Revenue and expenditure account and balance sheet

of the European Communities relating to operations under the 2000 budget

(Articles 78 and 81 of the Financial Regulation of 21 December 1977)

Volume IV

Consolidated revenue and expenditure account and balance sheet

(revised version)

(2001/C 370/01)

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(1) 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 European Communities are gradually falling into line with the approach adopted by a large number of States and supported by international bodies such as IFAC(2) and OECD. Even though the public sector still pursues objectives which differ in part from those in the private sector, it is now considered inevitable that cash accounting should be abandoned and that a relative degree of harmonisation should be sought for new practices.

However, the Commission has already introduced elements of accrual accounting in the presentation of the financial statements in recent years. At present, this information does not come from an integrated system of accounts. The Accounting Officer's departments have to use non-accounting information from the various Directorates-General to complete the financial balance sheet and draw up the annexes to this balance sheet. This procedure undermines the exhaustiveness of the data. In 2000 a special effort was made to improve the reliability of the information on fixed assets, inventories, the list of financial intermediaries and the valuation of entitlements.

The institutions must also give themselves the necessary means for guaranteeing the quality of the information provided in the financial statements and implement new, more effective management and control tools.

The European Communities have therefore embarked on a reform of the accounting system. This is an ambitious project along the same lines followed by various countries and Member States at the recommendation of the international institutions responsible for drawing up public accounting standards.

In simple terms, the reforms focus on the following:

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

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

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

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

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

The ultimate purpose of this accounting reform is of course to improve financial information and provide relevant information for decision-making.

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

STRUCTURE OF THE FINANCIAL STATEMENTS

1. The financial statements of the European Communities are drawn up in accordance with Articles 78, 80 and 81 of the Financial Regulation of 21 December 1977 applicable to the general budget of the European Communities, as last amended by Council Regulation No 2673/99 of 13 December 1999.

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

Volume I - Part 1: Revenue and expenditure;

- Part 2: Analysis of financial management.

Volume II - Revenue and expenditure account and balance sheet of the Commission and the Euratom Supply Agency.

Volume III - Revenue and expenditure account and balance sheets of the other institutions (Parliament, Council, Court of Justice, Court of Auditors, Economic and Social Committee and Committee of the Regions, Ombudsman).

Volume IV - Consolidated revenue and expenditure account and balance sheet of the European Communities, with explanatory notes.

3. Volume I sets out the salient features of budget implementation in the year.

Volumes II and III set out the implementation of revenue and expenditure in each of the institutions, following the budgetary nomenclature, and contain tables showing the capital operations of borrowing and lending.

This volume (IV) contains the consolidated revenue and expenditure account and balance sheet of the European Communities, accompanied by explanatory notes. The consolidated revenue and expenditure account and balance sheet give the corresponding figures for the previous year.

CHAPTER I

REVENUE AND EXPENDITURE ACCOUNT: EXECUTION OF THE BUDGET OF THE EUROPEAN COMMUNITIES FOR 2000

2000 BUDGET OUTTURN

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CONSOLIDATED SUMMARY OF 2000 BUDGET IMPLEMENTATION

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CLEARANCE OF COMMITMENTS

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COMPARISON OF THE BUDGET OUTTURN 2000/1999

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REVENUE FOR 2000

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DETAILS TITLES 1 AND 3

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Table 1:

COMPARISON OF BUDGET IMPLEMENTATION IN 2000 AND 1999

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Table 2

BUDGET EXECUTION OF COMMITMENT AND PAYMENT APPROPRIATIONS BY INSTITUTION

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Table 3

Composition and change in commitment and payment appropriations

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Table 4

EXECUTION OF THE YEAR'S COMMITMENT APPROPRIATIONS

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Table 5

EXECUTION OF THE YEAR'S PAYMENT APPROPRIATIONS

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Table 6

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS OUTSTANDING AT 31 DECEMBER 2000

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Note:

Tables 6 to 9 do not contain commitments created from appropriations for reuse carried over to 2000 (EUR 12.3 million) nor commitments relating to the allocation accounts (EUR 11.7 million on B6). As a result, outstanding commitments at 31.12.2000 are under-estimated by EUR 24.0 million.

Table 7

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS CLEARED IN THE COURSE OF 2000

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Table 8

COMMITMENTS FROM DIFFERENTIATED APPROPRIATIONS CLEARED IN THE COURSE OF 2000

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Table 9

COMMITMENTS OUTSTANDING AT 31 DECEMBER 2000

MOVEMENTS SINCE INITIAL COMMITMENT

(including commitments cleared in 2000)

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CHAPTER 2

CONSOLIDATED BALANCE SHEET OF THE EUROPEAN COMMUNITIES AT 31 DECEMBER 2000

(Unless otherwise stated, amounts are shown in EUR)

ASSETS

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LIABILITIES

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CHAPTER III

ACCOUNTING PRINCIPLES

1. According to international standards(3), 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 revenue and expenditure account and balance sheet produced annually by the European Commission. The manner in which financial operations were conducted in the course of the financial year are described in Volume I, Part 2 (Analysis of financial management).

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

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

2.1. The budget accounts provide a detailed record of budget execution and are used to draw up:

- the revenue and expenditure account referred to in Title VI of the Financial Regulation;

- the figures on the implementation of the budget referred to in Article 34 of the Financial Regulation.

The budget accounts are based on the modified cash accounting principle(4).

2.2. Using the "double-entry method" the general accounts show all expenditure and revenue over the financial year and are designed to establish the financial position of the institutions in the form of a balance sheet of assets and liabilities at 31 December the previous year.

The general accounts are based on the following principles:

- the going concern principle;

- the principle of materiality and aggregation of data;

- the principle of consistent accounting methods;

- the principle of substance over form;

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

- the principle that the opening balance sheet must not be altered.

As long as the accounts are not drawn up on an accrual basis, the principle of prudence is applied in part. However, in line with practice in the Member States, the financial statements take account of certain elements of the principle of prudence such as value adjustments for entitlements, depreciation and the entry of carryovers in the accounts as charges and debts for the financial year.

CHART OF ACCOUNTS

The chart of accounts maintains a distinction between the charges and income accounts and the balance sheet(5).

(a) the charges and income accounts, subdivided as follows:

- the budgetary charges and income accounts, providing an overall view of budget implementation, and accounts showing exchange-rate differences; these accounts will serve to determine the year's outturn;

- the non-budgetary charges and income accounts which supplement the budgetary accounts and give the year's economic outturn.

(b) the balance-sheet accounts, which can be used to establish the Communities' financial position.

In order to give a more accurate picture of assets and liabilities, the financial situation and the result, the financial statements for 2000 are the first to present the "economic outturn for the financial year".

To achieve this, it proved necessary to make a series of year-end adjustments to take account of elements which do not form part of cash-based accounting.

As a result of these adjustments, the annual accounts can be presented in accordance with the principle of modified accrual accounting based on a modified cash budget account(6).

The economic outturn for the financial year consists of two elements: the budget outturn and the result of the adjustments.

ACCOUNTING RULES AND METHODS

1. The accounts are kept in accordance with the Financial Regulation of 21 December 1977, as last amended by Council Regulation No 2673/1999 of 13 December 1999 and supplemented by a Regulation laying down certain implementing rules.

In 2000 the Commission adopted 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. A manual on accounting and consolidation has also been approved by the Accounting Officers of all the institutions, in order to harmonise rules and methods.

The accounts for 2000 have been drawn up in accordance with these two new provisions.

2. Consistency of accounting methods

The changes to the accounting methods made every year to improve the presentation of the financial statements are duly explained in the annex to the financial statements.

As regards the changes incorporated in the statements for 2000, the figures for 1999 have been left unchanged.

3. Conversion into euros

3.1. Accounts are kept in euros.

3.2. The euro conversion rates used to prepare the balance sheet were the rates applying on 29 December 2000(7), except for the following:

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

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

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

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

3.3. 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.

4. Revenue

4.1. 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.

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

5. Expenditure

5.1. For the purposes of calculating the balance for the year, expenditure covers payments made against the year's appropriations for payments plus any of the year's appropriations that are carried over to the following year.

5.2. 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 1999 and 15 October 2000, provided that the accounting officer was notified of the commitment and authorisation by 31 January 2001.

6. Economic outturn for the year

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

6.1. Budget outturn

The budget outturn for the year consists of two components (the result of the European Union and the result of the involvement of the EFTA countries belonging to the EEA). It represents the difference between:

- total revenue received for that year;

- total payments made against that year's appropriations plus the total amount of that year's appropriations carried over to the following year(8).

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

- the net balance of lapsing carryovers 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 repaid to the Member States the following year.

6.2. Result of adjustments

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

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

7. Rules on valuation

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

7.1. Tangible and intangible fixed assets are valued at their historic value converted into euros at the rate applying when they were purchased. Except for land, these fixed assets must also be subject to depreciation for each full year, according to the linear 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).

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

7.3. 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 must be made where there is a probable loss.

7.4. 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. Positive conversion differences are recorded in a transitional account, negative differences are entered in the profit and loss account.

Entitlements are entered at the estimated amount of cash that will be realised. A value reduction is thus applied for amounts considered irrecoverable, with account being taken of risks and legal developments.

7.5. 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 must be made where there is a probable loss.

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

8. Payments of advances and payments on account

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

Advances to public or private intermediaries which had not been received by the final beneficiary at 31 December 2000 and which are included in the year's budget expenditure are entered on the assets side of the balance sheet as short-term assets.

9. EFTA involvement in the 2000 general budget

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

10. Consolidation

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

The method used is that of full consolidation.

(1) Accrual accounting.

(2) The IFAC (International Federation of Accountants) aims to produce international standards for the States which are directly based on company accounting practice.

(3) IFAC. International Federation of Accountants.

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

(5) Article 70 of the Financial Regulation.

(6) Some elements of full accrual accounting are missing.

(7) The European Central Bank was closed on 30 and 31 December 2000.

(8) 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 appropriation from year n-1 to year n.

ANNEX 1

EXPLANATORY NOTES TO THE REVENUE AND EXPENDITURE ACCOUNT

GENERAL BUDGET AND TYPES OF APPROPRIATION

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

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

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

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

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

1. BUDGETARY PRINCIPLES

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

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

- universality: this principle comprises two rules:

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

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

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

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

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

2. BUDGET STRUCTURE

The budget consists of:

(a) a general statement of revenue;

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

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

3. TYPES OF BUDGET APPROPRIATION

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

The budget distinguishes between two types of appropriation: non-differentiated appropriations and differentiated appropriations.

Non-differentiated appropriations are used to finance operations of an annual nature (which comply with the principle of annuality). Differentiated appropriations were introduced in order to reconcile the principle of annuality with the need to 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 administrative expenditure (Part A of the Commission Section and the sections of all the other institutions),

- 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 for operations extending over a number of years(1).

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

4. BUDGET IMPLEMENTATION

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

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

4.1. Execution of revenue

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

The execution of revenue covers established entitlements, revenue actually collected against these established entitlements and the balance to be recovered.

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

4.2. Execution of expenditure

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

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

4.2.1. Composition of appropriations available

- Appropriations entered in the budget: initial budget + supplementary and amending budget + transfers;

- Additional appropriations: supplementary revenue (contributions by third parties) + commitment appropriations made available again as a result of decommitments + appropriations made available again as a result of repayments of amounts paid on account;

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

4.2.2. Utilisation of appropriations

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

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

4.2.3. Carryovers to the following year

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

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

- Appropriations for payments:

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

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

4.2.4. Cancellation of appropriations

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

5. OUTSTANDING COMMITMENTS

With the introduction of differentiated appropriations, a gap developed between commitments entered into and payments made: this gap, corresponding to outstanding commitments, represents the time-lag between when the commitments are entered into and when the corresponding payments are made.

FINANCIAL PERSPECTIVE

The 2000 financial year was the first covered by the new financial perspective laid down in the Interinstitutional Agreement on budgetary discipline and improvement of the budgetary procedure. This agreement was 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.

The financial perspective complies with the constraints of budgetary discipline and the sound management of expenditure. It gives the European Union sufficient resources to carry out its political priorities and respond effectively to the process of enlargement.

The perspective is drawn up for a seven-year period (2000-2006) and is based on the working assumption that new Member States will join from 2002 onwards.

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STRUCTURAL FUNDS: NEW PROGRAMMING PERIOD 2000-2006

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

The commitment appropriations for the Structural Funds in the financial perspective for the period 2000-2006 come to 195010 million EUR at 1999 prices for EU 15 (EUR 210973 million at current prices).

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. With the appropriations from the Structural Funds, the Union supports three specific objectives:

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 Community, 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; PROGRAMMING

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

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

3. COMMITMENT AND PAYMENT PROCEDURES

3.1. Commitment procedure

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

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

3.2. Payment procedure

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

Payments are posted to the earliest open commitment.

COMMENTS ON THE 2000 REVENUE AND EXPENDITURE ACCOUNT

1. Advances, payments on account and final payments

Since 1994 a report on the breakdown of differentiated payment appropriations by type has been produced in response to an initial request by the Court of Auditors for the system of accounts to distinguish payments on account from payments which are final or to settle a "balance".

Experience has shown this field to be far more complex than originally thought. This applies both to concepts and the definition of the information required and to the possibility of uniform implementation in the various areas concerned. The Court has commented on these aspects.

To sum up, for 2000, rather than presenting information of limited value, the Commission has preferred not to publish it(7), but to direct its efforts towards a new type of approach, redefinition of the information required and analysis of the possibilities of actual implementation. This approach includes clarifying concepts as regards types of payment as part of the recasting of the Financial Regulation.

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2. Appropriations relating to contributions by third parties

Appropriations carried over from the previous financial year in respect of contributions by third parties, which by definition never lapse, are included with the additional appropriations for the financial year. This explains the difference between carryovers from the previous year in the 2000 revenue and expenditure account and those carried over to the following year in the 1999 revenue and expenditure account.

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

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

(3) Commitment appropriations + non-differentiated appropriations.

(4) Payment appropriations + non-differentiated appropriations.

(5) Article 7 of the Financial Regulation.

(6) ERDF: European Regional Development Fund.

ESF: European Social Fund.

EAGGF: European Agricultural Guidance and Guarantee Fund.

FIFG: Financial Instrument for Fisheries Guidance.

(7) With the exception of the Structural Funds.

ANNEX 2

EXPLANATORY NOTES TO THE BALANCE SHEET

COMMENTS ON THE BALANCE SHEET AT 31 DECEMBER 2000

1. This balance sheet takes account of the rules laid down in Commission Regulation (EC) No 2909/2000 of 29 December 2000 on the accounting management of the European Communities' non-financial fixed assets.

The costs of purchasing tangible and intangible fixed assets are included in budget expenditure for the year of purchase. They continue to appear in the balance sheet until they are no longer the property of the Commission. The contra-entry for this balance-sheet entry increases the result of the adjustments in order to neutralise the budget liabilities and present the annual accounts in accordance with the principles of "modified accrual accounting".

Assets in the form of finance leases are an exception to this rule. As the cost of the asset is not charged to the budget until the rent is paid, the contra-entry to the acquisition value on the assets side is not shown in the result, but with financial debts. The periodic payments are then credited in the result of the adjustments by reducing the debt.

2. Tangible and intangible fixed assets include all property with a purchase value of at least EUR 420, in accordance with Article 130 of Commission Regulation (EEC) No 3418/93 laying down detailed rules for implementing the Financial Regulation, as amended by the Commission decision of 16 November 2000 updating the amounts specified in the Regulation.

3. Under Title IV, Chapter 4 of the Commission Regulation on the accounting management of the European Communities' non-financial fixed assets(1), all assets entered on the balance sheet, with the exception of land, fixed assets in the course of construction, advances and payments on account as defined in Article 14 of the Regulation and works of art referred to in Article 19, are depreciated. Depreciation is calculated for each full year (not pro rata temporis), using the linear method. The annual depreciation rates applicable are given in the annex to the Regulation.

Where a fixed asset has undergone improvements or is revalued, depreciation of the improved asset shall continue over its residual life having due regard to the new value. When buildings which have been fully depreciated are revalued or undergo improvements, the period for depreciation is fixed at 10 years.

For 2000, all the institutions have entered depreciation in the accounts, including the Court of Justice, Parliament, the Council, the Economic and Social Committee and the Committee of Regions for the first time.

Depreciation by the Court of Justice(2) will be revised in the course of 2001 depending on the final introduction of the computerised inventory system.

4. Although more complete and more reliable than last year, the entry in the accounts of tangible and intangible fixed assets and stocks in the delegations still has its shortcomings.

5. The financial statements comply with the provisions of the consolidation manual of the European Communities, the purpose of which is to establish a uniform set of accounting rules and a standard reporting package, in order to facilitate the reporting and consolidation process.

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.

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

Intangible fixed assets kept in the offices and on the various sites of the JRC could not be entered on the assets side of the balance sheet.

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Total depreciation of intangible fixed assets depreciated for the first time in 2000 comes to EUR 1996611,04.

All the assets entered in the balance sheet have been depreciated(3).

III. TANGIBLE FIXED ASSETS

A. Land and buildings

Joint Research Centre(4)

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

The method of depreciation was as follows:

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

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

The evaluation conducted by the outside firm at 31 December 2000 was used for the land and buildings of the JRC at Geel and the extra value determined was not depreciated.

Delegations

Land and buildings at delegation sites outside the EU have been revised along with the corresponding depreciation(5).

European Parliament

In May 1998 Parliament invoked its purchase option in respect of a complex in Brussels for which the final investment cost (not including land) comes to EUR 1097 million. In two memoranda of understanding with Parliament, the Kingdom of Belgium made a contribution to the purchase of the land and the development costs. One clause in the memorandum stipulates that, if Parliament moves to other premises, the land will be returned to the Belgian State for BEF 1 or for its market value. An adjustment has therefore been made for the value of the land, which is now entered in the balance sheet at BEF 1.

E. Leasing, financing and similar entitlements

Article 4 of Regulation (EC) No 2909/2000 on the accounting management of the non-financial fixed assets lays down rules for finance leases and similar entitlements.

The criterion for the classification of property covered by leases as fixed assets differs from the criterion used last year and 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 substance of the transaction rather than the form of the contract(6).

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

In March 1994 Parliament signed a long-term leasing contract with a purchase option for a complex in Strasbourg (the Louise Weiss building). As the risks and rewards incident to ownership of the property are transferred substantially to the lessee, this building is entered on the assets side of the balance sheet of the European Communities.

The asset was evaluated on the date on which the lease entered into force at the discounted value of the minimum lease payments due. As Parliament had not decided on the final investment cost by the time the balance sheet was drawn up, the discounted value entered is based on the provisional investment cost at 15 November 2000 by using the contractual interest rate updated by a discount rate based on Euribor for each of the periods. The discounted value at 31 December 2000 before depreciation comes to EUR 395 million for the building and EUR 80 million for the equipment.

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

Up to 31 December 1999 the buildings of these two institutions were covered by a note in the annex to the financial statements and the outstanding charges have been entered under non balance-sheet commitments. In accordance with Regulation (EC) No 2909/2000 of 29 December 2000, these buildings have been entered on the assets side of the balance sheet for the first year.

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

Although accounting rules and principles call for buildings to be classified as such as soon as they are in service, the Council has preferred to keep the payments for the Justus Lipsius building in 2000 (EUR 339.1 million) under fixed assets under construction and advances since an analysis still has to be undertaken to break down total investment into its various components (land, building, installations, machines and tools, etc.). The depreciation for each component could not therefore be calculated and the gross value of this building is thus entered on the assets side.

The Court of Auditors has entered EUR 5 million under this item for the funds placed at the disposal of the project manager for the extension to the Court by means of a transfer to a bank account opened for this purpose.

This item also includes an advance of EUR 26 million granted by the Economic and Social Committee for a long-term lease with purchase option(7).

Virtually all(8) the assets entered in the balance sheet under tangible fixed assets have been depreciated(9). The cumulative depreciation for tangible fixed assets which have been depreciated in 2000 for the first time breaks down as follows:

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The following rates of depreciation have been applied:

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IV. FINANCIAL FIXED ASSETS

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

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

A. Investments in related organisations

EBRD subscription

The European Bank for Reconstruction and Development was given initial capital of EUR 10 billion, of which 3 % was subscribed by the Community. The proportion of this capital called up 30 % has been paid in full.

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

This item covers the full amount of the Commission's subscription to the EBRD's capital which has been called up and paid. Payments outstanding on the proportion of capital called up EUR 51.3 million are recorded under short-term liabilities (EUR 7.4 million) and long-term liabilities (EUR 43.9 million). Payments outstanding on non-called up capital, amounting to EUR 442.5 million, are included in the off-balance-sheet commitments.

European Investment Fund (EIF) subscription

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

As with the EBRD subscription, payments outstanding on non-called up capital (80 %), amounting to EUR 480.00 million, are included in the off-balance-sheet commitments.

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 participation in the provision of equity and subordinated loan capital for joint ventures set up under the European Community Investment Partners Programme (ECIP).

Eurotech capital, Venture consort and JOP

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

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

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

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

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B.3. Guarantees and advances granted

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

Guarantee Fund

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

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

The Interinstitutional Agreement of 29 October 1993 on budgetary discipline and improvement of the budgetary procedure provided, in accordance with the conclusions of the Edinburgh European Council, that the general budget of the European Communities should include a guarantee reserve to cover loans to non-member countries. This reserve is intended to cover the requirements of the Guarantee Fund and, where necessary, activated guarantees exceeding the amount available in the Fund, so that these amounts may be charged to the budget.

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

The Fund is endowed by payments from the Community budget, the proceeds from interest on investments made from the Fund's assets, and sums recovered from defaulting debtors for whom the Fund has had to activate its guarantee.

The entry in the assets side of the Commission's balance sheet represents the Fund's net assets at 31 December 2000.

Since the Fund may be called on to cover defaulting debtors at any time, a provision has been created for risks and liabilities in line with the principle of prudence. This provision (EUR 1266,2 million) corresponds to the target amount for the Guarantee Fund calculated on the basis of the amount outstanding at 31 December 2000(10).

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

The Guarantee Fund surplus to be repaid to the Community budget during the first quarter of 2001 (EUR 165,4 million) is entered as own capital.

Guarantees and advances granted, other financial fixed assets

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V. LONG-TERM ASSETS

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

A. Loans granted from the budget

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

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

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

B. Loans granted from borrowed funds

Under the 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(11).

As these loans are financial assets covered by borrowings, in order to give a true and fair view of the Union's assets and liabilities, financial position and results, all the operations are now set out in the form of a balance sheet and a charges and incomes account(12).

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

For the borrowing and lending operations, the yield on loans and costs of borrowings in 2000 are as follows:

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Under an agreement with the EIB, the latter bears the risks of the NCI treasury instrument. Consequently, the surplus of charges over income is charged to the EIB.

Changes in volume of loans granted by the European Communities:

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The amounts outstanding on borrowings at 31 December 2000 are entered under long-term liabilities in the case of loans due in more than a year and under short-term liabilities in the case of loans due in less than one year. As the duration of the MEDIA II loans is uncertain, the amount outstanding at 31 December 2000 is included under long-term assets.

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C. Other long-term receivables

Loans granted under the MEDIA I programme to promote the development of the audiovisual industry in Europe are included under this item. Since they are not concluded directly between the Commission and the final recipients, these loans are not entered under the heading for loans granted from the budget. Similarly, repayment of loans under the MEDIA II programme depends on the financial success of the projects. EUR 2.8 million has therefore been written off for loans which have been converted into grants.

This heading also includes the financial contribution of EUR 176 million from the Kingdom of Belgium (see note III.A) which is to be paid for a minimum of 10 years ending in 2008. Total interest on this operation is equivalent to EUR 52 million, of which only the interest incurred up to the date of the balance sheet are recorded as short-term receivables.

VI. STOCKS

A: This item covers the stocks of office supplies and consumables at 31 December 2000 and the Commission's stock of building maintenance equipment, valued at the price of the last supplies received and converted to euros at the closing rate, in line with the accounting and consolidation manual.

B: The heading also covers the scientific and technical equipment of the Joint Research Centre. In line with the principle of prudence, the stocks of heavy water, fissile material and samples for industrial and scientific use are valued every year and entered in the balance sheet at the acquisition price or re-sale cost of the last supplies received or the market price, whichever is the lower(13).

C: It also includes the stocks of publications held by the Publications Office, valued according to special valuation rules.

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VII. SHORT-TERM ASSETS

A. Long-term receivables due in less than one year

This heading contains the amounts owed in respect of long-term loans which are due in less than one year. It also includes a loan of EUR 175 million granted to Turkey in 1991 as part of the effort to assist the countries most directly affected by the Gulf crisis.

B. Current assets

B.2. Amounts owed by Member States

- EAGGF guarantee:

This item includes amounts payable by the Member States in relation to the advances for the year-end adjustment (EUR 8.2 million).

It also comprises amounts due to the EAGGF Guarantee Section which have been declared by the Member States and entered in the debtors ledger at the end of the year. This amount - EUR 2010.6 million - partly consists of entitlements which are very unlikely to be recovered. In accordance with the principle of prudence, the European Communities must set aside a provision for part of this amount. However, the Commission is unable to make a precise calculation of the impact of this overestimate since the rules allowing it to obtain the information necessary are not compulsory until 2001(14). For this reason, and in order not to overstate entitlements, a 79,77 % value adjustment (EUR 1604 million) has been determined and entered in respect of bad debts. This correction has been estimated on the basis of Member States' reports for 2001 and information obtained during controls.

Since 2000, Member States have been obliged under Regulation (EC) No 2761/1999 to submit a half-yearly statement of the amounts entered in the debtors ledger. From 2001 onwards, this statement must include entitlements for which the probability of collection is virtually nil even though the recovery procedures have not yet been legally abandoned. A more precise estimate of these entitlements will then be possible.

- VAT paid by institutions and recoverable from the Member States:

This item covers the amounts due in respect of taxes paid by the institutions and recoverable from the Member States. A specific value adjustment of EUR 1.1 million has been calculated.

- Other receivables:

The figure of EUR 869.6 million represents claims on Member States which have been quantified and duly established. Estimates of amounts receivable have been recorded in the Commission's accounts for other entitlements which have not yet been identified as certain, of a fixed amount and due. They are shown in Table 3.

It also includes own resources - this year totalling EUR 2035.4 million - which, under Article 6(2)(b) of Regulation (EC, Euratom) No 1552/89, are established by the Member States but not made available to the Communities as they have not yet been recovered or guaranteed or because they have been challenged.

This figure overestimates the Communities' actual entitlements since the separate account for traditional own resources largely consists of amounts where actual recovery is very doubtful.

However, it is very difficult to make a precise calculation of the impact of this overestimate since detailed information on the possibility of recovering these receivables is very scarce and fragmentary. In ordance with the principle of prudence, a value adjustment of EUR 1286.8 million has been estimated on the basis of previous years' recovery statistics. This value adjustment has been deducted from the item for receivables from Member States on the assets side of the balance sheet.

The fact that this adjustment is entered in the accounts does not mean that the EC is waiving recovery of the amounts covered by the provision.

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Table 1

ACCOUNTS: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END-2000

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Table 2

SEPARATED ACCOUNTS: OWN RESOURCES ESTABLISHED AND STILL TO BE RECOVERED AT END-2000

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Table 3

ESTIMATES OF AMOUNTS RECEIVABLE AT END-2000

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B.3. Amounts owed by Community institutions and bodies

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

B.4. Sundry debtors

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

1. The recovery orders entered in the revenue accounts at 31 December 2000 as established entitlements outstanding.

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

2. Amounts recoverable in respect of fines for infringements against competition rules (EUR 973 million) which have been suspended following an appeal against the Commission's decision and for which a bank guarantee has been lodged. The volume of bank guarantees received to cover fines comes to EUR 639.4 million. In addition, EUR 171.4 million has been collected provisionally.

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

4. All amounts owed as a result of Guarantee Fund operations. These amounts (EUR 215.1 million) break down into capital (EUR 94.6 million), loan interest (EUR 62.1 million) and default interest (EUR 58.4 million).

In view of the risk of non-recovery and in accordance with the principle of prudence, a 100 % adjustment was entered in the accounts for all Guarantee Fund operations which had not been repaid by debtors at 31 December 2000. This was deducted from the value of these entitlements on the assets side of the balance sheet.

5. Amounts paid to financial intermediaries but not yet transferred to the final beneficiary. This item includes advance payments from the budget to public or private intermediaries selected by the Commission to carry out the management or forward these payments to the final beneficiaries, either because of provisions contained in the regulations or as a result of contractual provisions. This amount - EUR 792 million (including bank interest of EUR 49 million) - thus corresponds to the funds held by the intermediaries at 31 December 2000.

The Commission compiled a list of financial intermediaries in 2000. As the procedure followed was of a non-accounting nature and given the number and geographical spread of the intermediaries, the amount entered in the balance sheet may not be complete. However, the improvement on the information for 1999 should be noted(15).

Total value adjustments on current assets break down as follows:

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C. Sundry receivables

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

VIII. CASH INVESTMENTS

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IX. DISPOSABLE ASSETS

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

Funds totalling EUR 1.5 million kept in current accounts with two banks outside the Community which have gone bankrupt will probably prove irrecoverable. As a result, and in accordance with the principle of prudence, an adjustment has been made for these accounts and entered on the assets side (reducing the value of the "Imprest accounts" heading).

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X. TRANSITIONAL ACCOUNTS

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This heading includes interest receivable, mainly accrued interest on loans, investments and swaps. Miscellaneous expenditure still to be booked, i.e. expenditure which could not be finally booked before the close date, is now included with the result of the adjustments. The amount comes to EUR 63.2 million.

LIABILITIES

I. OWN CAPITAL

Until the end of 1999, this item mainly consisted of contra entries for the various items on the assets side which were booked directly as budgetary expenditure for the financial year in question. The item also contained value adjustments for assets, provisions and the contra entry for the entitlements contained in the various current assets headings in the balance sheet which were not included with revenue until they were collected.

A new procedure for entering these factors in the accounts has now been introduced following the adoption of the accounting and consolidation manual. The adjustments are no longer included directly with own capital, but instead an economic outturn is produced for the financial year(16).

The own capital item now consists of:

The economic outturn for the financial year

1. Budget outturn

2. Outturn of adjustments

The economic outturn carried over from previous financial years

This forms part of the cumulative economic outturns (outturn of adjustments) given that the budget outturn is repaid to the Member States.

Reserves

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

2. The reserve for borrowing and lending activities comprises the outturn of borrowing and lending activities which has not yet been entered in the budget.

The economic outturn carried over from previous financial years

The following points must be stressed:

Now only budgetary entitlements are included in the outturn of adjustments. The procedure has thus changed since last year. The value of non-budget assets converted to own capital at 31 December 1999 came to EUR 407 million for the Commission alone. This amount was corrected in 2000.

The allocation for depreciation includes the cumulative depreciation of goods depreciated for the first time (note in item III - Assets).

The budget charges to be regularised (EUR 76.2 million) are now included in the outturn of adjustments. This amount, which came to EUR 97 million at 31 December 1999, was entered in the transitional accounts.

Revenue from fines collected provisionally for infringements of the competition rules (EUR 171,4 million) is now included in the economic outturn. At 31 December 1999 this amount (EUR 154,3 million) was included in the transitional accounts.

The increases in the revaluation of tangible fixed assets prior to 2000 (EUR 62.8 million) entered directly with own capital have been corrected in the outturn of adjustments. This amount will now be entered in the revaluation reserve.

The economic outturn breaks down as follows:

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I.C. Reserves

The reserve for borrowing and lending activities breaks down as follows:

Reserve for borrowing and lending activities

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II. PROVISIONS FOR LIABILITIES AND CHARGES

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In view of the risks involved in lending to third countries, a provision for risks and liabilities has been set up for the net assets of the Guarantee Fund, not including the surplus funds to be repaid to the general budget in the first quarter of 2001 (see note IV.B.3 on the assets side).

A provision for the cost of dismantling the JRC's nuclear installations has been entered for the first time. This provision covers 100 % of the estimated cost for decommissioning installations which have already been closed (EUR 230 million), less payments already made (EUR 2.3 million).

III. LONG-TERM LIABILITIES

This heading includes liabilities due in more than one year.

Financial liabilities include liabilities contracted by the European Communities under Borrowing and Lending activities(17).

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

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

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

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

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

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

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The amounts outstanding on borrowings at 31 December 2000 are entered under long-term liabilities in the case of loans due in more than a year and under short-term liabilities in the case of loans due in less than one year.

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IV. SHORT-TERM LIABILITIES

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

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

B. Other financial liabilities

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C. Current liabilities

C.1. Member States and EFTA countries

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

C.2. Community institutions and bodies

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

C.3. Appropriations to be carried over

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C.4. Sundry creditors

This item covers debts arising from the activities of the European Communities and non-budget recovery orders amounting to EUR 16.315 million.

D. Other liabilities

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

V. TRANSITIONAL ACCOUNTS

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

The substantial reduction in revenue to be charged is due to the change in the procedure employed for revenue collected provisionally from fines which used to be kept in the balance sheet in the transitional accounts (EUR 171,4 million).

In order to harmonise procedures, fines collected provisionally for infringements against competition rules (EUR 154,3 million at 31 December 1999 and EUR 171,4 million at 31 December 2000) are now included in the outturn of adjustments.

The entitlements for re-use still to be recovered are now included under this item as they can be re-utilised.

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

(1) Regulation (EC) No 2909/2000 of 29 December 2000.

(2) Which could not be included in this institution's balance sheet.

(3) In 1999 depreciation was calculated on 69 % of the total value of assets.

(4) The physical inventory of headings C and D for the JRC sites at Geel, Petten, Karlsruhe and Sevilla will only be completed in the course of 2001.

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

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

(7) This amount is not included in the ESC balance sheet.

(8) With the exception of plant, machinery and tools of the representations (2380230,40) and the extra value of 8744962,09 for a JRC building at Geel.

(9) Last year depreciation was calculated on the basis of 60 % of the value of the tangible fixed assets entered in the balance sheet for 1999.

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

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

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

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

(14) Up to now there has been no legal obligation on the Member States to provide this information.

(15) Efforts are still being made to improve the information available.

(16) The figures for the previous financial year have not been adjusted and an explanation of the changes and their impact is provided.

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

ANNEX 3

OFF-BALANCE SHEET COMMITMENTS

POTENTIAL DEBTS AT 31.12.2000

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All these potential debts with the exception of those entered under points 4.1, 4.2 and 6 will have to be financed from future Community budgets if they fall due. The Community budget is financed by the Member States.

POTENTIAL ASSETS AT 31.12.2000(1)

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

EXPLANATORY NOTES

OFF-BALANCE-SHEET COMMITMENTS - POTENTIAL LIABILITIES AND ASSETS

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

POINT 1: OUTSTANDING COMMITMENTS

Commitments against differentiated appropriations still outstanding at 31 December 2000 totalled EUR 65.6 billion of which EUR 2.2 billion is covered by carryovers of payment appropriations from 2000 to 2001. This is the maximum potential commitment.

The report(2) on the "Strategy for outstanding commitments" was presented to the budgetary authority on 15 November 2000. This report analyses those outstanding commitments which may be attributed to delayed payment and which therefore should be eliminated as far as possible. Another report will be presented on 30 June. This report contains the following main conclusions:

The overall amount of outstanding commitments has been tending to grow over the last 10 years, most of the increase being linked to the increase over the same period in commitment appropriations and corresponding to the deferred completion of the operations covered by the budget commitments. These normal outstanding commitments are the direct and legitimate consequence of the implementation of the Community budget.

The "abnormal outstanding commitments" result from a delay in the launching, progress, budgetary implementation or clearance of an operation compared with the programming or normal rate of implementation for this operation:

- for regional policy programmes, the provisions of the relevant regulations hold out the hope of rapid clearance (by the end of 2003) of commitments outstanding from the earlier programming periods and should prevent the constitution of any excessive outstanding commitments for the current period(3);

- for internal policy programmes, in particular the R& D programmes, the reduction and prevention of outstanding commitments are an integral part of the management systems, which will make for a steady decrease in the abnormal component;

- for the external aid programmes, an action plan in place since the end of 1999 has already brought about a significant reduction in old or dormant commitments, as part of the systematic review of commitments which will be completed by the end of 2001.

It is planned to set up a permanent system for monitoring outstanding commitments for all Directorates-General, based on the action plan introduced for external action, in order to prevent the reappearance of any abnormal outstanding commitments beyond 2003.

It would therefore seem possible to start bringing under control, by the end of 2003, the abnormal component of outstanding commitments and to keep the budgetary authority regularly informed of the progress made in eliminating them completely.

The calculation of potentially abnormal outstanding commitments for the main areas concerned at 7 November 2000 was:

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Old commitments are commitments made before 1 January 1995 (i.e. commitments dating back more than five years); the failure to clear these old commitments is usually due to difficulties of implementation.

Dormant commitments are commitments against which no payments have been made over the past two budget years (for regional policy, only the dormant commitments for the Cohesion Fund have to be taken into account).

This initial calculation shows that the abnormal component of outstanding commitments amounts to almost EUR 5 billion, but is still low compared with total outstanding commitments and is divided unevenly between the headings of the financial perspective: while three quarters of all outstanding commitments are accounted for by regional policy, the level of abnormal outstanding commitments is proportionally higher for external action. That is why the measures to reduce abnormal outstanding commitments are concentrated on external action.

POINT 2: LEGAL COMMITMENTS WITHOUT A BUDGET COMMITMENT

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

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

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

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

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

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

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

POINT 3: EAGGF GUARANTEE

3.1. Expenditure between 16.10.2000 and 31.12.2000

The payments taken into account for the Guarantee Section of the European Agricultural Guidance and Guarantee Fund are those made by the Member States between 16 October and 15 October of the following year, provided that the Accounting Officer was notified of the commitment and authorisation by the following 31 January. Payments made by Member States between 16 October and 31 December 2000 are included in the off-balance-sheet commitments.

3.2. Clearance of accounts

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

POINT 4: REPAYMENT GUARANTEES

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

As formulated, the guarantee legally covers the loans signed by the EIB at 31 December 2000 (including loans granted to three Member States before accession). However, it should be noted that these loans have not been fully paid out. At 31 December 2000 the amount paid out totalled EUR 12103 million (EUR 12060 million when the countries which have become Member States are excluded) and this, therefore, is the amount of the risk incurred by the Union. Of the EUR 16784 million paid out up to 31 December 2000, EUR 4681 million has already been repaid.

Third-party guarantees have been obtained for the loans granted by the EIB covered by the Community budget guarantee (EUR 22719 million).

4.2. Borrowings contracted by the European Communities

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

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The Communities have not received third-party guarantees for loans granted under the financial assistance scheme or food aid. However, these loans, totalling EUR 1615,5 million, are guaranteed by the Guarantee Fund.

4.3. Signed by the EIF

At 31 December 2000 the EIF had signed guarantees totalling EUR 2846,2 million; this represents a maximum potential risk of EUR 853.9 million for the European Community. As the Community contributes a total of EUR 600 million to the capital of the EIF, the latter might, in the worst possible scenario, repay EUR 253.9 million. The proportion of the capital subscribed by the European Community which has not been called up (80 %, amounting to EUR 480 million) is also included in the off-balance-sheet commitments as a potential liability (point 9).

POINT 5: LONG-TERM LEASES

5.1. Buildings

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

Commission:

5.1.1. 2.29 ha of land held in Luxembourg under a 29-year lease.

5.1.2. The amounts entered correspond to the rents still to be paid in accordance with the conditions of the contract, plus tax on immovable property. The total amount breaks down as follows:

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Economic and Social Committee and Committee of the Regions:

The amounts recorded mainly relate to a long-term 27-year contract (EUR 169 million) with a purchase option dating from 1 January 2001 and another contract (EUR 334 million) under which the 27-year period for the Committees to invoke their purchase option will not start until the owner has carried out major renovation. As the latter contract contains considerable avoidance clauses, it is considered that the economic risks and advantages in relation to the property are not in substance devolved to the leaseholder. It is not therefore included on the assets side of the balance sheet.

POINT 8: COMMITMENTS IN RESPECT OF PENSIONS

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

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

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

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

Thus the scheme is covered both by the budget (it is booked to the Commission budget) and by contributions, while the payments are guaranteed collectively by the Member States.

The calculation of the estimate of total pensions liabilities (in line with the financing provided for in Article 83 of the Staff Regulation) is consistent with standard IAS 19, an international accounting standard which requires the employer to determine his actuarial commitment on a going concern basis, reflecting service-prorated benefits and taking into account foreseeable salary increases. The actuarial valuation method used to calculate this liability is known as the projected unit credit method (or accumulated entitlements method).

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

The liabilities cover the pension rights of the following persons:

1. Staff in active employment at 31 December 2000 in all the institutions and agencies covered by the Community pensions scheme;

2. Persons receiving a retirement pension;

3. Persons receiving a survivor's pension;

4. Orphans;

5. Persons receiving an invalidity pension;

6. Members and former Members of the Commission.

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

1. Updated mortality tables;

2. Calculation interest in accordance with standard IAS 19: 2,85 % compound;

3. Closed-group model (participants at 31 December 2000);

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

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

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

7. Average salary progression of around 2 %;

8. A pensionable age of 60;

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

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

In accordance with accounting standard IAS 19, the actuarial commitment has been calculated on the basis of a real rate of interest of 2,85 % (the rate at 31.12.2000) and comes to EUR 15.85 billion (including EUR 0.04 billion for the members). If the 1998 rate of 2,5 % had been used, the figure would have been EUR 16.82 billion (including EUR 0.04 billion for the members)

In 2000, the servicing cost comes to EUR 0.66 billion (real interest 2,5 %) and the nominal interest calculated on the actuarial commitment comes to EUR 0.75 billion (nominal interest 4,75 %).

With a 3,78 % rate over 20 years (and a constant real interest rate of 3,9 % for the period up to 1998 as proposed by KPMG), the commitment would be EUR 13.54 billion.

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POINT 9: CONTRIBUTIONS TO RELATED ORGANISATIONS

Potential debts due to contributions to related organisations.

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

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POINT 10: OTHER POTENTIAL COMMITMENTS

Brussels Capital Region tax

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

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

POINT 11: FINES

The following table, classified by year of Commission decision, shows all the cases involving fines which were still pending at 31 December 2000.

This means that:

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

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

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

To understand the column headings, it should be borne in mind that alterations to certain accounting procedures led to changes in accounting entries over the period 1986/1995.

1. Before 1994, fines collected provisionally (from companies opting to pay pending a decision by the Court of Justice) were entered in the budget line provided for this purpose (7100); since then, they have been charged provisionally to a balance-sheet account until the Court's final ruling.

At 31 December 2000 there was only one case under the old system (for EUR 10000) which had not been affected by this change in procedure(4).

2. In 2000 the Commission opened an interest-bearing bank account for all provisional payments of fines. The interest on each fine is divided pro rata in line with the final judgment in the case. The amount is included in this bank account but is not recorded in the attached table.

3. The total for the heading "Appeals pending against Commission decision with payment (provisionally)" is therefore different to the balance-sheet accounts created for this purpose in 1994 and 2000.

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

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

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

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

- fines imposed in 2000 which do not become due until 2001.

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N.B.:

Fines still pending are shown in italics.

POINT 12: FRAUD AND IRREGULARITIES

The two tables are based on the formal reports submitted by the Member States in accordance with Regulations (EEC) No 595/91(5) and (EC) No 1681/94(6), with amounts being broken down by Member State. The tables show the difference between amounts identified by the Member States as still to be recovered (calculated on the basis of established entitlements or estimates) and amounts declared irrecoverable.

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

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

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

- A large proportion of the total for EAGGF Guarantee is, for objective reasons, irrecoverable for no fault of the Member State concerned.

- If, for objective reasons, recovery proves impossible in a particular case, the Commission must decide whether the irrecoverable amount should be charged to the Community budget or to the Member State which failed to fulfil its obligations. This decision may be taken after several years have elapsed (in the case of EAGGF Guarantee Section expenditure, as part of the clearance of accounts procedure).

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

- In the field of structural operations, individual projects are co-financed as part of multiannual programmes. As long as a multiannual programme has not been closed, it is impossible to put an exact figure on the amounts to be recovered because the sums involved in irregularities may, in certain circumstances, be reallocated to other, legitimate projects and because payment by instalments, in particular final payments, can sometimes be used as a means of regularising expenditure.

The figures in these tables are provisional figures based on the reports received and processed up to the end of March 2001. These figures may therefore be changed in line with further reports arriving late.

The prospects of recovery in individual cases cannot be assessed with sufficient accuracy from the information forwarded by the Member States. Experience in recent years shows that the actual rate of recovery scarcely exceeds 20 %.

On the date when the revenue and expenditure account was drawn up, the annual report on the fight against fraud for 2000 had not yet been adopted.

POTENTIAL ASSETS LINKED TO FRAUD AND IRREGULARITIES

requested under Regulation (EEC) No 595/91 (EAGGF-G)

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POTENTIAL ASSETS LINKED TO FRAUD AND IRREGULARITIES

Reported under Regulations (EC) No 1681/94 and EC No 1831/94 (Structural operations)

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N.B.

If these amounts are actually recovered, they may be reprogrammed and used to finance other projects under programmes which have not yet closed.

POINT 13: DECOMMISSIONING OF THE JOINT RESEARCH CENTRE'S NUCLEAR INSTALLATIONS

The decommissioning of the Joint Research Centre's current nuclear installations and waste disposal are estimated at EUR 220 million. A provision amounting to 100 % of the estimated cost has been entered for closed installations (see heading II - Liabilities).

The Commission recognises that these estimates include a margin of error of about 20 %. The experience acquired in various countries around the world proves that the costs involved in decommissioning nuclear installations and in nuclear waste disposal are frequently underestimated, often dramatically.

POINT 14: RENOVATION OF THE BERLAYMONT BUILDING

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

- The Belgian State would finance the cost of cleaning up the Berlaymont (asbestos removed totalling EUR 89 million);

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

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

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

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

A memorandum of understanding was signed between the Commission and the Belgian State on 17 July 2001. This memorandum stipulates that an agreement is to be signed by 31 December 2001 setting a firm maximum price for the Commission to pay and a firm date for the building's return to service.

POINT 15: AGRICULTURAL STOCKS

At 30 September 2000, there was a net potential gain of EUR 155.3 million for the disposal of agricultural stocks - a far higher figure than in the previous year.

Most (EUR 140 million) of the total potential gain is accounted for by cereals. At the time when the figures were adopted for the depreciation of cereal-based products, the market situation for these products was not favourable. The amounts were set at a relatively low level in view of the prospects which were then expected. However, a substantial improvement is forecast for the market situation in 2001, in particular for barley and rye, leading to a considerable rise in the foreseeable sales value and, consequently, an increase in potential gains. The expected sales value is EUR 118.3/tonnes for barley and EUR 80.7/tonnes for rye, compared with a book value of EUR 79.8/tonnes and EUR 63.8/tonnes respectively, which, when applied to the quantities in stock, leads to potential gains of EUR 69.2 million for barley and EUR 54.4 million for rye.

The difference between the two prices for common wheat (EUR 5.8/tonnes) is distinctly lower than for the two other cereals. As the quantity in stock comes to around 2.8 million tonnes, the foreseeable gain amounts to EUR 16.2.

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

AT 30.9.2000

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(1) The presentation of potential assets has been changed from last year to make them easier to comprehend. In future, potential debts to be financed from future budgets will no longer be included in the table of potential debts.

(2) Drawn up by the Commission.

(3) However, some commitments relating to structural expenditure were still outstanding because of ongoing legal proceedings. The Commission cannot cancel these commitments even though, in the light of past experience, it may be assumed that a large number of these commitments will not result in any further payment.

(4) Article 28a of the Financial Regulation.

(5) EAGGF Guarantee.

(6) Structural operations.