EUROPEAN UNION ACCOUNTING RULE 16 PRESENTATION OF BUDGET INFORMATION
Page 2 of 9 I N D E X 1. Introduction... 3 1.1 Reasons for issuing this accounting rule... 3 1.2 Applicability... 3 1.3 Disclosure... 3 1.4 and general accounts in the European Union... 4 2. Objective... 4 3. Scope... 4 4. Definitions... 4 5. Presentation of budget information in financial statements... 6 5.1 Comparison of budget and actual amounts... 6 5.2 Level of aggregation... 7 5.3 Changes from original to final budget... 7 5.4 Comparable basis... 7 5.5 Financial framework... 7 5.6 Reconciliation of actual amounts on a comparable basis and actual amounts in the financial statements... 8 6. Disclosures... 8 7. Effective date... 9 8. Reference to other rules... 9
Page 3 of 9 1. Introduction 1.1 Reasons for issuing this accounting rule This accounting rule is based on International Public Sector Standard (IPSAS) 24 Presentation of Information in Financial Statements, which was issued by the International Public Sector Standards Board (IPSASB) in December 2006. Prior to the issue of IPSAS 24, neither the European Union ( EU ) Rule 2 nor IPSAS 1 Presentation of Financial Statements required disclosure of a comparison when the budget is not prepared or presented on the same basis as the financial statements, nor was there guidance on the details to be disclosed or the manner of presentation if the EU elected to make such a comparison. 1.2 Applicability This rule applies to the EU consolidated accounts, as well as the individual accounts of the EU Institutions and Agencies consolidated therein if these entities annual budgets are publicly available. The rule requires these entities to make certain disclosures about budget and actual amounts in their annual accounts or other reports. It does not require that these entities make publicly available their approved budgets, nor does it specify requirements for the formulation or presentation of approved budgets that are made publicly available. This rule identifies disclosures that are to be made by these entities concerning their compliance with, and performance against, their approved budget(s) whether or not the budget and the financial statements are prepared and presented on the same basis. 1.3 Disclosure This accounting rule requires that the annual accounts of the EU and its consolidated Institutions and Agencies that make their approved budget(s) publicly available include: (a) A comparison of actual amounts with amounts in the original and final budget. This comparison is to be made on the same basis of accounting as adopted for the budget, even if that basis is different from the basis adopted for the financial statements; (b) An explanation of material differences between budget and actual amounts, unless such explanation is included in other public documents issued in conjunction with the annual accounts; (c) A reconciliation of actual amounts on a budget basis, with actual amounts presented in the financial statements when the accounting and budget basis differ. This rule also requires disclosure of an explanation of the reasons for differences between the original and final budget, including whether those differences arise from reallocations within the budget or other factors such as policy shifts, natural disasters, or other unforeseen events. These disclosures may be made in notes to the annual accounts or in a report issued before, in conjunction with, or at the same time as the annual accounts.
Page 4 of 9 1.4 and general accounts in the European Union It should be noted that under the Financial Regulation (FR) applicable to the general budget of the European Union, the accounts consist of the general accounts and the budgetary accounts, presented and kept in euros (see Article 132 FR), each following different principles. Furthermore, and in accordance with Article 121 FR, the annual accounts of the EU comprise two main elements: (1) the financial statements (general accounting) and (2) the reports on the implementation of the budget (budgetary accounting). The general accounts are kept in accordance with accrual accounting principles, which means that the effects of transactions and other events are recognised when those transactions or events occur. The budgetary accounts are kept according to modified cash accounting rules. As in any cash accounting system, payments made and revenue received are recorded. The term modified cash accounting is used as payment appropriations carried over are also recorded. The budgetary accounts are used to produce the budgetary outturn account and reports on budget implementation. 2. Objective Compliance with the requirements of this accounting rule will ensure that the EU and its consolidated Institutions and Agencies discharge their accountability obligations and enhance the transparency of their financial statements by demonstrating compliance with the approved budget(s) for which they are held publicly accountable. 3. Scope The EU and its consolidated Institutions and Agencies which prepare and present financial statements under the accrual basis of accounting shall apply this accounting rule. This rule applies only to those entities that make publicly available their approved budget(s). 4. Definitions The following terms are used in this accounting rule with the specified meanings: basis means the accrual or cash basis of accounting as defined in the Accrual Basis International Public Sector Standard and the Cash Basis International Public Sector Standard. Annual budget means an approved budget for one year. It does not include published forward estimates or projections for periods beyond the budget period.
Page 5 of 9 Appropriation is an authorisation granted by a legislative body to allocate funds for purposes specified by the legislature or similar authority. Approved budget means the annual budget as approved by the budgetary authority following the budget setting rules and process currently in place. ary basis means the accrual, cash or other basis of accounting adopted in the budget that has been approved by the legislative body. Comparable basis means the actual amounts presented on the same accounting basis, on the same classification basis, for the same entities and for the same period as the approved budget. Final budget is the original budget adjusted for all reserves, carry over amounts, transfers, allocations, additional appropriations, and other changes applicable to the budget period authorised by the legislative or similar authority. Financial framework is a multi-annual spending plan that translates into financial terms the Union s policy priorities. It sets limits on European Union expenditure over a fixed period and thus imposes budgetary discipline; the financial framework sets annual maximum amounts (ceilings) of commitments for the main categories of expenditure (called headings) and an overall payments ceiling. It should not be confused with the financial framework included in legislative co-decisions, fixing an amount for the programme concerned during the life of that programme. The multi-annual financial framework is adjusted each year to take account of the movements of gross national income and prices. It may also be revised by agreement between the signatories. It may be adjusted to cater for enlargement. Multi-year budget is an approved budget for more than one year. It does not include published forward estimates or projections for periods beyond the budget period. Original budget is the initial approved budget by the budgetary authority for the financial year. Approved budgets The critical feature of the approved EU budget is that the authority to provide funds to the EU bodies for agreed and identified purposes is provided by the budgetary authority. The approved budget establishes the allowable expenditure for specified items. The allowable expenditure is generally considered the legal limit within which an entity must operate. The EU is held accountable for its implementation of the approved budget through the annual discharge procedure. Original and final budget The original budget may include residual appropriated amounts automatically carried over from prior years by law. The EU makes a distinction between initial and final budget appropriations of
Page 6 of 9 the current year and additional budget appropriations that have been carried over from previous years. Additional appropriations may be necessary where the original budget did not adequately envisage expenditure requirements arising from various events. In addition, there may be a shortfall in budgeted revenues during the period, and internal transfers between budget heads or line items may be necessary to accommodate changes in funding priorities during the budget period. The final budget includes all such authorised changes or amendments. Actual amounts This accounting rule uses the term actual or actual amount to describe the amounts that result from execution of the budget. outturn, budget execution, "budget implementation" or similar terms may be used with the same meaning as actual or actual amount. 5. Presentation of budget information in financial statements 5.1 Comparison of budget and actual amounts The European Union (and its consolidated Institutions and Agencies) shall present a comparison of the budget amounts for which it is held publicly accountable and actual amounts as a separate additional budgetary report in the annual accounts currently presented in accordance with the EU s accounting rules. The comparison of budget and actual amounts shall present separately for each financial framework heading and policy area: (a) (b) The original and final budget amounts; The actual amounts on a comparable basis; and (c) By way of note disclosure, an explanation of material differences between the budget for which the entity is held publicly accountable and actual amounts, unless such explanation is included in other public documents issued in conjunction with the annual accounts and a cross reference to those documents is made in the notes. Where approved budgets are only made publicly available for some of the entities or activities included in the annual accounts, the comparison of budget and actual amounts described above will apply to only the entities or activities reflected in the approved budget. Comparisons of budget and actual amounts shall be presented in a separate budgetary report ( statement of comparison of budget and actual amounts or a similarly titled statement) included in the annual accounts since the budget and financial statements are currently not prepared on a comparable basis in the European Union. To ensure that readers do not misinterpret financial information which is prepared on different bases, the annual accounts could usefully clarify that the budget and the accounting bases differ and the statement of comparison of budget and actual amounts is prepared on the budget basis.
Page 7 of 9 5.2 Level of aggregation documents may provide great detail about particular activities, programmes or entities. These details are often aggregated into broad classes under common budget heads, budget classifications or budget headings for presentation to, and approval by, the legislature or other authoritative body. The disclosure of budget and actual information consistent with those broad classes and budget heads or headings will ensure that comparisons are made at the level of legislative or other authoritative body oversight identified in the budget documents. For the EU this will entail presenting information at the level of financial framework heading and policy area. In some cases, the detailed financial information included in approved budgets may need to be aggregated for presentation in annual accounts in accordance with the requirements of this accounting rule. Such aggregation may be necessary to avoid information overload and to reflect relevant levels of legislative or other authoritative body oversight. Determining the level of aggregation will involve professional judgment. That judgment will be applied in the context of the objective of this accounting rule and the qualitative characteristics of financial reporting. 5.3 Changes from original to final budget The EU and its consolidated Institutions and Agencies shall present an explanation of changes between the original and final budget, including an explanation of whether changes between the original and final budget are a consequence of reallocations within the budget, or of other factors: (a) By way of note disclosure in the annual accounts; or (b) In a report issued before, at the same time as, or in conjunction with the annual accounts, and shall include a cross reference to the report in the notes to the annual accounts. The final budget includes all changes approved by the budgetary authority to revise the original budget. That explanation will include whether, for example, changes arise as a consequence of reallocations within the original budget parameters or as a consequence of other factors, such as changes in the overall budget parameters, including changes in policy. 5.4 Comparable basis All comparisons of budget and actual amounts shall be presented on a comparable basis to the budget. The comparison of budget and actual amounts will be presented on the same accounting basis (accrual, cash or other basis), on the same classification basis and for the same entities and period as for the approved budget. 5.5 Financial framework Through an inter-institutional agreement (IIA), the European Parliament, the Council and the Commission agree in advance on the main budgetary priorities for a period covering a number of years. These budgetary priorities establish a framework for Community expenditure, the multiannual financial framework. The multi-annual financial framework indicates the maximum amount
Page 8 of 9 and the composition of foreseeable Community expenditure. Its purpose is therefore to strengthen budgetary discipline, to keep the total increase in expenditure under control and to ensure that the procedure runs smoothly. The multi-annual financial framework imposes a dual ceiling on expenditure: one for total expenditure and one for each category of expenditure. For each programming period, the multi-annual financial framework determines ceilings (the maximum amounts of commitment appropriations and payment appropriations) for each year. Unlike for payment appropriations, the ceilings of commitment appropriations are per "heading". The annual budgetary procedure determines the exact level of expenditure and the breakdown between the various budget lines for the year in question. It should be pointed out that each annual budget has to be separately approved by the budgetary authority. The expenditure allocated to each heading is based on the Union s political priorities for the period in question. The structure of the multi-annual financial framework for 2007-2013 is as follows: 1. Sustainable growth 2. Conservation and management of natural resources (incl. market expenditure and direct payments) 3. Citizenship, freedom, security and justice 4. The EU as a world player 5. Administration 6. Compensation. The EU consolidated annual accounts shall include a table showing the amounts of the current financial framework in force broken down by heading and by year. 5.6 Reconciliation of actual amounts on a comparable basis and actual amounts in the financial statements The actual amounts presented on a comparable basis to the budget shall, where the financial statements and the budget are not prepared on a comparable basis, be reconciled to the actual amounts presented in the financial statements, identifying separately the major differences on both the revenue and the expenditure side. The reconciliation shall be disclosed on the face of the statement of comparison of budget and actual amounts or in the notes to the annual accounts. 6. Disclosures The EU shall: - explain in notes to the annual accounts the budgetary basis and classification basis adopted in the approved budget;
Page 9 of 9 - disclose in notes to the annual accounts the period of the approved budget; - identify in notes to the annual accounts the entities included in the approved budget. Disclosure of the Institutions and Agencies encompassed by the budget will enable users to identify the extent to which the entity s activities are subject to an approved budget and how the budget entity differs from the entity reflected in the financial statements. The disclosure of comparative information in respect of the previous period in accordance with the requirements of this accounting rule is not required. This rule requires a comparison of budget and actual amounts to be included in the EU annual accounts and those of its consolidated Institutions and Agencies. It does not require the disclosure of a comparison of actuals of the previous period with the budget of that previous period, nor does it require that the related explanations of differences between the actuals and budget of that previous period be disclosed in the financial statements of the current period. 7. Effective date The EU shall apply this accounting rule for annual accounts covering periods beginning on or after 1 January 2009. 8. Reference to other rules IPSAS 24 EU Rule 2 Presentation of Information on Financial Statements Financial Statements