Communication from the Commission - Report on progress at 30 june 2004 of the modernisation of the accounting system of the European Commission
Date: 2004-08-18
Institutions: European Commission
Subjects: European Commission, accounting system, financial regulation, institutional reform, management audit

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 18.8.2004 
COM(2004) 565 final 

COMMUNICATION FROM THE COMMISSION 

REPORT ON PROGRESS AT 30 JUNE 2004 OF THE MODERNISATION OF THE 
ACCOUNTING SYSTEM OF THE EUROPEAN COMMISSION 

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1. 

2. 

3. 

3.1. 

3.2. 

3.3. 

4. 

5. 

5.1. 

5.2. 

5.3. 

6. 

6.1. 

6.2. 

6.3. 

6.4. 

7. 

8. 

Introduction .................................................................................................................. 3 

Project Implementation in the first half of 2004 .......................................................... 3 

Accounting issues......................................................................................................... 4 

Accounting rules .......................................................................................................... 4 

Accounting processes................................................................................................... 4 

Control environment .................................................................................................... 4 

Users’ requirements...................................................................................................... 5 

Integration of the accounting systems .......................................................................... 5 

IT architecture for the General Budget ........................................................................ 5 

Loans and borrowings .................................................................................................. 6 

European Development Fund....................................................................................... 6 

Implementation of the modernised accounts in the Commission’s services................ 6 

Preparation of opening balances for the 2005 financial year ....................................... 6 

Development of local IT systems and their links to ABAC......................................... 7 

Validation of the local systems .................................................................................... 7 

Implementation of accrual accounting in the other institutions and agencies.............. 8 

Training ........................................................................................................................ 8 

Conclusion.................................................................................................................... 8 

ANNEX 1: ABAC PROGRAMME STATUS AT 30 JUNE 2004......................................................... 10 

ANNEX 2: INTEGRATED PROGRAMME PLAN 30 JUNE 2004........................................................ 17 

ANNEX 3 : ACCOUNTING FRAMEWORK: ACCOUNTING RULES .................................................... 22 

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1. 

INTRODUCTION 

On  17  December  2002, 
the 
the  Commission  adopted 
modernisation of the accounting system of the European Communities1. Both the Council 
and the European Parliament were informed of this Communication.  

its  Communication  on 

The project on modernising the accounting system addressed three principal issues: 

•  compliance with internationally  accepted accounting principles for the public sector, 
in  particular  regarding  accrual  accounting  (the  recording  of  accounting  events  when 
they occur, and not only when cash is received or paid, or at the year end only); 

•  integration  of  the  financial  and  accounting  systems  held  on  different  informatics 

platforms; 

•  improving  in  the  meantime  the  functioning  of  the  present  system  SINCOM2,  in 
particular concerning security and consistency between data from different sources. 

In  order  to  comply  with  the  new  Financial  Regulation  which  entered  into  force  on  1 
January  20032,  accrual  accounting  should  be  in  place  by  2005,  and  a  timetable  of  the 
actions  required  to  meet  this  objective  was  annexed  to  the  Communication.  Full 
integration of all accounting systems was expected to cover a longer period. 

The  Commission  has  presented  half-yearly  reports3  on  the  progress  made  on  the 
modernisation  project  since  2002.  DG  Budget  established  information  notes  on  the 
progress  made  in  the  intervening  quarters.  The  present  report  summarises  the  progress 
made at 30 June 2004. As was the case for the preceding reports, it will be communicated 
to the relevant committees of the Discharge authorities, and to the Court of Auditors. [An 
oral presentation was made to the Budgetary Control Committee on ……..2004]. 

2. 

PROJECT IMPLEMENTATION IN THE FIRST HALF OF 2004 

The  project  continues  to  be  implemented  largely  in  accordance  with  the  timetable  in 
section 111.3 of the Communication of 17 December 2002, and with the more detailed 
project plan proposed on 8 July 2003. Annex 1 presents a detailed comparison between 
the timetable of 17 December 2002 and the actual implementation. Annex 2 presents an 
update of the milestone plan adopted in July 2003.  

In  essence,  the  accounting  rules  and  chart  of  accounts  have  been  completed,  the 
accounting manual is in its final drafts; the IT functionalities  to support the accounting 
processes  are  being  developed,  and  all  Commission  services  have  launched  the  tasks 
necessary to prepare for the introduction of accrual accounting. 

1 
2 

3 

COM(2002)755 
Articles  133,  134  and  181.2,  last  sub-paragraph,  of  Regulation  (EC,  Euratom)  N°  1605/2002  of 
25.06.2002 
to 30 June 2003 (SEC(2003)790) and to 31 December 2003 (SEC(2004)118) 

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Subject to the testing of the IT functionalities once their development is completed, the 
new  central  IT  system,  termed  ‘ABAC’,  is  expected  to  be  ready  to  undertake  the 
transition to accrual accounting in 2005. 

The main issues arising are presented below. 

3. 

ACCOUNTING ISSUES 

3.1. 

Accounting rules 

Its  opinions  on  the  last  of  the  fifteen  sets  of  accounting  rules  applicable  to  the 
Community’s  accounts  were  adopted  by  the  accounting  standards  committee  at  its 
meeting of 26 April 2004. Annex 3 presents a summary description of each rule.  

On 8 June 2004, the Accounting Officer formally consulted the accounting officers of the 
other institutions and the agencies on these rules, and, once replies have been received, 
will  adopt  them  under  his  sole  responsibility,  pursuant  to  article  133  of  the  Financial 
Regulation, in the third quarter of 2004. 

The  harmonised  chart  of  accounts,  required  by  article  133  of  the  Financial  Regulation, 
has been drafted. The draft accounting manual based on the accounting rules and chart of 
accounts was largely completed by end-June 2004. It is expected to be finalised early in 
the last quarter of 2004 after inter-service consultations. A practical means of evaluating 
certain year-end provisions, such as for claims not yet received, must now be determined. 

3.2. 

Accounting processes 

All the accounting  processes required for the modernised accounting system have been 
defined in functional blueprints, following the completion of an inventory of all present 
accounting processes and the identification of the accounting events to be recorded when 
they occur. These blueprints describe the processes to be introduced by all services, and 
the information to be captured within the IT systems. These blueprints were finalised in 
March 2004. These blueprints are susceptible to refinement in the light of experience. 

The  financial  reports  which  the  new  system  will  be  required  to  produce  have  been 
identified. 

3.3. 

Control environment 

The  modernised  accounting  system  will  depend  on  the  accurate  and  complete 
introduction of data by the many users of the central IT system (some 5000 at present). 
The  screens  being  developed  for  users  will  progressively  provide  assistance  aimed  at 
minimising  the  risk  of  error,  but  the  quality  of  the  data  introduced  will  depend  on  the 
control environment put into place by each Authorising Officer by Delegation. Guidance 
is this matter, which is also relevant for local IT systems, has been drafted in a document 
entitled ‘Accounting objectives and control framework’, which presents in particular the 
risks associated with each category of transactions, and the controls proposed to counter 
these risks. This document was finalised in March 2004. 

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The criteria for the validation of authorising officers’ financial systems will be finalised 
in July 2004. A detailed questionnaire permitting a readiness assessment by each service 
regarding the respect of these criteria is being prepared.  

4. 

USERS’ REQUIREMENTS 

The final report summarising user requirements was adopted on 30 September 2003, after 
being validated formally with each service.  

DG Budget maintains its ambition that ABAC will meet as many of these requirements 
as  possible,  notably  for  improved  information  for  financial  managers,  and  hence  to 
support the reform of financial management. Some needs not formally required under the 
new  Financial  Regulation  will  not  be  met  by  2005  but  will  be  included  in  subsequent 
development phases. 

The Commission’s Joint Research Centre is assisting in the development of multi-annual 
information on the programmes, projects and contracts. 

5. 

INTEGRATION OF THE ACCOUNTING SYSTEMS 

The  most  challenging  component  of  the  project  is  to  integrate  the  existing  financial 
management  and  accounting  systems,  to  develop  the  systems  so  as  to  provide  accrual 
accounting, and to provide users with user-friendly screens which will help ensure a high 
quality of the data captured. The present situation is summarised below. 

5.1. 

IT architecture for the General Budget 

The new system, termed ‘ABAC’, will comprise workflows for payment claims (ABAC-
invoices), for contracts and related commitments (ABAC-contracts) and for fixed assets 
(ABAC-assets).  A  number  of  other  services  will  continue  to  supply  accounting 
information from their local IT systems 

The main issues are: 

•  Testing  the  new  system.  Testing  of  the  individual  components  of  ABAC  is 
planned  between  mid-July  2004  until  end  September,  as  each  is  developed. 
The  working  of  the  system  as  a  whole  will  then  be  tested  by  multi-
disciplinary teams, work planned for October 2004.  

•  Transition  to  the  new  system.  All  the  issues  to  be  addressed  regarding  the 
opening  of  the  2005  year  in  the  new  system  are  being  identified,  so  that  a 
detailed plan can be established in good time.  

•  Links to local systems. The technical specifications for these links were made 
available by 31 May 2004, as planned. They are susceptible to refinement in 
the light of experience. Those for version 1 of ABAC-Contract were released 
on  1  April,  and  will  be  enhanced  by  subsequent  versions.  The  services 
concerned have scheduled the work required to meet these specifications, but 
consider  that  there  is  a  risk  that  they  will  not  be  able  to  complete  all  the 

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necessary  developments  in  good  time  for  them  to  be  tested  and  released  by 
the year-end.  

•  External  delegations  and  press  offices.  The  large  number  of  small  services 
outside  the  Commission's  headquarters,  to  which  financial  responsibilities 
have  been  deconcentrated,  will  be  progressively  integrated  into  the  central 
system as from 2005. The expenditure concerned is immaterial, consisting of 
imprest accounts and office equipment. 

5.2. 

Loans and borrowings  

As  regards  operations  outside  the  Commission’s  budget,  the  loans  and  borrowings 
activities,  at  present  recorded  on  Globus,  a  system  owned  by  DG  ECFIN,  will  be 
integrated  into  the  central  accounts  as  from  July  2005,  when  DG  ECFIN  expects  to 
migrate from its present system to an SAP banking module, CFM. 

This  decision  was  taken  after  a  feasibility  study  and  after  a  comparison  of  different 
solutions which would offer DG ECFIN the services required for the management of its 
financial activities, and permit an integration of the accounting for these activities with 
the accounts of the general budget. 

5.3. 

European Development Fund 

As  a  separate  exercise,  the  accounts  of  the  European  Development  Fund,  which  are  at 
present separate from the accounts of the General Budget, must also be modernised. 

In collaboration with AIDCO, the workflows for the management of EDF projects will 
be  transferred  from  the  present  EDF  accounting  system  (OLAS)  to  AIDCO’s  local 
system  (CRIS),  and  the  EDF  accounts  will  be  kept  on  an  accrual  basis  in  ABAC.  The 
advantages  of  this  solution  are  that  it  prepares  the  way  for  any  integration  of  the  EDF 
into  the  General  Budget,  and  it  allows  EDF  payments  to  be  executed  through  the 
functions developed for the General Budget.  

Whilst EDF payments will be made through the general budget’s accounting system by 
September 2004, the  IT  developments  necessary for full accrual accounting will not be 
implemented  until  2005,  after  ABAC  and  the  parallel  developments  of  CRIS  are 
completed. The accounts of the EDF for the 2005 year will be prepared from information 
held in OLAS, as adapted to provide a basis for accrual accounts. As from 2006, the new 
ABAC-EDF  system  should  be  fully  compliant  with  the  requirements  of  accrual 
accounting. 

6. 

IMPLEMENTATION  OF  THE  MODERNISED  ACCOUNTS  IN  THE  COMMISSION’S 
SERVICES 

6.1. 

Preparation of opening balances for the 2005 financial year 

On the basis of high-level plans submitted by all services, DG Budget allocated 4,5 mio € 
to allow the recruitment of temporary staff for the inventories of information necessary 
for  the  opening  of  the  2005  year’s  accounts.  The  transfer  of  these  funds  to  the  policy 
areas  concerned  was  approved  by  Parliament  on  3  May.  The  staff  commenced  work 
between mid-June and mid-July.  

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Detailed plans for the implementation of each task were submitted to DG Budget by end-
April, and reports on progress made were submitted at end-June by all DGs and services. 
From  an  analysis  of  this  information,  the  situation  at  the  end  of  June  2004  was  as 
follows: 

(1) 

Prepare  a  complete  inventory  of  all  uncleared  prefinancing  and  related 
guarantees, which requires the examination of all open commitments; 

29% of the 45 000 open commitments have been examined, and 17% of the 23 000 with 
guarantees, excluding the structural funds which follow a specific procedure.  

(2) 

Assist  the  constitution  of  a  file  of  all  legal  entities  with  which  the 
thus  complete 
Commission  has  contractual 
administrative reform action 74); 

relationships 

(and 

Of  the  214  000  bank  accounts  which  may  represent  a  legal  entity,  67  000  have  been 
identified as mandatory for linking by end-2004 with a legal entity on the basis of legal 
references  and  supporting  documents.  The  remainder  have  been  allocated  a  second 
priority,  as  they  concern  closed  commitments,  or  beneficiaries  of  small  amounts  of 
payments. 15% of the mandatory files have been created, and 3% of the second priority 
files. 

Each  DG  expects  to  complete  the  work  necessary  to  establish  the  opening  accounting 
balances  by  the  year-end,  but  to  achieve  this  objective,  the  rate  of  examination  of  files 
will  have  to  be  increased.  Room  for  manoeuvre  exists:  temporary  staff  only  arrived  in 
mid- or end-June, so the DGs had therefore not yet reached their full production capacity. 
There remains some concern that the creation of the mandatory legal entity files will not 
be completed by the year end, with the consequent risk of delays to payments to certain 
beneficiaries in 2005. Furthermore, the concentration of the activities of almost all DGs 
in the second half of 2004 increases the risk that DG Budget will be unable to process in 
good time the consequent volume of files submitted for validation each month. 

DG  Budget  will  address  these  risks,  will  work  closely  with  each  service  to  accompany 
these tasks, and will provide training in parallel with the timetables set out in these notes.  

6.2. 

Development of local IT systems and their links to ABAC 

The essential of the IT developments required of the services other than DG Budget has 
been scheduled over the second half of 2004. According to the self-assessments received 
by  end–June  2004,  all  expect  to  complete  these  developments  by  the  end  of  2004. 
However, given the limited time available, several expect to complete development at a 
date which leaves no margin for unforeseen circumstances There is a consequent risk of 
delays to commitments and payments at the beginning of 2005.  

6.3. 

Validation of the local systems 

In accordance  with article  61 of the Financial Regulation, the Accounting Officer must 
validate  local  systems  which  supply  or  justify  accounting  information.  A  high-level 
assessment of service’s system will be completed by end-2004, and only links between 
the central system and validated local systems will be accepted in 2005. A more in-depth 

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examination of each system will commence in 2005, once they have begun operating in 
the new environment of ABAC. 

6.4. 

Implementation of accrual accounting in the other institutions and agencies 

The  Commission  invited  each  institution  and  agency  to  undertake  a  ‘readiness 
assessment’ for their application of the new accounting rules and accrual-based accounts. 
From an analysis of the replies, and information exchanged during meetings, it appears 
that each is taking the necessary steps.  

Several agencies and smaller institutions use a version of the Commission’s Si2 system 
for  their  budgetary  accounts.  By  letter  of  its  Secretary-General  of  22  June  2004,  the 
Commission  agreed  to  continue  to  make  Si2  available  during  2005,  and  to  make  all 
modules of ABAC available to those entities which wished to use them, together with the 
technical specifications necessary to link them to their own systems.  

The Commission has also suggested that the Agencies develop a shared IT platform on 
which  to  run  their  copies  of  ABAC.  This  solution,  aligned  on  a  recommendation  by 
Parliament, would be cost-efficient, while preserving the independence of each Agency. 

7. 

TRAINING 

A programme of training has been undertaken. During the first half of 2004, the courses 
concerned accounting matters, and the users of the functionalities introduced during that 
period  (the  central  invoice  register,  the  recording  of  legal  entities,  prefinancing, 
contracts).  In  addition  to  the  840  persons  trained  for  the  legal  entities’  exercise,  a  self-
learning facility has been made available on the PCs of all users. 

A programme of training of the future users of the ABAC system was adopted at the end 
of June 2004. With the assistance of external experts, this will be implemented between 
October and February 2005, and be aimed firstly at a core of users in each service, and 
then extended in 2005 to all users of ABAC. The users’ training modules are designed to 
become a guide to users, and to form the basis of a continuous training programme for 
future users. Each service with a local system is expected to undertake its own training 
programme for users of that system.  

8. 

CONCLUSION  

The  modernisation  project  has  very  largely  met  the  objectives  set  for  June  2004.  The 
project  aims  to  continue  to  respect  the  time-table  set,  so  far  as  concerns  meeting  the 
formal  requirements  of  the  new  Financial  Regulation  in  2005.  The  Commission  still 
considers that this ambitious objective is feasible, though remaining subject to the risks 
faced by all large-scale IT developments. 

All services are investing heavily to prepare the information necessary for the opening of 
accrual-based  accounts,  and  to  make  the  necessary  adaptations  to  their  local  systems. 
There is a significant risk that information will not be completely prepared by 1 January 
2005, that some local IT systems will not be ready to be linked to ABAC by that date, or 
that  one  or  more  of  the  ABAC  modules  will  not  be  ready  to  process  the  information 
supplied. Some disruption to day-to-day financial operations must be expected at the end 

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of 2004, as staff prepare for the transition, and at beginning of 2005 as staff familiarises 
itself  with  the  new  system,  and  completes  the  input  of  the  information  required  by  the 
system. The Commission is addressing these risks by ensuring that priority is given to the 
gathering of the most essential information, and by identifying the means of ensuring that 
the  2005  accounts  will  contain  all  the  accounting  records  required  for  accrual  accounts 
even if these risks materialise.  

The  extra-budgetary  activities  of  DG  ECFIN  will  be  integrated  with  the  central 
accounting system of the Commission by July 2005. During the first six months of 2005 
the accounting of the extra-budgetary activity will, as in the past, be accrual based. The 
European Development Fund will use ABAC for its payment process in 2005, and for its 
accounting processes in 2006. 

The  project  is  still  expected  to  provide  each  service’s  management  in  the  longer  term 
with more reliable and complete information on the assets and liabilities for which it is 
responsible, on its financial relationships with each supplier, and, in the medium term, on 
the financial implementation of multi-annual projects and commitments. 

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ANNEX 1: ABAC PROGRAMME STATUS AT 30 JUNE 2004 

(Referenced to the Timetable in section III.3 of the Commission's communication 
COM(2002)755 final) 

1. 

Accounting Framework Timetable 

1.1. 

Devising the new accounting framework 

1.1.1.  Provision by the Accountant of an initial analysis of accounting requirements 

based on the Commission’s decision 
Dead-line 1st quarter, completed second quarter 
Initial analysis of accounting requirement based on the Commission's decision 
was drawn up by June 2003 and used as a basis to develop the accounting rules 
and to determine the IT development issues. 

1.1.2.  Establishing the accounting standards to be applied by the European 

Communities 
Dead-line: draft 2nd quarter, priority standards 4th quarter, other standards 6th 
quarter. Timetable met. 
The accounting officers of the other institutions and the agencies were consulted 
on all eighteen sets of accounting rules applicable to the Community's accounts 
on 8 June 2004. 

1.1.3.  Setting up an accounting standards committee 
Dead-line: 1st quarter: timetable met. 
An Accounting Standards Committee was set up in March 2003 and has met 
monthly to discuss, and give its advice and judgement on the Accounting rules 
that have been developed. A final meeting is planned on 16 July to examine 
comments on the proposed rules. 

1.1.4.  Adapting the chart of accounts 

Dead-line: draft 2nd quarter, final 4th quarter: dead-line met 
Based on the analysis of events giving rise (1.1.5), accrual accounting and 
budgetary impacts have been identified per business event.The inventory of 
accrual accounting entries and procedures has been carried out. Based on this 
inventory, currently being validated, and on the accounting rules (1.1.2), the 
draft Chart of Accounts has been created. 

1.1.5.  Defining the event giving rise 

Dead-lines: draft 2nd quarter, final 4th quarter: deadlines met. 
An inventory of financial processes was carried out in all services.  
All events giving rise have been described in flows and validated by the 
different services. 

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1.1.6.  Extending the scope of consolidation 

Dead-line 9th quarter: work started and in progress. 
The scope of consolidation will be extended for the 2005 accounts. An IPSAS 
compliant consolidation scope is under development.  
A significant extension of the consolidation scope is already foreseen. The 
following steps are planned to carry out the new consolidation: 
- development of the consolidation functional requirements,  
- consolidation manual,  
- consolidation reporting pack, and  
- the selection and implementation of a consolidation tool. 

1.1.7.  Financial statements 

Dead-line 9th quarter: work started and well advanced 
Financial statements have been defined as part of the accounting rules (1.1.2), 
and the chart of accounts drawn up accordingly. The accounting rules relating to 
the financial statements has been prepared. 

1.2. 

Integrating accounting data 

1.2.1.  Fixing the opening balances 

Dead-lines: provisional 4th quarter, definitive 8th quarter: on schedule 
The analysis of the impact of accrual accounting on opening balances is largely 
completed. Procedures are being put in place to collect the opening balances for 
pre-financing, guarantees and invoices received and not yet paid. 

1.2.2.  Defining the “object codes” and linking the budget accounts and general 

accounts 
Dead-lines: plan 4th quarter, linking 7th quarter: on schedule 
Based on the inventory of financial processes (1.1.5) and the chart of accounts, 
object codes have been defined and linked to budget and general accounts.  

1.2.3. 

Integrating contingent assets and liabilities (off-balance sheet items) 
Deadlines: inventory 4th quarter, guarantees 5th quarter, integration 9th quarter. 
On schedule 
The Business Event flows for contingent assets and liabilities have been 
organised into functional blueprints. 

Each Blueprint describes the entire activities workflow capturing the required 
accrual accounting information. 

The necessary data for Accrual and Budgetary accounting as well as user data 
requirements have been organised into a Data Model.  

The Data Process Model, in the blueprints, combines the Data Model and the 
activities workflow. 

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Those Blueprints will be further fine tuned up to the implementation phase. The 
strategies for inventories and for guarantees were adopted during the 4th quarter 

1.2.4.  Management and entry in the accounts of prefinancing, interim payments and 

final payments 
Dead-line 5th quarter: strategy adopted in 4th quarter, the identification of up to 
60 000 prefinancing balances to be undertaken in 2004 
Pre-financings for all open commitments and balances will be analysed and 
recorded in the accounts during 2004. The related strategy has been distributed 
to all services in December 2003. 

1.2.5.  Creating a link between the Central Invoice Register and the accounts 

Dead-line: use of CIR mandatory 4th quarter, link to general accounting 7th 
quarter. One quarter delay 
Invoices will be recorded in CIR and linked to the general accounts during 2004. 
During the 5th quarter, CIR was deployed in almost all services lacking an 
equivalent IT tool to support the process. The links are scheduled for the 7th 
quarter, once CIR is upgraded to become ABAC-invoices and to provide 
enriched information. The related strategy was communicated to all services in 
December 2003. 

1.2.6.  Receivables and files of clients and suppliers 

Dead-line 5th quarter: on schedule regarding the creation of the files 
All current Third Party files will be collected, centralised, completed, cleansed 
and validated during the year 2004 to finally be migrated into the future system 
at the end of 2004. The related strategy was distributed to all DGs at end- 2003. 

1.3. 

Organisation of internal control of accounting data 

1.3.1.  Expanding internal control in each DG to include accounting aspects draft 

definitive 
Dead-lines: draft 4th quarter, definitive 8th quarter: on schedule 
The Control Framework has been developed. 

1.3.2.  Supporting evidence for balance sheet balances through inventories 

Deadline 7th quarter: on schedule 
A complete and accurate inventory of fixed assets will be carried out during 
2004. 

1.3.3.  Certification of local systems 

Deadline: 9th quarter: on schedule 
Local systems will be the subject of a high-level assessment at the end of 2004, 
and in-depth examination as from when they are linked to ABAC in 2005. 

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1.4. 

Training and awareness raising among those concerned 

1.4.1.  Training 

Implementation 3rd to 6th quarters: rescheduled to better fit the needs of other 
services 
Information sessions on the project commenced in the 4th quarter.  
Based on the training strategy developed and communicated to the DGs in 
December, the training activities throughout 2004 have been planned, and their 
implementation aligned to the release of IT functionalities. The training modules 
for users of ABAC are currently being prepared. 

1.4.2.  Recruitment 

Dead-line 3rd quarter: deadline met for 2003 posts. 
17 additional resources under the 2004 budget have been added to the ABAC 
project in 2004. 

1.4.3.  Network accounting correspondent 
Dead-line 1st quarter: deadline met 
Accounting correspondents have been identified, meetings have been organised, 
and regular information session and discussion are already planned as part of the 
communication strategy and plan. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

Improvement of current system architecture 

Reconciliation of Si2 and R/3 data for 2002 
Dead-line 2nd quarter: met 
Reconciliation of Si2 and R/3 data for 2002 has been completed and validated 
early in 2003. 

Development of a written security policy 
Deadline 2nd quarter 
A security policy for SinCOM 2 has been written during the second quarter of 
2003 and adopted in July 2003. 

Comparison of security management principles 
Dead-line 3rd quarter: met 
The current security policy has been compared to relevant international 
standards in 2003 and deemed appropriate. It will be reviewed in the light of 
experience in 2004. 

Fixing of rules governing the incorporation of security elements 
Dead-line 3rd quarter: met 
Rules governing the incorporation of the security elements in the new 
functionalities have been designed in the third quarter of 2003. 

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2.5. 

2.6. 

2.7. 

3. 

3.1. 

3.2. 

3.3. 

Development of computerised tools to facilitate the management and audit of 
access rights 
Dead-line 3rd quarter: partially met 
Access rights have been audited but the relevant computer tool is not yet in 
place as the version developed by consultants was not accepted. A computer tool 
to facilitate the management and audit of access rights will be developed for 
ABAC during 2004. 

Development and implementation of a web based version of Si2 
Dead-line 4th quarter: not met  
Part of the web based version of Si2 was developed in 2003 (the inbox) but not 
implemented. The development will be continued and implemented in 2004 as 
the ABAC front-end application for the DGs. 

Elimination of redundant data 
Dead-line 4th quarter: partially met, will be completely met only when accounts 
are integrated in the 8th quarter. 
Data management activities are included in the overall IT planning, and include 
data cleansing phases (elimination of redundant data, correction of errors, 
completion of missing data,…). 

Development of the new system architecture 

Feasibility study of the new architecture – and in particular an examination of 
how sectorial systems can be integrated 
Dead-line 2nd quarter: met 
A feasibility study has been completed in May 2003, including the examination 
of the integration of sectorial systems. 

Detailed road-map for implementation of the next computerised system 
Dead-line 2nd quarter: met 
A detailed road map for the implementation of the new system was developed in 
May 2003 and is maintained on a daily basis. It is structured around the key 
milestones identified during the feasibility study. This road map has been further 
developed into an implementation plan. 

Analysis of users’ management needs 
Dead-line 3rd quarter: met 
Users' management needs have been recorded through workshops, analysed, and 
categorised, and are mapped against planned system functionalities to ensure 
proper alignment of the system future functionalities on the users needs. The 
final report was issued on 30 September 2003. 

EN 

14 

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3.4. 

Design of proposed solutions – the progressive functional and technical 
definition of the system 
Dead-line 4th quarter: largely met. 
The design of the proposed solution will be performed in two phases: the 
production, and validation, of first functional, then technical blueprints. 

Functional blueprints consolidate the accounting rules, operational activities and 
data model and, as such, define the functional foundation of the future system. 
These were finalised in December 2003 and issued for comments by all services. 

The technical blueprints built upon the functional blueprints to translate in 
technical terms and actual system functionalities the functional specifications. 
These were ready in March 2004, but are susceptible to refinement in the light 
of experience. 

3.5.  Migration towards SAP Enterprise 

Dead-line 7th quarter: completed by 3rd quarter. 
Some problems occurred, and were resolved in collaboration with SAP 

3.6. 

3.7. 

3.8. 

User workshops and feedback 
Dead-line 4th quarter: met, though feedback will be continuous throughout the 
project. 
Workshops with users of all DGs have been conducted in 2003. The collected 
information, users' requirements, has been analysed and categorised and has 
been incorporated in the functional blueprints. Users' feedback is collected on an 
ongoing basis during the whole implementation, and will be collected during 
testing phases. 

Progressive implementation of new functionality – once additional functionality 
is available to meet users’ needs, it would be implemented rather than wait for 
the deadline of January 2005 
Dead-line 6th quarter: on schedule for relevant functionalities (invoices, 
contracts, prefinancing) 
The system implementation has been phased to allow a progressive 
implementation of available functionalities. 

New functionalities adapted to take account of tests 
Dead-line 7th quarter: on schedule 
The testing phase, that will take place in late 2004, is part of the overall plan and 
will guarantee that functionalities are meeting both accounting principles and 
users' requirements. 

3.9. 

Training for key users 
Dead-line 8th quarter: scheduled. 
The training plan incorporates Key Users training activities to ensure Key Users 

EN 

15 

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receive the adequate level of formation. 

3.10.  Release of new system 

Dead-line 8th quarter: expected to be met. 
Preparation and planning for bespoke developments have been completed for 
ABAC-Workflow (Invoice), ABAC-Contracts and ABAC-Assets. The rollout of 
ABAC-Workflow (invoice) started in early January. Other ABAC modules will 
be rolled-out during 2004, accordingly to the project plan. 

EN 

16 

   EN 

 
 
ANNEX 2: INTEGRATED PROGRAMME PLAN 30 JUNE 2004 

List of milestones 

At 

At 

At 

At 

At 

31/12/03 

31/12/03 

30/06/04 

30/06/04 

30/06/04 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % of 

Completion 

1 

2 

3 

4 

5 

6 

7 

Project infrastructure is set-up 

Project Man. 

February 

30/06/03 

February 

30/06/03 

Done 

Accounting Standards defined 

Accounting 

February 

31/08/03 

February 

31/08/03 

Done 

Business events analysed 

Accounting 

May 

31/01//04  May 

31/01//04 

Done 

Accounting objectives and control 
framework updated and issued 

Draft architecture strategy is 
defined 

Draft user requirements 
documented 

Chart of accounts updated and 
object code mapping done, 
functionalities defined 

Accounting 

01/09/03 

31/10/03 

01/09/03 

31/10/03 

Done 

IT 

February 

15/07/03 

February 

15/07/03 

Done 

User Req. 

March 

30/06/03  March 

30/06/03 

Done 

Accounting 

15/07/03 

31/01/04 

15/07/03 

31/01/04 

Done 

EN 

17 
EN 

 
 
 
 
 
 
At 

At 

At 

At 

At 

31/12/03 

31/12/03 

30/06/04 

30/06/04 

30/06/04 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % of 

Completion 

8 

Functional Blueprint, Data/ 
process model prepared and 
validated 

IT/Accounting 

15/07/03 

15/01/04 

15/07/03 

15/01/04 

Done 

9a 

Functional architecture proof of 
concept built and tested 

9b 

Prototypes completed 

IT 

IT 

01/07/03 

15/10/03 

01/07/03 

15/10/03 

Done 

16//10/03 

31/01/04 

16//10/03 

31/01/04 

Done 

10 

11 

12 

Local systems and SI2 adaptation 
capacity analysed 

Consolidated entities identified 
and informed 

High-level DG Budget processes 
defined 

IT/DG 

15/09/03 

15/12/03 

15/09/03 

15/12/03 

Done 

Accounting 

01/10/03 

31/10/03 

01/10/03 

31/10/03 

Done 

Accounting 

01/10/03 

14/11/03 

01/10/03 

14/11/03 

Done 

13 

Data / process gap addressed 

IT/Accounting 

15/09/03 

31/01/04 

15/09/03 

31/01/04 

Done 

14 

User requirements finalised 

User Req. 

09/07/03 

30/09/03 

09/07/03 

30/09/03 

Done 

15 

Priority gaps are addressed, 
obsolete systems identified 

DG’s 

15/07/03 

15/01/04 

15/07/03 

15/01/04 

Done 

EN 

18 
EN 

 
 
 
 
 
 
At 

At 

At 

At 

At 

31/12/03 

31/12/03 

30/06/04 

30/06/04 

30/06/04 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % of 

Completion 

16 

Accounting Standards, chart of 
accounts and manual final draft 
issued 

Accounting 

16/10/03 

30/06/04 

16/10/03 

30/06/04 

16a  Accounting Rules 

Accounting 

16/10/03 

30/06/04 

16/10/03 

30/06/04 

Done 

16b  CoA 

Accounting 

16/10/03 

30/06/04 

16/10/03 

30/06/04 

Done 

16c  Accounting Manual 

Accounting 

15/11/03 

30/06/04 

15/11/03 

30/06/04 

90% 

17 

Final 2005 IT architecture defined 

IT 

20/11/03 

15/01/04 

20/11/03 

15/01/04 

Done 

18 

Implementation plan prepared 

IT 

15/07/03 

02/01/04 

15/07/03 

02/01/04 

Done 

19 

Detail DG plans prepared 

DG’s 

15/10/03 

28/02/04 

15/10/03 

28/02/04 

19a  HL DG impact assessment and 

DG's 

15/10/03 

15/01/04 

15/10/03 

15/01/04 

Done 

plans prepared 

19b  Detailed DG plans prepared 

DG's 

15/01/04 

28/02/04 

15/01/04 

28/02/04 

Done 

20 

Technical blueprint completed and 
prototype validated 

IT 

03/11/03 

15/02/04 

03/11/03 

15/02/04 

Done 

EN 

19 
EN 

 
 
 
 
 
 
 
 
At 

At 

At 

At 

At 

31/12/03 

31/12/03 

30/06/04 

30/06/04 

30/06/04 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % of 

Completion 

21 

22 

Integrated Central system 
validated 

Sectorial systems improved, 
interfaces completed and tested 

IT 

01/02/04 

31/05/04 

01/02/04 

31/10/04 

In progress 

DG’s 

15/01/04 

31/12/04 

15/01/04 

31/12/04 

In progress 

22a  DG's Functional requirements 

finalised 

Accounting/User 
Req. 

15/01/04 

15/02/04 

15/01/04 

15/02/04 

Done 

22b 

Interfaces technical requirements 
ready 

IT 

01/03/04 

31/05/04 

01/03/04 

31/05/04 

Done 

22c1  Local systems improved and tested  DG's 

01/02/04 

30/10/04 

01/02/04 

30/10/04 

In progress 

22c2 

Interfaces developed and tested 

DG's 

01/04/04 

31/12/04 

01/04/04 

31/12/04 

In progress 

23  Manual processes are defined and 

DG’s 

15/01/04 

29/09/04 

15/01/04 

29/09/04 

In progress 

tested  

24 

DG Budget processes validated 

Accounting 

04/02/04 

30/06/04 

04/02/04 

30/06/04 

Done 

25 

Consolidation 

Accounting 

06/01/04 

27/08/04 

06/01/04 

31/12/04 

60% 

26 

Integration tests performed 

IT 

01/06/04 

31/07/04 

01/06/04 

15/10/04 

EN 

20 
EN 

 
 
 
 
 
 
 
At 

At 

At 

At 

At 

31/12/03 

31/12/03 

30/06/04 

30/06/04 

30/06/04 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % of 

Completion 

27 

User acceptance tests made 

28 

Data migration prepared 

29 

IT Systems realised 

30 

User trainings completed  

IT 

IT 

IT 

IT 

01/09/04 

30/09/04 

01/09/04 

31/10/04 

05/04/04 

10/11/04 

05/04/04 

10/11/04 

In progress 

01/02/04 

31/08/04 

01/02/04 

15/09/04 

In progress 

01/10/04 

30/11/04 

01/10/04 

30/11/04 

31 

Accounting Standards, chart of 
accounts and manual finalised 

Accounting 

01/12/03 

05/11/04 

01/12/03 

05/11/04 

In progress 

32 

Trainings completed 

Project man. 

05/11/03 

30/11/04 

05/11/03 

28.02.05 

In progress 

33 

Closing instructions sent 

Accounting 

08/11/04 

01/12/04 

08/11/04 

01/12/04 

34 

DG’s processes and systems 
signed off 

Accounting 

01/07/04 

31/12/04 

01/07/04 

31/12/04 

34a  Local systems signed-off 

Accounting 

01/07/04 

30/11/04 

01/07/04 

30/11/04 

34b 

Interfaces signed-off 

Accounting 

30/09/04 

31/12/04 

30/09/04 

31/12/04 

35 

Final preparation completed 

IT 

01/10/04 

31/12/04 

01/10/04 

31/12/04 

36 

First part of the programme closed  Project Man. 

28/12/04 

07/01/05 

28/12/04 

07/01/05 

EN 

21 
EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
ANNEX 3 : ACCOUNTING FRAMEWORK: ACCOUNTING RULES 

Financial  statements:  This  standard  follows  the  IPSAS  1  requirements,  as  adapted  to 
the requirements of the Financial Regulation. For instance, the complete set of financial 
statements includes the following components: 

(a) Balance Sheet 

(b) Economic outturn 

(c) Statement of changes in Capital 

(d) Cash Flow Table 

(e) Accounting Principles, Rules and Methods and Notes to the Financial Statements and 

(f) Segment Reporting (included in the notes to the financial statements). 

Group accounting: The scope of the consolidation is a significant issue that is addressed 
in  this  rule.  This  rule  defines  three  major  categories  of  entities  that  should  be 
consolidated: controlled entities (meaning those over which the European Communities 
have  an  exclusive  control),  associate  entities  (those  where  the  European  Communities 
have a significant influence on the entity) and joint ventures (the European Communities 
have a joint control). For each category, the European Communities would have to adopt 
a  specific  accounting  procedure:  global  consolidation,  equity  method  or  proportionate 
consolidation.  The  European  Development  Fund  is  excluded  from  the  scope  of 
consolidation, but will be disclosed in the notes to the accounts as funds managed by the 
Commission on behalf of the Member States and their ACP partners. 

Foreign  currency  conversion:  the  European  Communities  have  to  deal  with 
transactions that are denominated in a foreign currency. A transaction should be initially 
recorded by applying the exchange rate at the date of transaction. At each reporting date, 
the  European  Communities  would  have  to  update  this  valuation  and  calculate  an 
exchange  difference.  Both  realised  and  unrealised  exchange  gains  or  losses  should  be 
recognised in the statement of financial performance at the reporting date. 

Property,  plant  and  equipment:  This  rule  sets  the  accounting  requirements  regarding 
the recognition and measurement of property, plant and equipment. It establishes that an 
item  of  property,  plant  and  equipment  should  be  recognised  as  an  asset  when  it  is 
probable that future economic benefits or service potential associated with the asset will 
flow  to  the  entity;  and  the  cost  or  fair  value  of  the  asset  to  the  entity  can  be  measured 
reliably. Buildings, land, and hardware are considered as fixed assets. 

The generating event for the recognition of an item of property, plant or equipment is the 
transfer of property, which is generally equivalent to the date of delivery. Regarding the 
measurement, the rule sets out the nature of the costs to be included in the purchase price 
and explains how to identify assets under construction. 

Depreciation expense is recognized on a systematic basis over the asset's useful life i.e. 
pro- rata temporis, reflecting the pattern in which the asset's benefits are consumed by the 
European Communities. 

EN 

22 

   EN 

 
In  addition  to  the  depreciation,  specific  events  can  have  an  impact  on  the  value  of  the 
asset  (effect  of  time,  obsolescence,  falling  market  value,  etc  …).  When  an  impairment 
indicator  is  activated,  additional  depreciation  should  be  recognised.  Thus,  the  value  of 
property, plant and equipment is not an historical value but can vary as time goes by. 

Intangible assets: Intangible assets follow almost the same rules as property, plant and 
equipment. Nevertheless, there is often more uncertainty about the valuation of intangible 
assets  (for  instance,  when  recognising  a  patent  or  when  developing  an  own  intangible 
asset  such  as  computer  software).  This  rule  sets  out  the  necessary  requirements  that 
intangible assets must fulfil to be considered as assets. 

Leases: For accounting purposes, this rule divides leases into two types: finance leases 
and operating leases. Finance leases should be recognised as fixed assets, as this type of 
leasing  substantially  transfers  all  risks  and  rewards  incident  to  ownership.  Operating 
leases are considered as rents. This rule recalls that since finance leases are fixed assets, 
depreciation and when necessary impairment must be assessed and recorded. 

Inventories:  this  rule  explains  that  inventories  are  assets  in  the  form  of  materials  or 
supplies to be consumed in the production process or to be consumed or distributed in the 
rendering of services or held for sale or distribution in the ordinary course of operations, 
or  in  the  process  of  production  for  sale  or  distribution.  Consequently,  the  scope  of 
inventories  is  not  very  broad  and  administrative  supplies  should  not  be  recognised  as 
inventories.  This  rule  describes  how  to  recognise  and  derecognise  inventories  and  give 
illustrative examples. It should be mentioned that the LIFO ("Last In, First Out") method 
is  not  authorised  by  IPSAS.  Finally,  this  rule  includes  also  in  appendix  a  compliance 
analysis  of  the  inventories  of  the  European  Communities.  This  analysis  includes  the 
accounting requirements for the inventories of agricultural stocks. 

Receivables  and  revenues:  The  transition  to  accrual  accounting  has  significant 
consequences on the receivables generating events. First, the rule distinguishes between 
“exchange  transactions”  and  “non-exchange  transactions”.  “Exchange  transactions” 
include the delivery of services and goods but also revenues from royalties or interests. 
“Non-exchange transactions” are specific to public sector bodies, as there is no transfer 
of property. Those kinds of revenues include traditional own resources, VAT, GNI, fines, 
etc… 

The  rule  identifies  for  each  category  of  event  the  generating  event  and  the  accounting 
consequences at the reporting date. It is necessary at each reporting date to estimate the 
recoverability  of  the  European  Communities’  receivables.  When  there  is  a  risk  that  the 
receivable may not be recovered, then a value reduction should be recognised. 

Pre-financing:  Pre-financing  is  intended  to  provide  the  beneficiary  with  a  float.  As  a 
consequence, the rule states that a pre-financing is not an expense that should be recorded 
in the statement of financial performance, but should be recognised as an asset when the 
pre-financing  is  paid  to  the  beneficiary.  The  pre-financing  would  subsequently  be 
derecognised with the interim and final payments. 

As a pre-financing is a receivable, the European Communities have at each reporting date 
to  assess  if  this  asset  is  recoverable  or  not.  When  there  is  a  risk  that  it  may  not  be 
recovered, a value reduction should be recognised in the accounts. 

EN 

23 

   EN 

 
Payables  and  expenses:  This  rule  details  the  accounting  rules  related  to  payables  and 
expenses. First, it recalls that the generating event is the delivery of goods or the delivery 
of service. This position implies that at each reporting date, the European Communities 
would  have  to  recognize  an  accrued  charge  for  all  goods/services  delivered  during  the 
period but not yet recognised and a deferred charge for all goods/services recognised but 
not related to the period. 

Moreover, the analysis of the European Communities’ business events shows that some 
events need very specific treatment as they are “non-exchange transactions” (e.g. grants, 
EAGGF, Structural funds, etc…). Consequently, this standard gives detailed accounting 
requirement for the recognition and measurement of those events. 

Provisions, contingent assets and liabilities: International Standards are very restrictive 
regarding  provisions  as  there  needs  to  be  a  clearly  identifiable  obligating  event  (a  past 
event that leads to a present obligation). Although provisions are very restrictive, this rule 
establishes  that  the  European  Communities  would  have  to  disclose  a  large  amount  of 
information  regarding  contingent  assets  and  liabilities.  For  example,  contingent  assets 
and liabilities include guarantees received or given. Provisions and contingent assets and 
liabilities  should  be  updated  at  each  reporting  date.  A  detailed  compliance  analysis  of 
existing provisions, contingent assets and liabilities is presented in the appendix. 

Basis  of  preparation:  this  document  recalls  the  basic  concepts  that  have  to  be  applied 
when applying IPSAS. 

Financial instruments: this rule deals with the accounting requirements for transactions 
such  as  participations,  swaps,  futures,  etc.  It  presents  the  various  IFRS  and  IPSAS 
requirements  applicable  to  the  European  Communities.  The  contentious  issues  which 
have delayed the adoption of IAS 39 by the Commission do not affect the Community's 
accounts.  

Cash and cash equivalents: this rule gives illustrative examples of cash transactions to 
recognise during the year and at the reporting date. Those examples deal with cheques, 
deposits, money transfers and internal transfers. 

Employee benefits: this rule details the scope of the employee benefits to be included in 
the  provision;  refers  to  the  actuarial  methodology  to  implement  and  the  accounting 
schemes; and explains what is the generating event. 

Net  result  for  the  period,  fundamental  errors  and  changes  in  accounting  policies: 
this rule is useful to assess the work to be done regarding the opening balance. It explains 
when and how it would be possible for the European Communities to amend its accounts 
once published and approved by the relevant authority. 

Related  party  disclosure:  In  order  to  improve  transparency,  this  rule  requires  the 
disclosure  of  information  about  related  parties  (e.g.  agencies)  and  key  management 
personnel.  For  example,  it  requires  that  the  remuneration  of  this  personnel  should  be 
disclosed in the notes to the financial statements. 

EN 

24 

   EN