Report by the external auditor on the Court of Auditors' accounts for the financial year 2006
Date: 2007-09-28
Institutions: European Court of Auditors
Subjects: European Court of Auditors, auditing, budgetary control, financial year, report, self-employed person

5.12.2007

EN

Official Journal of the European Union

C 292/1

IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COURT OF AUDITORS

REPORT BY THE EXTERNAL AUDITOR ON THE COURT OF AUDITORS’ ACCOUNTS
FOR THE FINANCIAL YEAR 2006

(2007/C 292/01)

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
Michel HERVÉ
Secretary-General of the European Court of Auditors

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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 2006 . . . . . . .

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

Financial statements at 31 December 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 2006

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 audited the accom-
panying financial statements of the European Court of Auditors, which comprise the balance sheet at
31 December 2006, the economic outturn account for the year then ended, the cash-flow statement and the
statement of changes in equity, plus a summary of significant accounting policies and other explanatory notes.

Responsibility of the Members of the European Court of Auditors for the preparation and presentation of the financial
statements

The Members of the European Court of Auditors are responsible for the preparation and fair presentation of
the financial statements in accordance with Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002,
the implementing rules thereof, generally accepted accounting principles and the European Court of Auditors’
Internal Rules. This responsibility includes: planning, implementing and maintaining a system of internal con-
trol relevant to the preparation and fair presentation of financial statements that are free from material mis-
statement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements in the light of our audit. We carried
out our audit in accordance with International Standards on Auditing as adopted by the Institut des Réviseurs
d’Entreprises. Those standards require that we comply with ethical standards and plan and perform the audit
so as to obtain reasonable assurance that the financial statements are free from material misstatement.

An audit involves performing procedures designed to obtain audit evidence concerning the amounts and the
disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, as also does
the assessment of the risks of material misstatement in the financial statements, whether due to fraud or error.
In making these risk assessments, the auditor takes account of the internal control system operating within
the entity in respect of the preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, and not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal controls. An audit also includes evaluating the appropriateness of the
accounting policies used and the reasonableness of the accounting estimates made by the Members of the Euro-
pean Court of Auditors, as well as evaluating the overall presentation of the financial statements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the European Court
of Auditors as at 31 December 2006 and of its operating results for the year then ended, in accordance with
Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002, the implementing rules thereof, generally
accepted accounting principles and the European Court of Auditors’ Internal Rules.

Luxembourg, 28 September 2007.

KPMG Audit S.à r.l.
Auditors
P. WIES

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Official Journal of the European Union

5.12.2007

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 have examined the
administrative and accounting procedures, the soundness of the financial management and the internal con-
trol system for the financial year ended on 31 December 2006. The purpose of our examination was to ensure
that the various authorities at 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 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 a meetings held
on 17 and 18 December 2003.

We have also examined the control environment, risk evaluation, the control systems and activities and the
management control systems. Our work consisted of evaluating the administrative and accounting procedures
and the management procedures, carrying out sample tests on supporting documents and holding interviews
with staff. The nature and extent of the tests were determined by our assessment of the control environment.
We consider that our work forms a reasonable basis for our conclusions regarding the European Court of Audi-
tors’ procedures, the soundness 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, 28 September 2007.

KPMG Audit S.à r.l.
Auditors
P. WIES

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Official Journal of the European Union

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Financial statements at 31 December 2006

Balance sheet at 31 December 2006 and 31 December 2005

Non-current assets

Intangible fixed assets

Tangible fixed assets

Current assets

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

Brought forward from previous years

Economic outturn for the financial year

The attached notes form an integral part of these financial statements.

Notes

2

2

3

4

5

6

2006

36 212

592

35 620

3 800

1 993

1 807

(1 000 euro)

2005

38 532

537

37 995

5 623

2 777

2 846

40 012

44 155

44 349

44 147

202

7 081

2 008

5 073

51 430

(11 418)

47 869

47 694

175

7 736

2 031

5 705

55 605

(11 450)

(11 450)

5 370

32

(16 820)

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Official Journal of the European Union

5.12.2007

Economic outturn account for the year ended 31 December 2006 and 31 December 2005

Notes

2006

2005

(1 000 euro)

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

Revenue from investment operations

Revenue from financial operations

Costs of financial operations

Operating outturn

Economic outturn for the financial year

The attached notes form an integral part of these financial statements.

7

4

8

82 297

16 263

98 560

70 787

16 163

86 950

(78 718)

(74 686)

(3 637)

1 274

(17 512)

(98 593)

(33)

—

80

(15)

65

32

(4 396)

(6 033)

(18 761)

(103 876)

(16 926)

53

68

(15)

106

(16 820)

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Official Journal of the European Union

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Cash flow statement for the financial year 2006 and 2005

Cash flow from ordinary activities

Economic outturn of activities for the year

Adjustments concerning activities:

— depreciation charge (intangible fixed assets) +

— depreciation charge (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 moveable fixed assets

— exceptional items

(1 000 euro)

2006

2005

32

(16 820)

268

2 440

(23)

(3 547)

—

769

16

27

378

(1 011)

—

—

311

3 522

397

4 004

3 514

(889)

21

(19)

348

393

571

61

Cash flow from ordinary activities

(651)

(4 586)

Cash flow from investment activities

Acquisitions of tangible and intangible assets

Disposals of tangible and intangible assets

Cash flow from investment activities

Net increase (decrease) in flows of cash and cash equivalents

Cash and cash equivalents at the beginning of the financial year

Cash and cash equivalents at the end of the financial year

(1 314)

(1 680)

926

(388)

2 004

324

(1 039)

(4 262)

2 846

1 807

7 108

2 846

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Official Journal of the European Union

5.12.2007

Statement of changes in equity for the year 2006

Balance at 31 December 2005

Economic outturn for the previous financial year

Economic outturn for the financial year

Balance at 31 December 2006

Accumulated
results

5 370

(16 820)

—

(11 450)

Economic
outturn for the
financial year

(16 820)

16 820

32

32

(1 000 euro)

Total net assets

(11 450)

—

32

(11 418)

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NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2006

1. Accounting principles

1.1. Regulations and presentation of the accounts

At the year end, outstanding pre-financed amounts are val-
ued at the original amounts paid out less the sum of any
amounts returned, cleared eligible expenditure, estimated eli-
gible expenditure not yet cleared at the year-end, and any
reductions in value.

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.

1.4. Receivables

Receivables are carried at their original value less amortisa-
tion for impairment where applicable.

1.5. Payables

1.2. Intangible and tangible fixed assets

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

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

1.6. Commitments for the Members’ pension scheme

Depreciation is calculated by the straight-line method and
charged over their estimated 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. Pre-financing

Pre-financing is a payment intended to provide the benefi-
ciary with funds in advance, e.g. a petty cash account. It may
be split into a number of payments over a period defined in
the particular pre-financing agreement. The advance is
repaid or used for the purpose for which it was provided
during the period defined in the agreement.

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), the benefits provided for in this pension
scheme are entered in the budget of the Communities and
the Member States jointly guarantee payment of them.

The amounts guaranteed by the Member States are based, on
the one hand, on accounting standard No 12 ‘Employee
benefits’ adopted by a decision of 28 December 2004 of the
Commission’s accounting officer pursuant to Article 133 of
the Financial Regulation applicable to the general budget of
the European Communities, 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.

Since the 2006 financial year, the pension provision has
been calculated net of taxes withheld at the time that pen-
sion payments are made on the grounds that these taxes
constitute revenue for the Court of Auditor’s budget (see
comments in paragraph 4). In 2005, the pension provision
included these taxes. If the Court had applied these prin-
ciples in 2005, the amount of the provision at 31 Decem-
ber 2005 would have been EUR 41 779 878. The
comparative figures have not been adjusted.

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2.

Intangible and tangible fixed assets

Intangible fixed assets

Tangible fixed assets

— land

— buildings

— plant, machinery and tools

— furniture and vehicle fleet

— computer hardware

— other tangible fixed assets

2006

(in 1 000 euro)

2005

Depreciable
value

Cumulative
depreciation

Net book value

Net book value

1 945

(1 353)

592

537

777

—

777

777

52 075

(19 735)

32 340

34 198

1 199

1 845

3 867

1 044

(856)

(1 260)

(2 926)

(609)

343

585

941

435

199

358

630

1 398

609

25

37 995

38 532

— tangible assets in the course of construc-

tion

199

—

Sub-total

61 006

(25 386)

Total

62 951

(26 739)

35 620

36 212

3.

Short-term receivables

Short-term receivables mostly correspond to entitlements
established but not yet collected, of which EUR 841 528
(2005: EUR 1 392 326) are attributable to the acquisition of
national pension rights by members of the Court’s staff.

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

The balance mainly consists of advances paid for mission
expenses already incurred by the Members and staff of the
Court but not yet settled and accrued expenses calculated in
advance.

6. Net assets

4.

Employee benefits

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

The Employee benefits amount for 2006 is stated net of tax
(see comments in paragraph 1.6).

The movements in net assets in 2006 were as follows:

Balance at 31 December 2005

Economic outturn for the financial year

(1 000 euro)

(11 450)

32

Net assets at 31 December 2006

(11 418)

5. Current payables

7. Revenue from administrative operations

‘Current payables’ comprise amounts due to suppliers, mis-
sion expenses still to be invoiced by the credit card organi-
sation and amounts due to sundry beneficiaries.

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

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8. Other administrative expenses

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

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

— for the provision of travel agency

services

— for the long-term hire of official

vehicles

— for the provision of catering ser-

vices

(1 000 euro)

2006

2005

51

75

28

20

75

28

9. Off-balance sheet commitments

Total

154

123

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 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 EUR 1 (one) 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 Court decided to proceed with a second extension
(K3 building) and, because the conditions of performance
are different, the Luxembourg State and the Court have
agreed to conclude a new framework agreement, due to be
signed in 2007.

For four existing rental contracts, the outstanding rent
commitments
(2005:
EUR 9 951 290), itemised below:

to EUR 7 960 550,

amount

— buildings

— Brussels office

— parking facilities

(1 000 euro)

2005

9 758

144

50

2006

7 833

110

17

Total

7 960

9 952

For operating leases of plant and equip-
ment, outstanding rental commitments
amount to

Remaining amounts payable on budget-
ary commitments

Total

(1 000 euro)

2006

363

3 150

3 513