlikely to be recovered at EUR 1085,7. These estimates are to be reviewed by the certifying bodies, who are to report on any irregularities or errors detected. The evaluation work in respect of clearance will be completed at the same time as the accounting decision.

- In accordance with the principle of prudence, the European Communities must estimate and record the part of the EAGGF Guarantee that is unlikely to be recovered. The declared estimate of the write-down is EUR 1085,7, which accounts for 45,7 % of the total amount to be recovered at 31 December 2002. In 2001, following an analysis of the estimates made by the paying agencies, (EUR 989,5 million), the Commission thought it more appropriate to increase this amount to EUR1640,6 million (73 %). In 2002 the Commission decided to rely on the initial estimate, on the assumption that the paying agencies were in a better position to assess the amounts likely to be recovered. The findings of the certifying bodies concerning management of amounts owed are handled under the 2002 clearance procedure, including any proposal for the application of financial corrections. The fact that this adjustment is entered in the accounts does not mean that the EC is waiving future recovery of the amounts covered by the write-down.

- A receivable of EUR 59,6 million in respect of a monthly advance paid to Finland which was settled with the payments of advances for 2003 (for EUR 2,4 million) and of the amounts owed following the clearance of the accounts (for EUR 57,2 million).

(b) 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 (EUR 37,1 million). A specific write-down of EUR 1,3 million has been calculated.

(c) Own resources

The heading includes own resources - this year totalling EUR 1740,9 million - which, under Article 6(3)(b) of Regulation No 1150/2000, have been 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. Each Member State sends the Commission a quarterly statement of these accounts, with the following particulars for each type of resource:

- the previous quarter's outstanding balance,

- the amounts recovered during the quarter in question,

- adjustments of the base (corrections/cancellations) during the quarter in question,

- amounts written off,

- balance to be recovered at the end of the quarter in question.

When the amounts of traditional own resources in the separate account are recovered, they must be credited to the account opened in the name of the Commission with the Member State's Treasury or the body it has appointed no later than the first working day following the 19th of the second month following the month in which the amounts due were recovered.

This figure of EUR 1740,9 million overestimates the Communities' actual entitlements since the separate account for traditional own resources largely consists of amounts where actual recovery is rather hit-or-miss.

It is, however, extremely difficult to make an exact calculation of the impact of this overestimate. The information available on potential recovery of these receivables is rather scarce and patchy, as the current rules do not allow the Commission to get hold of the information needed to calculate a value adjustment more accurately. This is why the figure worked out for the provision should not be taken too literally.

Despite this, in accordance with the principle of prudence, a write-down of EUR 1136 million has been estimated on the basis of previous years' recovery statistics (EUR 697 million) and individual examination of certain cases (EUR 439 million). This write-down has been deducted from the item for receivables from Member States on the assets side of the balance sheet and does not mean that the EC is waiving recovery of the amounts covered by the value adjustment.

The calculation method used to arrive at this figure is, therefore, based on a combination of two factors:

- The first involves a theoretical recovery probability coefficient arrived at by comparing the booked entitlements recovered over the previous five years with the figure for entitlements established during the same period. The coefficient is applied to the total entitlements balance at 31 December, minus the amount corresponding to the cases examined individually.

The Commission works on the assumption that this ratio, calculated on the base of the amounts actually recovered in the past, is representative of the likelihood of recovering amounts remaining in the balance of the separate account (minus the amounts in respect of the examined cases on which the Commission has individual information).

- The second factor is the individual examination of certain cases. This approach cannot be entirely objective since it involves assessing outstanding amounts for which recovery crucially depends on the outcome of the appeal and the debtor's future solvency. Moreover, even where recovery looks very unlikely, if not virtually impossible, this does not necessarily mean that the amounts in question are lost to the Community budget as traditional own resources. This is because non-recovered entitlements are lost only if the Member State has exhausted all the avenues it is required to pursue in order to secure recovery. Where the Member State fails to do this, it is held financially liable and required to pay the amount into the Community budget in accordance with Article 17(2) of Regulation 1150/2000.

The differences between the 2001 and 2002 amounts are as follows:

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Council Decision No 2000/597/EC, Euratom of 29 September 2000 on the system of the European Communities' own resources allows Member States to withhold 25 %, rather than 10 %, of traditional own resources to cover the costs of collection. The decision entered into force on 1 March 2002, applying retroactively to 2001. The 2002 budget was, therefore, recalculated on the new basis. The 2001 figures include a 10 % deduction for collection costs, while the 2002 figures include a 25 % deduction.

(1) The individually examined cases are the same in 2001 and 2002. The change in the amount is due almost entirely to the change in the collection cost percentage.

(2) The write-down percentage calculated on the basis of cases from the last 5 years went from 68,4 % in 2001 to 55,4 % in 2002. The decrease is due to the fact that for 2002 the amount of separate account entitlements recovered (EUR 245 million) plus the amount of entitlements cancelled or written-off (EUR 151,7 million) is greater than the amount of entitlements entered in that account over the same period (EUR 363 million).

(d) Other amounts owed by Member States:

as of 2002 amounts owed in respect of own resources are shown under a separate heading, which explains the large decrease in "other amounts owed by Member States" compared with 31 December 2001 when the amounts of own resources were included under this heading. The figure of EUR 30,5 million principally comprises late-payment interest of EUR 12,7 million and structural operation receivables of EUR 17 million.

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The breakdown by Member State of A account and separate account receivables in respect of own resources is as follows:

A ACCOUNT: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END-2002

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SEPARATE ACCOUNT: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END-2002

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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 receivables arising from the activities of the European Communities.

1. The recovery orders entered in the accounts at 31 December 2002 as established entitlements to be recovered and not already included under other headings on the assets side of the balance sheet.

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.

This overall write-down is calculated on the amount of the entitlements outstanding at the end of the year. Certain entitlements, such as entitlements for which an individual write-down is made, are not included in the flat-rate write-down.

2. Unpaid fines imposed by the Commission for infringements of competition rules (EUR 2263,6 million).

The changes in the figures for outstanding fines and the write-downs are as follows (EUR million):

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After the decision to impose a fine, the debtors have two months from the date of notification:

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

- or not to accept the decision, in which case they lodge an appeal under Community law. However, the principal of the fine must be paid w