Report by the external auditor on the Court of Auditors' accounts for the financial year 2005
Date: 2006-10-25
Institutions: European Court of Auditors
Subjects: European Court of Auditors, auditing, budgetary control, financial year, report

21.12.2006

EN

Official Journal of the European Union

C 315/1

I

(Information)

COURT OF AUDITORS

REPORT BY THE EXTERNAL AUDITOR ON THE COURT OF AUDITORS’ ACCOUNTS
FOR THE FINANCIAL YEAR 2005

(2006/C 315/01)

NOTE TO READERS

Without prejudice to the provisions of Article 248 of the Treaty establishing the European Community, which
gives the Court of Auditors responsibility for auditing all of the Community’s revenue and expenditure, and
the provisions of Article 276 of the said Treaty on the granting of the discharge, the Court of Auditors has had
its revenue and expenditure accounts audited by an external auditor every year since the close of the financial
year 1987.

The reports which the external auditor of the Court of Auditors drew up in respect of the Court’s accounts for
the financial years 1987 to 1991 were sent only to the Chairman of the European Parliament’s Budgetary Con-
trol Committee.

Pursuant to a decision taken by the Members of the Court of Auditors at the Court meeting of 8 July 1993, the
external auditor’s reports have since been published in the Official Journal of the European Union, starting with
the report on the financial year 1992.

For the Court of Auditors
Hubert WEBER
President of the Court

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Official Journal of the European Union

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CONTENTS

Certificate concerning the regularity and fairness of the financial statements at 31 December 2005 . . . . . . .

Report on the administrative and accounting procedures, the soundness of the financial management and the
internal control system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial statements at 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pages

3

4

5

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Official Journal of the European Union

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Certificate concerning the regularity and fairness of the financial statements at 31 December 2005

To the Members
of the European Court of Auditors

In accordance with the instructions given to us by the European Court of Auditors, we have examined the
financial statements of the European Court of Auditors at 31 December 2005. The financial statements are
the responsibility of the European Court of Auditors. Our responsibility is, on the basis of our audit work, to
express an opinion on the financial statements.

We have conducted our work in accordance with international auditing standards. These standards require us
to plan and carry out our work in such a way as to obtain reasonable assurance that the financial statements
do not contain any significant anomalies. As required, the audit included an examination, on the basis of a
sample, of the evidence in support of the amounts and information contained in the financial statements. It
also included an appraisal of the accounting principles and practices applied and of the significant estimates
used by the European Court of Auditors in drawing up the accounts, as well as a review of their overall pre-
sentation. We think that the audit provided a reasonable basis for the opinion expressed.

In accordance with accounting standard No 12 (Employee benefits), which was adopted on 28 December 2004
by a decision of the Commission’s accounting officer pursuant to Article 133 of the Financial Regulation appli-
cable to the general budget of the European Communities, on 31 December 2004, for the first time, the Court
recorded a provision for its Members’ pensions and a long-term receivable from the Member States to the value
of 43 689 621 euro. Accounting standard No 12 is currently being revised. Pending a final decision on this
subject and in compliance with the Commission’s instructions, the Court of Auditors deducts its ‘receivable’
from the Member States for the pension commitments to establish the amount of the net assets.

In our view, subject to the effect of any rectifications that may prove necessary with respect to the aforemen-
tioned accounting treatment for pensions, the attached financial statements give a true and fair view, in accor-
dance with Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002, the implementing rules, gen-
erally accepted accounting principles and the European court of Auditors’ Internal Rules, of the assets and
financial position of the European Court of Auditors at 31 December 2005 and of the economic outturn and
the revenue and expenditure for the financial year then ended.

Luxembourg, 25 October 2006.

KPMG Audit S.à r.l.
Auditors
P. WIES

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Official Journal of the European Union

21.12.2006

Report on the administrative and accounting procedures, the soundness of the financial
management and the internal control system

To the Members
of the European Court of Auditors

In accordance with the instructions given to us by the European Court of Auditors, we examined the admin-
istrative and accounting procedures, the soundness of the financial management and the internal control sys-
tem for the financial year ended on 31 December 2005. The purpose of our examination was to ensure that
the various departments of the European Court of Auditors can be reasonably sure that:

— the financial management of the Court of Auditors complies with the applicable regulations;

— the system of internal controls enables the preparation of reliable financial statements and compliance

with the regulatory framework.

The applicable regulations are:

— Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable

to the general budget of the European Communities,

— Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules
for the implementation of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the
Financial Regulation applicable to the general budget of the European Communities,

— The Internal Rules of the European Court of Auditors for the implementation of the general budget of the
European Union, laid down by Court Decision No 80-2003 and adopted by the Court at its meetings held
on 17 and 18 December 2003.

We examined the control environment, the risk evaluation, the control systems and activities and the man-
agement control systems. Our work consisted of an evaluation of the administrative and accounting proce-
dures, management procedures, sample tests on supporting documents and interviews with staff. The nature
and extent of the tests were determined by our appraisal of the control environment. We think that our work
forms a reasonable basis for our conclusions regarding the European Court of Auditors’ procedures, the sound-
ness of its financial management and its internal control system.

On the basis of the procedures described above, our work did not disclose any facts which might cast doubt
on the adequacy of the administrative and accounting procedures or internal control or the compliance of
financial management with the applicable regulations.

Luxembourg, 25 October 2006.

KPMG Audit S.à r.l.
Auditors
P. WIES

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Financial statements at 31 December 2005

Balance sheet at 31 December 2005 and 31 December 2004

Non-current assets

Intangible fixed assets

Tangible fixed assets

Current assets

Short-term prefinancing

Short-term receivables

Cash and cash equivalents

Non-current liabilities

Employee benefits

Other long-term liabilities

Current liabilities

Provisions for risks and charges

Current payables

Total assets

Total liabilities

Net assets

Amounts to be called from Member States

Carried over from previous years

Economic outturn for the financial year

The notes annexed hereto form an integral part of these financial statements.

Notes

2

2

3

4

5

6

7

2005

38 532

537

37 995

5 623

—

2 777

2 846

(in 1 000 euro)

2004

43 322

443

42 879

12 531

3 514

1 909

7 108

44 155

55 853

47 869

47 694

175

7 736

2 031

5 705

55 605

(11 450)

43 884

43 689

195

6 599

1 634

4 965

50 483

5 370

5 370

(16 820)

5 370

—

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Official Journal of the European Union

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Economic outturn account at 31 December 2005

Operating revenues

Funds transferred from the Commission to other institutions

Revenue from administrative operations

Operating expenses

Administrative expenses

Staff expenses

Fixed asset related expenses

Pensions

Other administrative expenses

Non-operating activities

Investment operations revenue

Financial operations revenue

Financial operations expenses

Operating outturn

(in 1 000 euro)

Notes

2005

8

9

70 787

16 163

86 950

(74 686)

(4 396)

(6 033)

(18 761)

(103 876)

(16 926)

53

68

(15)

106

The notes annexed hereto form an integral part of these financial statements.

Economic outturn for the year

(16 820)

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Cash-flow table for the financial year 2005

Cash-flow from ordinary activities

Revenue from the activities of the financial year

Adjustments concerning activities:

— Allocation for depreciation (intangible fixed assets) +

— Allocation for depreciation (tangible fixed assets) +

— Increase (decrease) in provisions for risks and charges

— Increase (decrease) in employee benefits

— Increase (decrease) in short-term pre-financing

— Increase (decrease) in short-term receivables

— Increase (decrease) in receivables relating to Community bodies

— Increase (decrease) in long-term payables

— Increase (decrease) in suppliers and other creditors

— Increase (decrease) in amounts owed to Community bodies

— Gains (losses) on sales of fixed moveable property

— Execeptional items

(in 1 000 euro)

(16 925)

311

3 522

397

4 004

3 514

(889)

21

(19)

348

393

571

62

Cash-flow from investment activities

Acquisitions of tangible and intangible assets

Disposals of tangible and intangible assets

Financial income

Cash-flow from financing activities

Financial income

Financial expenditure

Net increase (decrease) in cash-flow

Cash at start of the financial year

Cash at end of the financial year

Cash-flow from ordinary activities

(4 690)

Cash-flow from investment activities

Cash-flow from financing activities

(1 680)

2 003

52

376

68

(15)

53

(4 261)

7 108

2 846

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Official Journal of the European Union

21.12.2006

NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2005

1. Accounting principles

1.1. Regulations and presentation of the accounts

The accounts of the European Court of Auditors (the Court)
are kept and the financial statements are drawn up in accor-
dance with the provisions of Council Regulation (EC, Eura-
tom) No 1605/2002 of 25 June 2002 on the Financial
Regulation applicable to the general budget of the European
Communities and Commission Regulation (EC, Euratom)
No 2342/2002 of 23 December 2002 laying down detailed
rules for the implementation of the said financial Regulation.

With effect from 1 January 2005, the financial statements
have been drawn up in accordance with the accruals prin-
ciple. The Court’s opening balance sheet was drawn up in
accordance with the new accounting rules adopted on
28 December 2004 and applicable for the first time to the
financial year 2005.

The comparative data for the financial year 2004 have been
adjusted so as to reflect
the Court’s new accounting
principles.

A reconciliation of the balance-sheet accounts, as previously
determined according to the 2004 principles, is provided in
note 10.

In accordance with accounting standard No 12 (Employee
benefits), which was adopted on 28 December 2004 by a
decision of the Commission’s accounting officer pursuant to
Article 133 of the Financial Regulation applicable to the
general budget of the European Communities, the Court had
recorded, for the first time at 31 December 2004, a provi-
sion for its Members’ pensions to the value, calculated actu-
arially, of the commitments arising from the length of ser-
vice at the date of calculation. In 2004, the Court had
balanced this provision by means of a long-term receivable
from the Member States. Accounting standard No 12 is cur-
rently being revised. Pending a final decision on this matter,
and in compliance with the Commission’s instructions, the
Court has, since 2005 deducted, the ‘receivable’ from the
Member States for the pension commitments to establish
the amount of the net assets. The comparative figures have
been adapted.

1.2. Intangible and tangible fixed assets

The intangible and tangible fixed assets are stated at histori-
cal cost less depreciation and impairment.

Depreciation is calculated using to the straight-line method
to allocate their cost to their residual values over their esti-
mated useful lives, as follows:

Computer software

Buildings

Plant, machinery and tools

Furniture and vehicle fleet

Computer hardware

Fittings specific to leased buildings

4 years

25 years

4, 8 years

4, 8, 10 years

4 years

The duration
of the lease

1.3. Prefinancing

Prefinancing is a payment intended to provide the benefi-
ciary with a cash advance, i.e. a float. It may be split into a
number of payments over a period defined in the particular
prefinancing agreement. The float or advance is repaid or
used for the purpose for which it was provided during the
period defined in the agreement.

At year-end outstanding prefinancing amounts are valued at
the original amount(s) paid to the beneficiary less: any
amounts returned, eligible amounts cleared, the estimated
eligible amounts not yet cleared at year-end and the value
reductions.

1.4. Receivables

Receivables are carried at the original amount less write-
down for impairment where applicable.

1.5. Payables

Payables are entered in the balance sheet at their nominal
value.

1.6. Commitments for the Members’ pension scheme

Under Article 19 of Council Regulation (EC, Euratom, ECSC)
No 2290/77 of 18 October 1977 determining the emolu-
ments of the members of the Court of Auditors (OJ L 268,
20.10.1977, p. 1), payment of the benefits provided for in
this pension scheme are entered in the budget of the Com-
munities and the Member States jointly guarantee payment
of these benefits.

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The amounts guaranteed by the Member States are based, on
one hand, on accounting standard No 12 ‘Employee ben-
efits’ adopted by a decision of the Commission’s accounting
officer pursuant to Article 133 of the Financial Regulation

applicable to the general budget of the European Commu-
nities, and, on the other hand, on the basis of an actuarial
analysis carried out by the experts of the specialised PMO
unit at the Commission.

2.

Intangible and tangible fixed assets

Intangible fixed assets

Tangible fixed assets

— Land and buildings

— Plant, machinery and tools

— Furniture and vehicle fleet

— Computer hardware

— Other tangible fixed assets

— Tangible assets in course of construction

Sub-total

Total

2005

(in 1 000 euro)

2004

Depreciable
value

Cumulative
depreciation

Net book value

Net book value

1 621

(1 084)

537

443

52 581

(17 606)

34 975

39 177

1 247

1 993

4 049

1 044

25

60 939

62 560

(889)

(1 363)

(2 651)

(435)

—

(22 944)

(24 028)

358

630

1 398

609

25

37 995

38 532

514

789

1 516

783

100

42 879

43 322

3.

Short-term prefinancing

6. Current payables

The 2004 balance corresponds to funds that the Court had
advanced to a Project Manager in the context of the con-
struction of a building.

The item ‘Current payables’ comprises amounts due to sup-
pliers, mission expenses still to be invoiced by the credit card
organisation and amounts due to sundry beneficiaries.

4.

Short-term receivables

In addition, this item includes amounts due to staff for
acquired rights under the Staff Regulations and for mission
expenses yet to be reimbursed.

Short-term receivables correspond mostly to entitlements
established but not yet collected, 1 392 326 euro of which
are attributable to the acquisition of national pension rights
by members of the institution’s staff.

7. Net assets

The balance of the amount shown mainly consists of
advances paid on mission expenses already incurred by the
Members and staff of the Court but not yet settled.

5.

Employee benefits

Employee benefits represent the future pension rights of the
Members of the Court.

The movements in net assets in 2005 were as follows:

Balance at 31 December 2004

Adjustments — changes in accounting principles
(note 10)

Cancellation at 31 December 2004 of the counter-
part of the provision for the pensions of the Mem-
bers of the Court

Net assets at 31 December 2004

Economic outturn for the financial year

Net assets at 31 December 2005

(in 1 000 euro)

43 252

5 808

(43 690)

5 370

(16 820)

(11 450)

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8. Revenue from administrative operations

This item principally comprises taxes and social security
contributions on the salaries of the Members and staff.

9. Other administrative expenses

The main items under this heading are rents for buildings
and related charges, mission expenses of the staff and Mem-
bers, IT expenses, and expenses relating to professional
training.

10.

Impact of the adoption of accruals accounting

During the financial year, the Court adopted the principles
of accruals accounting. The adoption of these principles
requires the adjustment of the comparative statements as
follows:

The changes in the accounting rules and methods resulting
from the implementation of accruals accounting require the
following adjustments to take into account elements that
previously did not have to be shown in the financial
statements:

(in 1 000 euro)

Reclassification of the positive balance of advances of
funds as revenue by the European Commission

Fixed assets (including 99 843 for fixed assets in course
of construction), depreciation calculated on a monthly
rather than annual basis

Stocks, exclusion from the balance sheet

Prefinancing in favour of K2 project manager

Payables, invoices to be received

Settlement and suspense accounts, expenses still to be
invoiced

7 051

746

(197)

3 514

(624)

(3 048)

Others:
31 December 2004

the value of

leave not

taken by staff at

(1 634)

Total

5 808

Assets

(in 1 000 euro)

11. Off-balance sheet commitments

Intangible fixed assets

Tangible fixed assets

Stocks

Short-term prefinancing

Short-term receivables

Long-term receivables (1)

Disposable assets

31.12.2004
restated

Changes

31.12.2004

443

42 879

—

3 514

1 909

43 690

7 108

28

719

(197)

3 514

415

42 160

197

—

525

1 384

—

—

43 690

7 108

99 543

4 589

94 954

(1) Amount deducted from the net assets (note 7).

Liabilities

(in 1 000 euro)

31.12.2004
restated

Adjust-
ments

31.12.2004

Net assets (note 7)

49 060

5 808

43 252

Non-current liabilities

43 885

176

43 709

Provisions for risks
and charges

Current payables

1 634

1 634

—

4 964

(3 029)

7 993

99 543

4 589

94 954

Under the framework agreement concerning the construc-
tion of one or more extensions to the Court building, which
was concluded by the Court of Auditors on 15 Decem-
ber 1999, the contracting parties have agreed as follows:

The Luxembourg State undertakes to grant the Court a
building lease on the land for the first extension at the price
of 1 (one) euro for a period not exceeding 49 years. Any fur-
ther building leases on other land needed for the other
extensions must not exceed the expiry date of the building
lease granted for the first extension.

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

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

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Moreover, the following bank guarantees were arranged by
third party suppliers for the proper implementation of
contracts:

For four building rental contracts in force, outstanding rent
commitments amount to 9 951 290 euro, broken down as
shown below:

— for the provision of travel services

— for the long-term hire of official vehicles

— for the provision of catering services

(in 1 000 euro)

20

75

28

Total

123

— Buildings

— Brussels office

— Parking facilities

(in 1 000 euro)

9 758

144

50

Total

9 952