Accounting Rules PDF - December 2004

Accounting rules December 2004 INTRODUCTION Accounting rules December 2004 CONTENTS I- THE MODERNISATION OF TH...

Accounting rules December 2004 INTRODUCTION Accounting rules December 2004 CONTENTS I- THE MODERNISATION OF THE EUROPEAN COMMUNITIES........................1 II - ACCOUNTING FRAMEWORK...........................................................................2 II.1 – Current situation until 2004..........................................................................2 II.2 – Evolution needed.........................................................................................2 II.3 – Dual system.................................................................................................3 II.4 – Achievement of the objective.......................................................................4 II.5 – Setting up an accounting standard committee.............................................4 III - Accounting rules..................................................................................................5 Accounting rules December 2004 I- THE MODERNISATION OF THE EUROPEAN COMMUNITIES In recent years, the modernisation of public management has become a major concern. Public accounting practices, most often oriented towards recording payments and receipts, must, on the one hand, become a genuine management tool and on the other hand make the government’s or public organisation’s financial situation more readily understandable and reliable. The European Communities have accomplished major improvements of its financial management and control systems since the adoption of the White Paper on Reform in March 2000. Further efforts were still necessary to achieve Reform’s objectives, in particular in the area of accounting where the recast Financial Regulation requires the production of accrual accounts by 2005. This objective, in turn, has committed the European Communities to undertake a major change to its accounting framework. Conformément au règlement financier, les Communautés Européennes ont décidé d'élaborer un recueil des règles comptables qui s'appliquent à la comptabilité générale. Cette comptabilité est fondée sur le principe de la constatation des droits et des obligations. Les opérations doivent être prises en compte de l'exercice au titre de l'exercice auquel elles se rattachent, indépendamment de leur date de paiement ou d'encaissement. L'ensemble des règles comptables permettant d'appliquer la comptabilité d'exercice aux Communautés Européennes a été construit en s'inspirant des normes IPSAS. Cependant, la spécificité de certaines opérations des Communautés Européennes justifient que les normes IPSAS ne puissent être adoptées telles quelles. Ceci a conduit à déterminer parmi les principes IPSAS ceux qui sont applicables directement, ceux qui doivent être adaptés pour tenir compte de certaines particularités, et enfin ceux qui doivent être créés pour comptabiliser des opérations pour lesquelles il n'existe pas de norme IPSAS adoptée par l'IFAC. Le présent recueil de 15 règles comptables est le fruit de ce travail. However, the European Communities are not alone in moving towards the respect of accrual accounting principles. Many developed countries are also engaged in the same process and, encouraged by international bodies and organisations such as the OECD and IFAC PSC, have begun to modernise their accounting systems over the past few years, switching from a cash-based to an accrual-based system. Experience in the Member States shows that reforming public accounting systems represents a major upheaval both in terms of the introduction of new practices and in human resource terms, not to mention the financial resources required. With the new accounting rules, the European Communities join the group of governments and public institutions which have undertaken important efforts in order to improve their accounting practices. Accounting rules December 2004 II - ACCOUNTING FRAMEWORK II.1 – Current situation until 2004 The European Communities' accounts are kept in accordance with the Financial Regulation of 21 December 1977. The accounts comprise the budget accounts and the general accounts. The budget accounts give a detailed picture of implementation of the annual budget. They are based on a modified form of cash accounting (carryovers are included). The budget out-turn for the year is calculated on the basis of amounts actually disbursed and collected (including carryovers). Since several years, elements of accrual accounting have already been introduced by the European Communities for the presentation of the financial statements via annual adjustments. These relate mainly to fixed assets (acquisitions, disposals, withdrawals), stocks, debts, loans, share-holdings, depreciation, provisions and write-downs. They allow the economic out-turn account to be calculated. The economic result aims to make the link between the budgetary cash-based accounts and the general accounts, which are moving towards accrual accounting. It reveals the impact on the balance sheet of expenditure and revenue not originating from budgetary accounting. However, all the information used to draw up a balance sheet on an accrual basis is not based directly on the accounting entries but comes from extra accounting information, based on provisions of the Accounting and Consolidation Manual, and transmitted to Directorate General (DG) Budget by the other DGs of the Commission. In order to assure completeness and reliability, the collection of all this information at source, within the DGs, is a priority. Consequently, it was urgent to make further progress and adopt an integrated accounting framework, inspired by IPSAS. II.2 – Evolution needed The main objective of the European Communities' new accounting framework and system is to produce financial information that is useful to interested parties, and to introduce better management tools. The principal users of the European Communities’ accounting reports are: – Internal users: Senior managers and authorising services need access to detailed internal financial reports as a tool for decision making and to improve the management of projects and to perform internal controls; – External users: the European Parliament, the Council, the Court of Auditors, the public and other users, such as governments, rating agencies, economic, political and financial analysts, including the media. Taken as a collective group, users expect that financial reporting should demonstrate the accountability of the European Communities for the financial affairs and resources entrusted to it, and provide them with information useful for economic decision making. The quality of the information provided in financial reports determines the usefulness of those reports to users. Basic requirements are: understandability, relevance, materiality, reliability, faithful representation, substance over form, neutrality, prudence, completeness, comparability and timeliness. Cash accounting provides information, which meets some of the objectives of financial reporting. However, it is not the most informative way of presenting financial information. With cash accounting there is no requirement to match expenditure with the period to which they relate, and capital spending is booked in total in the year in which the capital purchase or disposal is made. Cash based accounts also lack any framework for accounting for assets and liabilities. 1 Accounting rules December 2004 The accrual basis should provide users with financial information about such matters as the resources controlled by the entity, the cost of its operations (cost of providing goods and services), enhanced cash flow information and other financial information useful both in assessing the financial position and changes in it, and in assessing whether the reporting entity is operating economically and efficiently. Users may use financial reports to assess the Commission’s stewardship of resources, compliance with legislation, and the European Communities’ financial position. The accrual basis highlights the impact of financing decisions on economic results and may lead the European Communities to take a longer term perspective when making financing decisions. The accrual basis enables managers to develop more reliable assessments of assets and the actual costs of service delivery. II.3 – Dual system There are two main options when making the transition to accrual accounting: – Either the principle of accrual-based accounts is applied for both the budget and general accounts, in which the budgetary balance will correspond to the difference between the budgetary entitlements established in the course of the financial year and the obligations established in the course of that year, irrespective of what may be disbursed or collected. This is not the structure laid down in the Financial Regulation; – Or the accrual principle is applied to the general accounts only, while budget implementation remains subject to the cash principle, in which case a “dual” system exists. The new Financial Regulation lays down an accounting framework based on such a “dual” system. The dual system requires budget implementation to be based on different principles (budget consumption occurring at the time of disbursement or collection) than the general accounts (based on accrual principles). Dans ces conditions, l’articulation entre la comptabilité budgétaire et la comptabilité générale constitue un objectif important, si l’on veut que a comptabilité générale soit comprise par tous et devienne un outil supplémentaire pour l’élaboration du budget, la compréhension de l’exécution et les procédures de contrôle interne. Ainsi, même si les règles budgétaires ne sont pas modifiées par la mise en place des nouvelles règles comptables et gardent leur autonomie et leurs logiques propres, des adaptations importantes des systèmes d’information ont été réalisées pour assurer des relations simples entre la comptabilité budgétaire et la comptabilité générale. Il est impératif pour garantir la lisibilité et la crédibilité des Communautés Européennes d’assurer une cohérence des restitutions comptables. Les principaux écarts peuvent être résumés de la manière suivante : = Comptabilité budgétaire N + Produits à recevoir - Charges à payer + Engagements budgétaires dont le service sera fait en N+1 +/- Opérations budgétaires enregistrées au bilan (ex. investissements, sorties d’actifs…) - Amortissements, provisions, dépréciations +/- Opérations liées aux pensions + Préfinancements - Charges éligibles donnant lieu à préfinancement = Comptabilité générale N 2 Accounting rules December 2004 II.4 – Achievement of the objective To achieve these objectives of providing reliable financial information, the accounting framework have changed on several fronts. These changes involve: – Adopting generally accepted accrual based accounting principles; – Developing an integrated accounting system containing all the information necessary for presenting the accrual accounts; – Developing a general accounting system based on accrual accounting and maintenance of cash- based budget accounting; – Adopting detailed accounting methods and valuation rules that elaborate on the accounting principles adopted; – Improving the financial statements so that they give an accurate picture of the financial situation in terms of assets and liabilities, budget implementation, the out-turn and the cash flow; and – Extending the scope of consolidation. II.5 – Setting up an accounting standard committee The Financial Regulation of 25 June 2002 sets out the accounting principles that serve as the basis for drawing up the financial statements. However, the principles need to be fleshed out in accounting standards and rules applicable to the activities of the European Communities. In connection with this, Article 133 of the Financial Regulation states that the Commission’s Accounting Officer adopts the accounting rules and methods and the harmonised Chart of Accounts to be applied by all the institutions. It would be inappropriate for those responsible for preparing financial statements to have the sole responsibility for deciding on the standards such statements should follow. The Accounting Officer should have a major role in the development of accounting standards. However, other users of the accounts should also play a part in the setting of these requirements. To this end, an advisory committee for accounting standards has been set up. Its tasks was to: – To deliver an independent professional judgement on the accounting standards and rules proposed by the Commission’s Accounting Officer; and – to advise the Accounting Officer on the application of financial reporting principles and standards. The committee has played an important role in defining and harmonising accounting and rules as well as in defining the conceptual accounting framework. It comprised the following representatives : – The Commission's Accounting Officer; – The Accounting Officer of one other institution; – The Accounting Officer of one agency within the scope of consolidation; – A representative of Unit DG MARKT/F3 “Financial reporting and company law”; – A representative of the Internal Audit Service; – A representative of IFAC PSC; and – A professor expert in public accounting. The Court of Auditors has also participated in this Committee because, although it is essential that auditors maintain their independence, there were many benefits to be obtained from establishing a co-operative working relationship with the auditor at the beginning of the transition process. An auditor would be unlikely to give an absolute assurance that a particular system or process would meet audit requirements. However, the auditor may be able to provide helpful advice regarding the criteria that would be used in assessing the system or process. 3 Accounting rules December 2004 III - ACCOUNTING RULES Le présent recueil est constitué des 15 règles comptables suivantes : – N1: Group accounting; – N2: Financial statements; – N3: Expenses and payables; – N4: Revenues and receivables; – N5: Pre-financing; – N6: Intangible fixed assets; – N7: Tangible fixed assets; – N8: Leases; – N9: Stock; – N10: Provisions, contingent assets and liabilities; – N11: Financial assets and liabilities; – N12: Employee benefits; – N13: Foreign currency translation; – N14: Economic result of the year, fundamental errors and changes in accounting policies; and – N15: Related party disclosures. Afin d’élaborer ces règles comptables, une analyse préalable des processus clés des Communautés Européennes a été réalisée afin de préciser les faits générateurs et être en mesure de créer un ensemble cohérent traduisant l’activité de la Commission tout en conservant un lien avec le budget. On rappelle que le fait générateur détermine la comptabilisation d’une opération dans les états financiers. Il est donc le critère de rattachement à l’exercice. Le principe général définissant le rattachement à l’exercice est la naissance d’un droit ou d’une obligation ou la modification de leur nature ou de leur valeur au cours de cet exercice. Ces différents éléments sont traduits dans les différentes catégories d’actifs, de passifs, de charges et de produits et comptabilisés dans les états financiers de l’exercice au cours duquel le contrôle sur les avantages économiques futurs est acquis, les obligations sont nées, et les risques sont avérés. Les grands principes suivants constituent le socle des règles comptables : – Les produits sont comptabilisés dans les états financiers de l’exercice au cours duquel ils sont acquis. Pour les ventes de biens ou de services, cela correspond en général à la livraison du bien ou à l’exécution du service. Pour les autres produits (c’est à dire l’essentiel des ressources des Communautés Européennes), cela correspond au moment où la perception de ces revenus est autorisée et où les montants peuvent être établis de manière fiable. Par ailleurs, Ils ne sont pas, en principe, rattachés à des charges, à la différence des produits provenant des ventes de biens ou de services, qui peuvent, en général, être rattachés à des charges. – Les charges sont comptabilisées dans les états financiers de l’exercice au cours duquel elles ont été consommées. Pour les charges telles que les rémunérations versées, les acquisitions de services ou de biens, le fait générateur correspond à la règle du service fait. Pour les achats de biens, la livraison détermine la comptabilisation, et les écritures d’inventaire concernant les stocks permettent de distinguer et de comptabiliser les achats consommés et les achats stockés conformément à leur nature. Les achats qui répondent à la définition d’une immobilisation sont comptabilisés à l’actif et font l’objet d’un amortissement. Les charges correspondant à des transferts (FEOGA garantie, Fonds structurels, Subventions…) sont rattachées à l’exercice au cours duquel le droit des bénéficiaires à les recevoir a été établi. Pour ces catégories, la décision d’éligibilité des dépenses constitue l’élément clé qui permet la comptabilisation d’une charge en cours d’année. A la clôture de l’exercice, l’avancement des projets permet d’ajuster le montant des charges. 4 Accounting rules December 2004 – Les préfinancements ne constituent pas des charges de l’exercice mais sont traités comme des avances de trésorerie. Ainsi, ils sont comptabilisés à l’actif du bilan de la Commission et sont apurés au fur et à mesure des paiements intermédiaires et final. – Le suivi des opérations a aussi été un objectif recherché dans le cadre de l’élaboration des règles comptables. Cet objectif se traduit par le fait que toute demande ou toute facture arrivant aux Communautés Européennes doit être enregistré dans les systèmes d’information. Ainsi, en cours d’année, les opérations suivent les étapes suivantes : étape 1 : enregistrement de la facture / Cost claim ; étape 2 : analyse de l’éligibilité (enregistrement en charges) ; étape 3 : autorisation du paiement par l’ordonnateur ; étape 4 : Paiement. Ce mode de gestion permet d’assurer une comptabilisation en « accrual » tout en offrant des outils de supervision très détaillés sur l’état des dettes non encore analysées, les cost claims non reçus ou les délais de paiement. Enfin, ceci concourt à améliorer le contrôle interne. 5