Select Committee on European Scrutiny Thirty-First Report


15 Financial management

(25897)

11905/04

COM(04)565

Commission Report on progress at 30 June 2004 of the modernisation of the accounting system of the European Commission

Legal base
Document originated18 August 2004
Deposited in Parliament25 August 2004
DepartmentHM Treasury
Basis of considerationEM of 7 September 2004
Previous Committee ReportNone; but see (24144) 15872/02: HC 63-x (2002-03), para 11 (29 January 2003)
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared

Background

15.1 In January 2003 we reported on the Commission's plans to modernise its accounting system, in accordance with its multi-annual action plan, presented in 2000, especially in relation to the requirement in the Financial Regulation, 1605/2002 EC, Euratom, to introduce accrual accounts[30] by 2005.[31]

The document

15.2 This Commission report summarises progress in introducing the new system and what remains to be done. Action completed includes:

  • accounting rules have been adopted by the Accounting Standards Committee;
  • a harmonised chart of accounts, as required by the Financial Regulation, has been drafted;
  • a draft accounting manual has been finalised;
  • all accounting processes required for the new system have been defined;
  • Authorising Officers have a document describing data quality controls;
  • institutions and agencies have completed "readiness assessments" for their application of the new rules; and
  • a first training programme has been completed.

15.3 Matters still being attended to include:

  • establishing a means of evaluating certain year-end provisions;
  • testing individual components of the new computer systems;
  • planning for transition to the new system and for enabling the links to local systems;
  • integrating loans and borrowings into the central accounts (from July 2005)
  • modernising the European Development Fund (EDF) accounts, to be compliant with the requirements of accruals accounting;
  • establishing opening accounting balances for 2005; and
  • further user training.

15.4 Although the Commission is confident that implementation will be completed in 2005, it has identified some risks:

  • Directorate-Generals are working on the establishment of the 2005 opening balances, but temporary staff engaged to carry out this task have only been in place since June and the rate of file examination will need to be increased; and
  • development of local IT systems is scheduled for completion by the end 2004, but there is no margin for unforeseen circumstances and there is a risk that some commitments and payments could be delayed at the beginning of 2005.

So the Commission is giving priority to gathering the most essential information, to ensure that the 2005 accounts will contain all the records required for accrual accounting.

The Government's view

15.5 The (then) Financial Secretary to the Treasury (Ruth Kelly) tells us:

"The Commission's plans to modernise its accounting system and procedures by 2005 have been called 'over ambitious' by the European Court of Auditors, despite the fact that they welcomed the objectives of the project (which when completed will improve the level of assurance given annually from the ECA). However, the evidence of this progress report, along with the assurances given by the Commission's Chief Accountant, shows that the project is achievable within the planned timescale. The Commission has sensibly identified the risks and taken action to minimise them.

"When the project is completed, the Commission will have a system of full accruals accounting - ahead of most Member States - which they will have implemented in less time than it took in the UK. But it will have to operate the system efficiently if it is to avoid further criticism from the ECA and it will be important for the Commission to provide assessments of how the system is working in practice."

Conclusion

15.6 We welcome these signs that the Commission is making progress in modernising its accounting system, while noting the Government's comments as to the need for efficient operation and assessments of the new system. We clear the document.


30   Accrual accounting involves financial statements in which revenue is entered when it is earned, not when it is paid and expenditure is entered when the obligation arising from consumption of a good or service - is incurred, not when it is paid for. Additionally, where possible, matches of those entries to actual payments, when made, are recorded. Back

31   See headnote. Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2004
Prepared 23 September 2004