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 accordance with the provisions 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 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 principle. 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 provision for its Members' pensions to the value, calculated actuarially, of the commitments arising from the length of service 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 currently 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 historical cost less depreciation and impairment.

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

Computer software	4 years
Buildings	25 years
Plant, machinery and tools	4, 8 years
Furniture and vehicle fleet	4, 8, 10 years
Computer hardware	4 years
Fittings specific to leased buildings	The duration of the lease

1.3.   Prefinancing

Prefinancing is a payment intended to provide the beneficiary 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 emoluments 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 Communities and the Member States jointly guarantee payment of these benefits.

The amounts guaranteed by the Member States are based, on one hand, on accounting standard No 12 ‘Employee benefits’ 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 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.

2.   Intangible and tangible fixed assets

(in 1000 euro)
	2005			2004
	Depreciable value	Cumulative depreciation	Net book value	Net book value
Intangible fixed assets	1 621	(1 084)	537	443
Tangible fixed assets
— Land and buildings	52 581	(17 606)	34 975	39 177
— Plant, machinery and tools	1 247	(889)	358	514
— Furniture and vehicle fleet	1 993	(1 363)	630	789
— Computer hardware	4 049	(2 651)	1 398	1 516
— Other tangible fixed assets	1 044	(435)	609	783
— Tangible assets in course of construction	25	—	25	100
Sub-total	60 939	(22 944)	37 995	42 879
Total	62 560	(24 028)	38 532	43 322

3.   Short-term prefinancing

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

4.   Short-term receivables

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.

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.

6.   Current payables

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

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

7.   Net assets

The movements in net assets in 2005 were as follows:

(in 1000 euro)
Balance at 31 December 2004	43 252
Adjustments — changes in accounting principles (note 10)	5 808
Cancellation at 31 December 2004 of the counterpart of the provision for the pensions of the Members of the Court	(43 690)
Net assets at 31 December 2004	5 370
Economic outturn for the financial year	(16 820)
Net assets at 31 December 2005	(11 450)

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 Members, 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:

Assets

(in 1000 euro)
	31.12.2004 restated	Changes	31.12.2004
Intangible fixed assets	443	28	415
Tangible fixed assets	42 879	719	42 160
Stocks	—	(197)	197
Short-term prefinancing	3 514	3 514	—
Short-term receivables	1 909	525	1 384
Long-term receivables (1)	43 690	—	43 690
Disposable assets	7 108	—	7 108
	99 543	4 589	94 954

Liabilities

(in 1000 euro)
	31.12.2004 restated	Adjustments	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	1 634	1 634	—
Current payables	4 964	(3 029)	7 993
	99 543	4 589	94 954

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 1000 euro)
Reclassification of the positive balance of advances of funds as revenue by the European Commission	7 051
Fixed assets (including 99 843 for fixed assets in course of construction), depreciation calculated on a monthly rather than annual basis	746
Stocks, exclusion from the balance sheet	(197)
Prefinancing in favour of K2 project manager	3 514
Payables, invoices to be received	(624)
Settlement and suspense accounts, expenses still to be invoiced	(3 048)
Others: the value of leave not taken by staff at 31 December 2004	(1 634)
Total	5 808

11.   Off-balance sheet commitments

Under the framework agreement concerning the construction of one or more extensions to the Court building, which was concluded by the Court of Auditors on 15 December 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 further 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 budgetary authority for the necessary funds.

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

(in 1000 euro)
— for the provision of travel services	20
— for the long-term hire of official vehicles	75
— for the provision of catering services	28
Total	123

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

(in 1000 euro)
— Buildings	9 758
— Brussels office	144
— Parking facilities	50
Total	9 952

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