Communication from the Commission - Report on progress at 31 January 2005 of the modernisation of the accounting system of the European Commission
Date: 2005-03-16
Institutions: European Commission
Subjects: European Commission, accounting system, financial regulation, institutional reform, management audit

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.3.2005 
COM(2005) 90 final 

COMMUNICATION FROM THE COMMISSION 

Report on progress at 31 January 2005 of the modernisation of the accounting system of 
the European Commission 

EN 

   EN 

 
 
 
  
TABLE OF CONTENTS 

1. 

2. 

3. 

3.1. 

3.2. 

3.3. 

4. 

5. 

5.1. 

5.2. 

5.3. 

6. 

7. 

7.1. 

7.2. 

7.3. 

8. 

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

Summary of implementation to January 2005 ............................................................. 3 

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

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

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

Control environment and validation of local systems.................................................. 4 

IT developments........................................................................................................... 5 

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 

Training........................................................................................................................ 7 

Implementation of accrual accounting by the other institutions and agencies............. 7 

Future developments .................................................................................................... 7 

General Budget............................................................................................................. 7 

Loans and borrowings .................................................................................................. 8 

European Development Fund....................................................................................... 8 

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

ANNEX 1: ABAC PROGRAMME STATUS AT 31 JANUARY 2005 ................................................... 9 

ANNEX 2: INTEGRATED PROGRAMME PLAN 31 JANUARY 2005................................................. 17 

ANNEX 3 : ACCOUNTING FRAMEWORK: ACCOUNTING RULES .................................................... 23 

ANNEX 4 : MAIN TASKS TO BE EXECUTEDFROM JANUARY 2005................................................ 26 

EN 

2 

   EN 

 
1. 

INTRODUCTION 

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

The project 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 IT platforms; 

•  improving  the  performance  of  the  system  SINCOM2  in  the  meantime,  in  particular 

concerning security and the consistency of data from different sources. 

The  Commission  has  presented  half-yearly  progress  reports2  since  2002.  DG  Budget 
established  information  notes  on  the  progress  made  in  the  intervening  quarters.  This  report 
now summarises progress as of 31 January 2005, rather than 31 December 2004, in order to 
report on the transition to the new system. Like the preceding reports, it will be communicated 
to the relevant committees of the discharge authorities, and to the Court of Auditors. A brief 
oral presentation was made to the Budgetary Control Committee on 1 February 2005. 

2. 

SUMMARY OF IMPLEMENTATION TO JANUARY 2005 

Under  the  new  Financial  Regulation  which  entered  into  force  on  1  January  20033,  accrual 
accounting  for  the  General  Budget  had  to  be  introduced  by  2005.  Full  integration  of  all 
accounting  systems  was  expected  to  take  longer.  Once  the  accounting  system  was 
modernised,  it  was  planned  to  progressively  expand  its  role  in  supporting  the  financial 
management of the Commission's operations. 

The  legal  requirement  was  met  on  10  January  2005,  when  the  new  accounting  system  was 
opened  on  a  full  accrual  basis.  The  Commission  has  thus  fulfilled  its  commitment  to  the 
discharge  authority  in  this  respect.  This  was  achieved  at  the  planned  date,  and  within  the 
planned cost of EUR 20 million for DG Budget and DIGIT. In addition, EUR 5 million was 
allocated to other services for temporary clerical support.  

Now  that  the  Commission  has  carried  out  its  administrative  reform,  and  has  successfully 
modernised  its  accounting  system  the  conditions  are  fulfilled  for  restoring  the  confidence 
ofthe  European  taxpayer  that  his  or  her  funds  are  managed  by  the  Commission  under  strict 
standards  of  control.From  now  on,  the  Communities'  financial  statements  will  meet  the 

1 
2 

3 

COM(2002) 755. 
On the periods to 30 June 2003 -SEC(2003) 790 -, to 31 December 2003 -SEC(2004) 118 -, and to 30 
June 2004 - COM(2004) 565, 18.8.2004. 
Articles  133,  134  and  181(2),  last  sub-paragraph,  of  Regulation  (EC,  Euratom)  No  1605/2002  of  25 
June 2002. 

EN 

3 

   EN 

 
                                                 
highest accounting standards, thus putting the Commission at the forefront of European public 
administrations. 

Nevertheless,  January  2005  is  not  the  end  of  the  accounting  reform.  There  is  still  room  for 
improvement of the IT systems at central and local level, of the integration of systems and of 
management  reporting.  Moreover,  the  new  accounting  procedures  will  take  time  to  become 
fully embedded.  

The project was implemented largely in accordance with the timetable set out in section III.3 
of the Communication of 17 December 2002, and with the more detailed project plan for 2003 
and  2004  proposed  on  8  July  2003.  Annex  1  presents  a  detailed  comparison  between  the 
timetable of 17 December 2002 and actual implementation. Annex 2 presents an update of the 
milestone plan adopted in July 2003.  

3. 

ACCOUNTING ISSUES 

3.1. 

Accounting rules 

The  fifteen  sets  of  accounting  rules  applicable  to  the  Community’s  accounts  and  the 
harmonised chart of accounts were adopted by the Accounting Officer on 28 December 2004, 
and  communicated  to  the  accounting  officers  of  the  other  institutions  and  of  the  agencies. 
They are summarised in Annex 3. 

The Commission's accounting  manual, based on the accounting rules and chart of accounts, 
was largely finalised by the end of December 2004, after taking into account the comments of 
the  various  departments.  This  version  will  continue  to  be  adapted  in  the  light  of  experience 
and of further IT developments. A practical means of evaluating certain year-end provisions, 
such as for claims not yet received, remains to be established. 

3.2. 

Accounting processes 

The accounting processes yet to be defined are the procedures for closing the 2005 accounts 
and for preparing the 2005 financial statements. The adoption of a consolidation manual and 
cut-off procedures is planned for 2005, as is the introduction of an IT tool for consolidating 
the institutions’ and agencies' accounts. 

3.3. 

Control environment and validation of local systems 

The  modernised  accounting  system  will  depend  on  accurate  and  complete  data  entry  by  the 
many users of the central IT system (some 7 000 are expected). The menus being developed 
for  users  will  provide  step-by-step  assistance  aimed  at  minimising  the  risk  of  error,  but  the 
quality of the data entered will depend also on the control environment put into place by each 
Authorising  Officer  by  Delegation.  Guidance  in  this  matter  is  given  in  the  document 
‘Accounting  objectives  and  control  framework’  (December  2003),  which  sets  out  the  risks 
associated with each category of transactions and the controls proposed to counter these risks. 
DG Budget will continue to develop guidance on accounting matters and to support services 
in its implementation. 

The  criteria  for  validating  authorising  officers’  financial  procedures  and  IT  systems  were 
issued  on  2  July  2004.  A  detailed  questionnaire  permitting  a  readiness  assessment  by  each 

EN 

4 

   EN 

 
service in relation to the criteria was circulated on 1 September, and all services replied by the 
deadline of 30 September 2004. 

Despite difficulties in recruiting staff with suitable experience, a high-level assessment of all 
services'  financial  procedures  and  related  IT  systems  was  completed  by  DG  Budget  on  17 
December,  on  the  basis  of  the  replies  to  the  questionnaire,  plus  a  half-day  discussion  with 
each service. The resulting report was finalised on 31 January 2005. It identifies a number of 
risks which the services concerned will be asked to address.  

DG Budget's team of eight people will be fully staffed by 16 March 2005. It will undertake a 
programme of more in-depth checks of the systems as they actually operate in each service, 
commencing with those assessed as presenting the higher risks. This work will underpin the 
validation of the systems laid down by the authorising officers to supply or justify accounting 
information, as required under Article 61(1)(e) of the Financial Regulation. 

4. 

IT DEVELOPMENTS 

The most challenging part 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 menus which will help ensure that the data entered is of high 
quality. The present situation is summarised below. 

The  IT  functionalities  to  support  the  accounting  processes  have  been  developed.  The  new 
system,  termed  ‘ABAC’,  comprises  the  central  accounting  system  which  runs  on  SAP-
Enterprise  software,  and  workflows  developed  by  the  Commission  for  payment  claims 
(ABAC-invoices),  for  contracts  and  related  commitments  (ABAC-contracts)  and  for  fixed 
assets  (ABAC-assets).  The  Si2  payment  workflow  was  redeveloped  to  meet  accrual 
accounting  requirements.  A  number  of  other  services  continue  to  supply  accounting 
information through interfaces with their local IT systems.  

The main work completed since 30 June 2004 is: 

•  developing,  testing  and  releasing  ABAC-contracts  (4  October)  and  ABAC- 
invoices  (25  October),  so  that  staff  could  be  trained  and  become  familiar  with 
these workflows before January 2005; 

•  developing, testing and releasing ABAC-assets (14 January 2005); 

•  testing the working of the system as a whole by multi-disciplinary teams, in order 

to identify and correct problems before January 2005; 

•  backing up the old system on 31 December, and moving to the new system, which 
was  opened  on  10  January  and  under  full  load  in  early  February  once  the 
commitments carried forward from the 2004 budgetary year became available; 

•  loading the opening balances for prefinancing (30 000), claims awaiting payment 

(7 400) and fixed assets (74 000). 

On 10 January 2005, the central accounting system was opened for use in accounting for the 
General Accounts on an accrual basis, including most of the opening balances necessary for 
the services' day-to-day work, and has since functioned with a high level of reliability. Over 

EN 

5 

   EN 

 
32 000 payments, 10 000 claims and 1 300 commitments had been successfully processed by 
31 January 2005.  

The one exception concerns the imprest accounts and office equipment of external delegations 
and  press  offices  outside  the  Commission's  headquarters,  to  which  financial  responsibilities 
have been devolved. These will be progressively included in the central system as from 2005.  

5. 

IMPLEMENTATION  OF  THE  MODERNISED  ACCOUNTS  IN  THE  COMMISSION’S 
SERVICES 

5.1. 

Preparation of opening balances for the 2005 financial year 

All  services  were  requested  to  assist  in  the  establishment  of  an  inventory  of  prefinancing, 
guarantees, fixed assets and legal entities benefiting from grants and contracts. This involved 
examining  files  relating  to  some  45 000  open  commitments  and  74 500  bank  account 
references before the end of December 2004. The services reported on progress made to 30 
June, 30 September, 31 October and 30 November 2004. 

On  the  basis  of  the  information  in  these  reports,  and  that  given  in  bilateral  contacts,  it  is 
apparent that some 95% of the work was completed by the deadline, and that the remaining 
work concerned cases where the beneficiary failed to forward the documentation necessary to 
register  a  legal  entity,  and  thus  complete  the  recording  of  the  prefinancing  and  guarantees 
concerned. Three services were given an extension to deal with these remaining cases. 

Practically  all  services  presented  files  to  be  uploaded  into  the  accounting  system  by  the 
deadlines and to a high quality. Less than 1% of the records were returned for correction, and 
complete  files  were  received  late  from,  or  had  to  be  returned  to,  only  three  services.  By  31 
January 2005, 76 000 legal entity files had been processed regarding external contractors or 
experts and 56 000 regarding staff, and 30 000 prefinancing balances loaded. A deadline of 31 
March 2005 has been set for completing the exercise for the 22 000 guarantees. All services 
concerned  have  converted  to  ABAC-assets  for  their  management  of  inventories  except  the 
delegations and press offices which aim to undertake this conversion in 2005. All fixed assets 
have been loaded in the central accounting system except those regarding two Joint Research 
Centres, DG TREN and buildings, which will be loaded in March. 

DG Budget will ask each service to verify the accuracy and correct accounting of the figures 
on  opening  balances,  to  ensure  the  figures  are  complete  and  to  make  corrections  before  31 
March 2005. A means will be provided for recording prefinancing which cannot be linked to a 
validated  legal  entity  file.  The  opening  balance  sheet  of  each  service  will  be  sent  to  the 
Director-General or Head of Service concerned for formal validation by 30 June 2005. 

In  addition  to  the  above  work,  the  services  have  been  requested  to  link  all  closed 
commitments recorded since 1 January 1999 to a legal commitment, so that the Commission's 
financial relationship with each entity since that date can be determined. It is intended to limit 
this  work  to  commitments  over  EUR  50  000,  which  entails  examining  some  35 000  further 
files  (if  the  limit  were  lowered  to  EUR  13 800,  a  further  25 000  files  would  need  to  be 
examined). Together with work on 30 000 commitments which still remain to be linked to a 
legal  entity,  this  work  will  complete  the  implementation  of  action  74  of  the  administrative 
reform  concerning  the  development  of  a  central  database  for  contracts,  and  ensure  that  the 
Commission honours the commitment it made to Parliament following the Eurostat affair. 

EN 

6 

   EN 

 
5.2. 

Development of local IT systems and their links to ABAC 

All  services  except  one  adapted  the  bulk  of  their  IT  systems  to  the  requirements  of  accrual 
accounting by the end of 2004. Where development was not completed in time, the services 
concerned used the  central  system  to avoid delays in processing commitments and payment 
claims. 

5.3. 

Training 

A  programme  to  train  future  users  of  the  ABAC  system,  supported  by  outside  experts,  was 
launched on 5 October 2004. By 31 January 2005, 3 300 participant days of training had been 
given,  with  a  satisfaction  rating  rising  progressively  from  60%  to  86%.  All  key  users  were 
offered hands-on training; others received 'hands-off' familiarisation training in larger groups. 
The users’ training modules are designed to become a user guide, and to form the basis of a 
continuous  training  programme  for  future  users.  Each  service  with  a  local  system  was 
expected  to  undertake  its  own  training  programme  for  users  of  that  system.  A  training 
programme  specifically  for  staff  in  the  Commission's  delegations  in  third  countries  will  be 
launched in 2005. 

6. 

IMPLEMENTATION  OF  ACCRUAL  ACCOUNTING  BY  THE  OTHER  INSTITUTIONS  AND 
AGENCIES 

The Commission invited each institution and agency to conduct a ‘readiness assessment’ for 
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.  Information  meetings  were  held  with  the  accounting  officers  of  all 
institutions and agencies in June and November 2004. 

Several  agencies  and  smaller  institutions  use  a  version  of  the  Commission’s  Si2  system  for 
their budgetary accounts. By letter of the 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,  in  line  with  a  recommendation  by  Parliament, 
would be cost-efficient while preserving the independence of each Agency. 

7. 

FUTURE DEVELOPMENTS 

7.1. 

General Budget 

A new milestone plan is being established for further IT developments (see Annex 4). These 
relate  mainly  to  improving  user-friendliness  and  the  financial  reporting  function,  and 
preparing  the  first  annual  consolidated  accounts.  During  2005,  the  different  workflows  are 
due  to  be  consolidated  into  a  single  web-based  application  (ABAC-workflow),  and  certain 
new  functionalities  will  be  developed  (for  example,  the  debt  recovery  process).  A  series  of 
further developments is also being planned in order to achieve the longer-term aim of closer 
integration  of  local  systems,  and  provide  further  tools  for  user  support  and  financial 
management.  

EN 

7 

   EN 

 
7.2. 

Loans and borrowings  

As  regards  operations  outside  the  Commission’s  budget,  the  project  is  on  track  to  integrate 
loans  and  borrowing  activities,  at  present  recorded  on  Globus,  a  system  owned  by  DG 
ECFIN, into the central accounts by July 2005, using the SAP banking module, CFM. 

7.3. 

European Development Fund 

In 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 in the General Budget, 
and  it  allows  EDF  payments  to  be  executed  using  the  functions  developed  for  the  General 
Budget.  

The IT necessary for full accrual accounting will be in place as from 2006, after ABAC and 
the  parallel  developments  of  CRIS  are  completed.  The  EDF  accounts  for  2005  will  be 
prepared from information held in OLAS, as adapted to provide a basis for accrual accounts. 
It is aimed that, as from 2006, the new ABAC-EDF system will be fully compliant with the 
requirements of accrual accounting. 

In  the  meantime,  payments  by  the  EDF  will  be  made  through  the  General  Budget’s 
accounting system as from February 2005. 

8. 

CONCLUSION  

The  modernisation  project  has  met  the  deadline  set  in  the  Financial  Regulation  for  the 
introduction  of  accounting  systems  for  the  General  Budget  which  provide  a  basis  for  the 
Commission to comply with internationally accepted accounting standards. The Commission 
achieved this objective within two years, which is substantially less time than that taken by 
other European public administrations, and has met a deadline which its external consultants 
and  external  auditors  considered  to  be  very  ambitious.  It  could  not  have  achieved  this 
undoubted success without the commitment and constructive collaboration of all services. 

The extra-budgetary activities of DG ECFIN will be incorporated into the central accounting 
system of the Commission by July 2005. During the first six months of 2005 accounting for 
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  plans  to  provide  each  service’s  management  with  more  reliable  and  complete 
information  on  the  assets  and  liabilities  for  which  it  is  responsible  and  on  its  financial 
relationships with each supplier (in the longer term), and, in the medium term, on the financial 
implementation of multiannual projects and commitments.  

EN 

8 

   EN 

 
ANNEX 1: ABAC PROGRAMME STATUS AT 31 JANUARY 2005 

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

1st to 4th quarter: 2003 

5th to 8th quarter: 2004 

Measure 

Deadline 

Result 

Comment 

Accounting framework 

Definition  of  an  accounting 
framework 

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. 

The  Accounting  Standard  committee  was  set  up  in  March 
2003, with monthly meetings, to give its advice and judgement 
on  accounting  rules.  The  final  meeting  (July  2003)  examined 
the comments on the proposed rules. 

Provision by the Accountant of an 
initial  analysis  of  accounting 
requirements 
the 
Commission’s decision 

based 

on 

1st quarter 

completed  2nd  quarter

Setting up an accounting standard 
committee 

1st quarter 

Completed 

Establishment 
standards 
Communities 

of 
for 

accounting 
European 

EN 

9 
EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- Draft 

- Final priority standards 

- Final others standards 

Adapting Chart of account  

Draft : 

Final : 

Defining the event giving rise 

- draft 

- final 

Extending 
consolidation 

2nd quarter 

4th quarter 

6th quarter 

2nd quarter 

4th quarter 

2nd quarter 

4th quarter 

Completed 

Completed 

The  inventory  of  financial  processes  was  carried  out  and 
events  giving  rise  were  described  in  flows  and  validated  by 
services 

the 

scope 

of 

9th quarter 

Started, still in progress  The  scope  of  consolidation  is  to  be  extended  for  2005 

accounts, the IPSAS compliant accounting rule was adopted 

Future  steps:  consolidation  manual,  consolidation  pack, 
development and implementation of the chosen tool 

Financial statements 

9th quarter 

Started, still in progress  They are defined as part of the accounting rules and the Chart 
of  accounts  drawn  up  accordingly.  The  accounting  rules 
relating to financial statements have been prepared 

EN 

10 
EN 

 
 
 
 
 
 
 
 
 
 
Opening  balance  have  been  collected  for  prefinancing, 
guarantees  and  invoices  received  and  not  yet  paid.  Other 
opening  balances  will  be  the  result  of  2004  accounts  closure. 
The  amounts  of  provisions  for  cost  claims  not  received  by 
31/12/2004 will be estimated in mid-2005. 

Following  the  inventory  of  financial  processes  and  Chart  of 
accounts, object codes were defined and linked to budget and 
general accounts 

The  complete  opening  balance  will  be  established  when  the 
2004 accounts are closed 

4th quarter 

5th quarter 

9th quarter 

5th quarter 

On schedule 

Still in progress 

Prefinancings  for  most  open  commitments  and  balances  have 
been  recorded  in  the  accounts.  The  remainder  should  be 
recorded by 31.3.2005 

Integration of accounting data 

Fixing the opening balances 

- Provisional 

- definitive 

4th quarter 

8th quarter 

Completed 

4th quarter 

7th quarter 

Completed 

Completed 

Defining the object code, 

- Plan 

- link between budget and general 
accounts  

Integrating  contingent  assets  and 
balance-sheet 
liabilities 
items) 

(off 

- inventories 

- guarantees 

- integration 

entry 

the 
Management, 
accounts  of  prefinancing,  interim 
payments and final payments 

in 

EN 

11 
EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Creating  link  between  CIR  and 
the accounts 

- use of CIR mandatory 

- link to general accounting 

Receivables  and  files  of  clients  / 
suppliers 

4th quarter 

7th quarter 

5th quarter 

During  the  5th  quarter,  CIR  was  deployed  in  most  services 
lacking  an  equivalent  IT  tool.  It  was  upgraded  to  become 
ABAC  invoice  on  25/10/2004,  when  its  use  was  made 
obligatory where appropriate. 

One quarter delay 

The legal entity file was set up in March 2004. By 31/1/2005, 
121  213  legal  entities  had  been  validated.  The  exercise  will 
continue in 2005 in order to link all commitments since 1999 
and over 50000 € with a legal entity. 

The control framework has been developed, validation criteria 
were  communicated  to  all  services  on  02/07/04  and  a 
questionnaire on 01/09/04 

A  part  of  inventories  of  fixed  assets  were  consolidated  in 
ABAC assets end 2004 and loaded in SAP in January 2005; a 
second loading will take place in March 2005. 

Organisation of internal control 
of accounting data 

internal  control 
include 

in 
accounting 

Expanding 
DGs 
to 
aspects 

- draft  

- definitive 

Supporting  evidence  for  balance 
sheet 
through 
inventories 

balances 

EN 

4th quarter 

8th quarter 

Completed 

7th quarter 

Completed 

12 
EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certification of local system 

9th quarter 

Training and awareness 

Each  high  level  assessment  of  services  was  completed  by 
17/12/2004  and  the  report  established  on  31.1.2005.  A 
programme of in depth checks will be launched in March 2005 

Training 

3rd to 6th quarter  Rescheduled  according 

to services 

Information  sessions  from  the  4th  quarter,  accounting  training 
in 2004, training for users from 10/2004 following releases of 
ABAC invoices and ABAC Contracts 

Recruitment 

Network 
correspondents 

3rd quarter 

Completed 

17 additional resources 

accounting 

1st quarter 

Completed 

Identification  of  correspondents,  meetings  and 
information session organised 

regular 

Improvement  of  current 
system architecture 

Reconciliation  SI2  /  R3  (2002 
data) 

2nd quarter 

Completed 

Written security policy 

2nd quarter 

Completed 

Reconciliation SI2/R3 completed and validated in early 2003, 
continued weekly thereafter 

Security  policy  for  SI2  written  during  the  second  quarter  of 
2003 and adopted July 2003 

Comparison 
management principles 

of 

security 

3rd quarter 

Completed 

Current  security  policy  compared  to  relevant  international 
standards in 2003 and deemed appropriate.  

Fixing 
governing 
rules 
incorporation of security elements 

of 

3rd quarter 

Completed 

Rules  governing  the  incorporation  of  the  security  elements  in 
the new functionalities have been designed in the 3rd quarter 

EN 

13 
EN 

 
 
 
 
 
 
 
 
 
 
 
Developments  of  computerised 
tools to facilitate management and 
audit of access rights 

3rd quarter 

Partially completed 

Development,  implementation  of 
web based version of SI2 

4th quarter 

Not completed 

Elimination of redundant data 

4th quarter 

Partially completed 

Development  of  the  new 
system architecture 

Access rights have been audited and a computerised tool was 
implemented  in  2004  to  facilitate  the  management  of  access 
rights.  This  temporary  tool  will  be  replaced  by  a  more 
powerful  tool  integrated  fully  within  the  ABAC  “Web” 
environment during 2005. 

The  development  full  web-based  of  SI2  was  postponed  and 
planned  to  be  implemented  in  2005,  the  other  ABAC 
workflows are web-based. 

IT 
Data  management  activities  are 
developments  and  include  data  cleansing  phases  (elimination 
of redundant data, correction of errors, completion of missing 
data…) An archiving policy will be developed in 2005. 

included 

the 

in 

Feasibility 
architecture  – 
sectorial systems 

study 

of 

new 
integration  of 

road 

for 
Detailed 
implementation  of  the  next  IT 
system 

map 

2nd quarter 

Completed 

2nd quarter 

Completed 

A feasibility study was completed in May 2003, including the 
examination of the integration of sectorial systems (certain will 
be  abandoned-  DG  Entr,  JRC).  The  cost  benefit  of  retaining 
the  remaining  systems  will  be  examined  progressively  over 
2005 and 2006. 

A detailed road map for the implementation of the new system 
was  developed in May 2003 and maintained on a daily basis. 
This roadmap has been developed into an implementation plan 

EN 

14 
EN 

 
 
 
 
 
 
 
 
Analysis  of  users’  management 
needs 

3rd quarter 

Completed 

Design  of  proposed  solutions  - 
progressive 
and 
technical definition of the system 

functional 

4th quarter 

Completed 

Users’  management  needs  have  been  recorded 
through 
workshops, analysed, categorised and mapped against planned 
system  functionalities  to  ensure  proper  alignment  on  the 
system  future  functionalities.  Final  report  was  issued  on 
30/9/03 

The design was performed in two phases: first the production 
and validation of functional blueprint and second the technical 
blueprint; the functional blueprints consolidate the accounting 
rules, operational activities and data model, they were finalised 
in  December  2003,  the  technical  blueprint  translated  in 
technical  terms  to  actual  system  functionalities,  they  were 
ready in March 2004. 

Migration 
Enterprise 

towards 

SAP 

7th quarter 

Completed 3rd quarter 

Problems were resolved in collaboration with SAP 

User workshops and feedback 

4th quarter 

Completed  

Progressive 
new functionality 

implementation  of 

6th quarter 

Completed 7th quarter 

functionalities 

following 

7th quarter 

Completed 8th quarter 

New 
tests 

Workshops  have  been  conducted 
the  users’ 
requirements  has  been  analysed,  categorised  and  incorporated 
in  the  functional  blueprints.  Users’  feedback  is  collected 
during the implementation and testing phases. 

in  2003, 

The  system  implementation  has  been  phases  to  allow  a 
progressive  implementation  of  functionalities  as  they  became 
available. 

All new modules and functionalities were tested before release 
to  ensure  meeting  accounting  principles  and  users’ 
requirements. Testing of the integrated system was completed 
end of 2004. 

EN 

15 
EN 

 
 
 
 
Training for key users 

Release of new system 

8th quarter 

8th quarter 

Completed 

Completed 

All key users were proposed hands on training by 31.12.2004 

ABAC  invoice,  ABAC  contracts,  ABAC  Assets  have  been 
released and are operational. The ABAC system was released 
on 10 January 2005 

EN 

16 
EN 

 
 
 
 
ANNEX 2: INTEGRATED PROGRAMME PLAN 31 JANUARY 2005 

List of milestones 

At 

At 

At 

At 

At 

31/12/03 

31/12/03 

31/01/05 

31/01/05 

31/01/05 

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 

Accounting 

01/09/03 

31/10/03 

01/09/03 

31/10/03 

Done 

architecture 

Draft 
defined 

Draft 
documented 

user 

strategy 

is 

IT 

February 

15/07/03 

February 

15/07/03 

Done 

requirements 

User Req. 

March 

30/06/03  March 

30/06/03 

Done 

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

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 

31/01/05 

31/01/05 

31/01/05 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % 

of 
Completion 

8 

Blueprint, 

Functional 
process  model  prepared 
validated 

Data/ 
and 

IT/Accounting 

15/07/03 

15/01/04 

15/07/03 

15/01/04 

Done 

9a 

Functional  architecture  proof  of 
concept built and tested 

IT 

01/07/03 

15/10/03 

01/07/03 

15/10/03 

Done 

9b 

Prototypes completed 

IT 

16//10/03 

31/01/04 

16//10/03 

31/01/04 

Done 

10 

11 

12 

Local  systems  and  SI2  adaptation 
capacity analysed 

IT/DG 

15/09/03 

15/12/03 

15/09/03 

15/12/03 

Done 

Consolidated  entities 
and informed 

identified 

Accounting 

01/10/03 

31/10/03 

01/10/03 

31/10/03 

Done 

High-level  DG  Budget  processes 
defined 

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 

Priority 
gaps 
obsolete systems identified 

are 

addressed, 

15 

EN 

DG’s 

15/07/03 

15/01/04 

15/07/03 

15/01/04 

Done 

18 
EN 

 
 
 
 
 
 
At 

At 

At 

At 

At 

31/12/03 

31/12/03 

31/01/05 

31/01/05 

31/01/05 

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 

31/07/04 

Done 

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 

Done 

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 

Done 

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 

31/01/05 

31/01/05 

31/01/05 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % 

of 
Completion 

21 

22 

Integrated 
validated 

Central 

system 

IT 

01/02/04 

31/05/04 

01/02/04 

31/12/04 

Done 

Sectorial 
systems 
interfaces completed and tested 

improved, 

DG’s 

15/01/04 

31/12/04 

15/01/04 

31/12/04 

Mostly done

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 

31/12/04 

Mostly done

22c2

Interfaces developed and tested 

DG's 

01/04/04 

31/12/04 

01/04/04 

31/12/04 

Mostly done

23  Manual  processes  are  defined  and 

DG’s 

15/01/04 

29/09/04 

15/01/04 

29/09/04 

Done 

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 

31/12/05 

60% 

26 

Integration tests performed 

IT 

01/06/04 

31/07/04 

01/06/04 

31/12/04 

Done 

EN 

20 
EN 

 
 
 
 
 
 
At 

At 

At 

At 

At 

31/12/03 

31/12/03 

31/01/05 

31/01/05 

31/01/05 

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 

31/12/04 

Done 

05/04/04 

10/11/04 

05/04/04 

31/12/04 

Done 

01/02/04 

31/08/04 

01/02/04 

25/10/04 

Done 

01/10/04 

30/11/04 

01/10/04 

31/12/04 

users 

Key 
done 

31 

Accounting  Standards,  chart  of 
accounts and manual finalised 

Accounting 

01/12/03 

05/11/04 

01/12/03 

31/12/05 

Done 

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 

14/12/04 

Done 

34 

DG’s  processes 
signed off 

and 

systems 

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 

31/12/04 

34b 

Interfaces signed-off 

Accounting 

30/09/04 

31/12/04 

30/09/04 

31/12/04 

Done 
high level 

at 

Done 
high level 

at 

Done 
high level 

at 

EN 

21 
EN 

 
 
 
 
 
 
At 

At 

At 

At 

At 

31/12/03 

31/12/03 

31/01/05 

31/01/05 

31/01/05 

No  Description 

Work-stream 

Start date  End date 

Start date 

End date  % 

of 
Completion 

35 

Final preparation completed 

IT 

01/10/04 

31/12/04 

01/10/04 

31/12/04 

Done 

36 

First part of the programme closed  Project Man. 

28/12/04 

07/01/05 

28/12/04 

07/02/05 

Done 

EN 

22 
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) 

(b) 

(c) 

(d) 

(e) 

(f) 

Balance Sheet 

Economic outturn 

Statement of changes in Capital 

Cash Flow Table 

Accounting Principles, Rules and Methods and Notes to the Financial Statements and 

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 

23 

   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 

24 

   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 

25 

   EN 

 
ANNEX 4  MAIN TASKS TO BE EXECUTED FROM JANUARY 2005 

Accounts and accounting procedures 

•  Complete the 2005 opening balances, verify their coherence and obtain the validation by 

each responsible AOD 

•  Accounting manual to be reviewed in the light of experience 

•  Consolidation manual, cut-off procedures, estimation of provisions for outstanding claims 

•  Detailed users manuals to be derived from training material prepared in 2004 

•  Training (2nd phase) 

•  Integration of external offices and delegations into the central system 

•  Adopt accounting rules and a procedure manual for the EDF 

Validation of local systems 

•  Review of the operation of the systems in practice: DGs will be visited in order to validate 

the local systems.  

•  Establish service level agreements with each AOD 

IT Systems 

•  ABAC  will  progressively  be  improved  for  user-friendliness  and  interoperability,  a  single 
web-based  workflow  will  be  introduced,  and  the  IT  architecture  will  be  concentrated  on 
two platforms only (SAP and JAVA).  

•  ABAC Contracts: further management functionality will be developed and implemented, it 

will be integrated with e-procurement, and non-latin scripts will be provided for 

•  The Early Warning System will be adapted to the new environment 

•  ABAC  Dunning  to  manage  recoveries  and  establishment  of  accrued  interest  should  be 

implemented.  

•  Local budget lines will be rationalised and reduced in number. 

•  MUS-DICE, a sample selection tool, will be integrated with ABAC 

•  Security will be reviewed 

•  Performance will be monitored and data-handling capacity increased 

•  Prepare and test a new disaster recovery plan 

•  Archiving criteria will be developed and applied 

EN 

26 

   EN 

 
•  Implementation of the planning and monitoring of multi-annual programmes and projects. 
The  module  SAP  Project  system  will  be  implemented  at  least  for  JRC  and  the  structural 
funds in 2005. 

•  Migration by July 2005 of the financial activities managed by ECFIN in GLOBUS (current 
accounting system in ECFIN) to the SAP CFM (Corporate Finance Management) and FI 
modules.  (These  activities  are  already  accrual-based  and  the  2005  accounts  of  loans  and 
borrowings  will  be  compliant  with  IAS  (International  accounting  standards),  including 
opening balances). 

•  SAP ECCS (Enterprise Controlling Consolidation System): employed by end-2005 for the 

consolidation of the accounts of all institutions and agencies 

•  Data warehouse: a single data warehouse will be developed to ensure that all Commission 
services access the same reporting tool. The aim is to develop a prototype for the end of 
2005 and to put the single data warehouse in place during 2006. 

•  Implementation from January 2006 of the EDF accounting in Aidco Local system (CRIS) 
and  in  the  ABAC  SAP  FI  (financial)  module  (the  2005  accounts  will  be  based  on 
information in the present Aidco accounting system, OLAS).  

•  Migrate to the next generation of SAP's budget module (BCS) 

Data preparation 

The  legal  entities  file  will  be  completed  to  include  all  those  benefiting  from  all  significant 
contracts committed since 1999. 

Financial reporting 

Based  on  the  user  needs,  reporting  tools  will  be  developed  to  support  senior  management 
needs and the needs of day-to-day users. The data dictionary will be completed, and business 
intelligence tools deployed. The system should present all information linked to an individual 
file, and provide costing and forecasting tools. 

EN 

27 

   EN