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Glossary

ABAC

The Commission’s accounting system, which is based on accrual accounting rules.

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accounting

The act of recording and reporting financial transactions, including the origination of the transaction, its recognition, processing, and summarisation in the financial statements.

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accrual accounting

Accrual accounting recognises revenue earned rather than collected, and expenses incurred rather than paid (unlike cash‑basis accounting, which recognises transactions, etc. only when cash is received or paid).

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activity based budgeting (ABB)

Organisation of the budget appropriations and resources by purpose so as to allow people to see what policies are pursued, and within them, what activities make up the policies, how much money is spent on each of them, and how many people work on them.

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adopted budget

The draft budget becomes the adopted budget as soon as the European Parliament & Council approve it and it is signed by the president of the European Parliament.

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agencies

EU bodies with a distinct legal personality, to which budget implementing powers may be delegated under strict conditions. They are subject to a distinct discharge from the discharge authority.

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agricultural duties

Mainly customs duties on imports of certain agricultural produce from non-EU countries (produce covered by an EU support regime ("common organisation of the market"), as well as levies (paid by producers) on sugar, isoglucose and inulin syrup.

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allocated expenditure

EU expenditure that can be allocated to individual EU countries. Non-allocated expenditure concerns, in particular, expenditure paid to beneficiaries in third countries. Allocation of expenditure by country is necessary in order to calculate budgetary balances.

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amending budget

Once approved, a draft amending budget becomes amending budget.

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amending letter

Before the conciliation starts, the Commission may present a letter of amendment to the draft budget on the basis of new information which was not available at the time that the draft budget was drawn up.

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annual activity reports

AARs indicate the results of operations by reference to objectives set, associated risks and the form of internal control. Since the 2001 budget exercise for the Commission and since 2003 for all Community institutions, the ‘authorising officer by delegation’ must submit an AAR to his/her institution on the performance of his/her duties, together with financial and management information.

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annuality

The budgetary principle according to which expenditure and revenue is programmed and authorised for one year, starting on 1 January and ending on 31 December.

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appropriations

Budget funding. The budget forecasts:

  • commitments: legal pledges to provide finance, provided that certain conditions are fulfilled.
  • payments: cash or bank transfers to the beneficiaries.
  • differentiated appropriations: appropriations for commitments and payments often differ because multiannual programmes and projects are usually committed in the year they are decided and are paid over the years as the implementation of the programme and project progresses. Thus, if the EU budget increases, due for example to enlargement, commitments will increase before payments do. Not all projects and programmes are concluded, and appropriations for payments are therefore lower than for commitments.
  • non-differentiated appropriations: apply for administrative expenditure, for agricultural market support and direct payments. Furthermore, not all projects and programmes are concluded, and appropriations for payments are therefore lower than for commitments.

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audit

Depending on its specific features and requirements, each institution determines the scope of the internal auditors’ mission and the objectives and procedures for the exercise of the internal audit function, with due regard for international internal audit standards.

External auditor: for the EU institutions, this is the European Court of Auditors.

Internal audit: audit performed by a body’s staff rather than an independent certified public accountant; the internal auditor (IA) function is separate from that of authorising officer and accounting officer. The IA is designated by the institution, which it must advise on how to deal with risks; it issues independent opinions on the quality of management and control systems, and recommends improvements.

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authorising officer

Is responsible in each institution for implementing revenue and expenditure in accordance with the principles of sound financial management and for ensuring that the requirements of legality and regularity are complied with.

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balance of payments

A balance of payments (BoP) is a document that summarises the economic transactions of a country with the rest of the world during a particular period of time. The economic transactions involve goods, services and income. Any transaction that makes money to flow into a country is a credit to its BoP account, while any transaction that makes money to flow out of a country is a debit. Transactions are operated by individuals, businesses and government agencies in that country and those in the rest of the world.

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basic act

Act of secondary law (regulation, directive or decision) laying down the objectives and conditions for budget implementation.

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budget

Annual financial plan drawn up according to budgetary principles, which provides forecasts and authorises an estimate of future costs and revenue and expenditures, with detailed descriptions and justifications (the latter in ‘budgetary remarks’).

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budgetary authority

Institutions with decision‑making powers on budgetary matters, i.e. the European Parliament and the Council of Ministers.

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budgetary balances

The difference between what a country receives from and pays into the EU budget.

There are many possible methods of calculating budgetary balances. In its annual report on allocated expenditure, the Commission uses a method based on the same principles as the calculation of the correction of budgetary imbalances granted to the United Kingdom (the UK rebate).

It is, however, important to point out that constructing estimates of budgetary balances is merely an accounting exercise of the purely financial costs and benefits that each Member State derives from the Union and it gives no indication of many of the other benefits gained from EU policies such as those relating to the internal market and economic integration, not to mention political stability and security.

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budgetary principles

Principles according to which the budget is to be implemented.

Budgetary principles in detail: Public Finances (EN, chapter 11 - Page 148)

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call rate

Percentage used as a basis for calculating national contributions to the budget.

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carryover of appropriations

Exception to the principle of annuality in so far as appropriations that could not be used in a given budget year may, under very strict conditions, be exceptionally carried over for use during the following year.

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ceiling

Limits of expenditure or revenue fixed by law or by agreement, such as in the own resources decision or in the multiannual financial framework. The latter defines an annual ceiling for each expenditure heading in commitment appropriations and an annual global ceiling for payment appropriations.

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central management

Direct management (selecting contractors, awarding grants, transferring funds, monitoring activities, etc.) of a fund or programme by the European Commission (centralised direct management) or one of its agencies (centralised indirect management), unlike shared management.

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conciliation

In case the positions of both Council and EP differ, the two institutions enter into negotiations to find a compromise for a period of maximum 21 calendar days. The European Commission participates to these negotiations and takes all initiatives it judges necessary to reconcile both positions.

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Council position

The Council adopts, no later than 1 October, its position on the draft budget submitted by the Commission. The Council may amend the proposal.

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cross-compliance requirements

Mechanism under the common agricultural policy whereby direct payments to farmers are linked to compliance with basic standards concerning the environment, food safety, animal and plant health, and animal welfare, and the requirement to maintain land in good agricultural and environmental condition.

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discharge

Decision by which the European Parliament closes an annual budget exercise, on the basis of a recommendation from the Council and a declaration of assurance from the Court of Auditors. It covers the accounts of all the Communities' revenue and expenditure, the resulting balance, and assets and liabilities, as shown in the balance sheet.

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draft amending budget

A proposal made by the Commission to amend certain aspects of the adopted budget of a year.

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draft budget

The document prepared by the European Commission consolidating requests from all EU institutions and submitted to the European Parliament & Council no later than 1 September.

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Ecofin

The Economic and Financial Affairs Council is, together with the Agriculture Council and the General Affairs Council, one of the oldest configurations of the Council. It is commonly known as the Ecofin Council, or simply ‘Ecofin’ and is composed of the economics and finance ministers of the Member States, as well as budget ministers when budgetary issues are discussed. It meets once a month.

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emergency aid reserve

Emergency aid funding, kept in a blocked reserve in the budget, which can be transferred, subject to agreement by the budgetary authority, in duly justified cases of emergency or crisis.

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European Currency Unit (ECU)

European Currency Unit, a currency medium and unit of account created to act as the reserve asset and accounting unit of the European Monetary System, replaced by the euro. The value of the ECU was calculated as a weighted average of a basket of specified amounts of European Union (EU) currencies.

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European Development Fund

The EDF is the main instrument for Community aid for development cooperation in the African, Caribbean and Pacific (ACP) countries and the overseas countries and territories (OCTs). It is governed by its own Financial Regulation and managed outside the General Budget. It is funded from direct contributions from EU countries at negotiated rates that differ from those for the General Budget.

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European Parliament (EP) position

Within 42 days following the Council position, the EP adopts its position on the draft budget as amended by the Council. The Parliament may also amend the proposal.

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EU-6, EU-9, EU-12, EU-15, EU-25, EU-27, EU-28

EU-28 means the EU as constituted in 2013:
Belgium (BE), Bulgaria (BG), Czech Republic (CZ), Denmark (DK), Germany (DE), Estonia (EE), Ireland (IE), Greece (EL), Spain (ES), France (FR), Croatia (HR), Italy (IT), Cyprus (CY), Latvia (LV), Lithuania (LT), Luxembourg (LU), Hungary (HU), Malta (MT), Netherlands (NL), Austria (AT), Poland (PL), Portugal (PT), Romania (RO), Slovenia (SI), Slovakia (SK), Finland (FI), Sweden (SE), United Kingdom (UK)

EU-27 means the EU as constituted in 2007:
BE, BG, CZ, DK, DE, EE, IE, EL, ES, FR, IT, CY, LV, LT, LU, HU, MT, NL, AT, PL, PT, RO, SI, SK, FI, SE, UK.

EU-25 means the EU as constituted in 2004:
BE, CZ, DK, DE, EE, IE, EL, ES, FR, IT, CY, LV, LT, LU, HU, MT, NL, AT, PL, PT, SI, SK, FI, SE, UK.

EU-15 means the EU as constituted in 1995:
BE, DK, DE, IE, EL, ES, FR, IT, LU, NL, AT, PT, FI, SE, UK.

EU-12 means the EU as constituted in 1986:
BE, DK, DE, IE, EL, ES, FR, IT, LU, NL, PT, UK.

EU-10 means the EU as constituted in 1981:
BE, DK, DE, IE, EL, FR, IT, LU, NL, UK.

EU-9 means the EU as constituted in 1973:
BE, DK, DE, IE, FR, IT, LU, NL, UK.

EU-6 means the EU as constituted in 1957:
BE, DE, FR, IT, LU, NL.

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exchange difference

The difference resulting from the exchange rates applied to transactions involving countries outside the euro area.

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financial assistance

In the EU context, this is financial support (grants, loans, etc.) from the European institutions for:

a) the stability of EU countries’ balance of payments with the rest of the world;
b) EU countries in severe economic or financial difficulty;
c) candidate countries preparing to join the EU;
d) projects to promote democracy and human rights and prevent conflict in countries outside the EU.

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Financial Regulation

The FR is the main point of reference for the principles and procedures governing the establishment and implementation of the EU budget and control of the Communities’ finances.

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flexibility instrument

Established in the interinstitutional agreement of 17 May 2006, the flexibility instrument permits the budgetisation of 200 million € each year for matters that could not otherwise be financed in each budget year. The portion of this amount which is not used during a year may be used in the following two years.

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frontloading

Incurring or paying off expenditure (for example) early on in a given period; focusing efforts, costs or expenditure at the beginning of a project.

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grants

Direct financial contributions (donations) from the budget to finance action to help achieve an objective part of an EU policy or support the functioning of a body which pursues an aim of general European interest or has an objective forming part of an EU policy.

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gross domestic product (GDP) at market prices

Final result of the production activity of resident producer units. It corresponds to the economy's total output of goods and services, less intermediate consumption, plus taxes less subsidies on products.

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gross national income (GNI) at market prices

Represents total primary income receivable by resident institutional units: compensation of employees, taxes on production and imports less subsidies, property income (receivable less payable), operating surplus and mixed income. Gross national income equals GDP (see above) minus primary income payable by resident units to non-resident units plus primary income receivable by resident units from the rest of the world.

GNI has widely replaced Gross National Product (GNP) as an indicator of income. In the area of the EU budget this change took effect as from the year 2002. In order to maintain unchanged the cash value of the ceiling of EU revenue, referred to as the 'own resources ceiling,' the ceiling had to be recalculated in percentage terms. It is now established at 1.23 % of GNI.

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heading(s)

The EU budget (see also MFF) is divided into six parts, or headings:

Heading 1 – economic policies in general (support for SMEs, education, innovation, cohesion policy, etc.);
Heading 2 – agriculture, fisheries and the environment;
Heading 3 – justice and immigration inter alia;
Heading 4 – worldwide issues (international affairs, cooperation, etc.);
Heading 5 – the EU’s functioning costs (salaries of staff, buildings, pensions, etc.);
Heading 6 – ‘compensation’ (referred to less frequently).

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impact assessment

A tool to analyse the potential benefits and costs of different policy options to tackle a particular problem.

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implementing rules

Implementing rules lay down detailed rules for the implementation of the Financial Regulation. They are set out in a Commission Regulation adopted after consulting all institutions and cannot alter the Financial Regulation upon which they depend.

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Interinstitutional Agreement (IIA)

Interinstitutional Agreement (IIA) on budgetary discipline and sound financial management: the IIA is adopted by common agreement of the European Parliament, the Council and the Commission and contains the table of the financial framework, as well as the rules to implement it.

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irregularities

Irregularities mean any infringement of a provision of Community law resulting from an act or omission by an economic operator, which has, or would have, the effect of prejudicing the general budget of the Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by an unjustified item of expenditure.

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legal base / legal basis

Legal base or basis is, as a general rule, a law based on an article in the Treaty giving competence to the Community for a specific policy area and setting out the conditions for fulfilling that competence including budget implementation. Certain Treaty articles authorise the Commission to undertake certain actions, which imply spending, without there being a further legal act.

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macrofinancial assistance

Form of financial support to neighbouring regions, which is mobilised on a case-by-case basis with a view to helping the beneficiary countries in dealing with serious but generally short-term balance-of-payments or budget difficulties. It takes the form of medium-/long-term loans or grants (or an appropriate combination thereof) and generally complements financing provided in the context of an International Monetary Fund’s reform programme.

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Multiannual Financial Framework

The MFF establishes the spending priorities and maximum amounts that the EU may spend in particular areas over a fixed period of several years. The expenditure ceilings in the MFF Regulation are not equivalent to those in the EU budget, which are always lower. The MFF also includes income sources for the EU budget and correction mechanisms for the period in question (currently 2014-20).

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net balance

The difference between an EU country’s contribution to the EU budget and the amount of EU funding it receives. This does not take into account other financial, economic and political benefits, e.g. participation in the internal market, whereby companies can operate anywhere in the EU.

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outturn

Any of the three possible outcomes of the budget resulting from the difference between revenue and expenditure: a positive difference (surplus), a negative difference (deficit) and no difference (i.e. zero, or perfect balance between revenue and expenditure).

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own resources

Revenue flowing automatically to the European Union budget, pursuant to the treaties and implementing legislation, without the need for any subsequent decision by national authorities.

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partnership agreements

Agreements between the Commission and each EU country designed to ensure that funds are used in line with the Europe 2020 strategy.

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payments

Transfers of cash from the EU budget to creditors in the current year, on the basis of past commitments.

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programme

EU policies are implemented through a wide range of programmes and funds providing financial support to hundreds of thousands of beneficiaries – farmers, students, scientists, NGOs, businesses, towns, regions, etc. The programmes for 2014‑20, the amounts involved and their legal bases can be consulted online.

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public procurement rules

Provisions in the Public Procurement Directive governing the award of contracts by public administrations. EU countries must transpose these into national law. They also apply to contracts awarded by the EU institutions.

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recoveries

Entitlements vis-à-vis the Community’s debtors. The actual recovery of amounts due may take different forms: voluntary payment by the debtor, offsetting of mutual debts, a financial guarantee or enforcement action.

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revenue

Income, from all sources, that finances the budget.

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rules of application

Detailed rules for the implementation of the Financial Regulation.

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shared management

Management of an EU fund or programme delegated to EU countries (as opposed to central management – see above). This applies to the vast majority of EU‑funded projects.

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sound financial management

Budgetary principle according to which budget appropriations must be used according to economy, efficiency and effectiveness.

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statement of assurance (DAS)

The European Court of Auditors provides the European Parliament and the Council each year with a statement of assurance (DAS - from "Déclaration d'Assurance", in French) as to the reliability of the accounts of all revenue and expenditure of the Community and the legality and regularity of the underlying transactions.

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surplus

Positive difference between revenue and expenditure (see outturn) which has to be returned to the Member States.

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treasury

The Commission’s bank accounts with EU countries’ treasuries, central banks and commercial banks.

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unit of account (UA)

Unit of account, also known as European Unit of Account (EUA), a book-keeping device for recording the relative value of payments into and from EC accounts, replaced by the European currency unit (ECU) which has been replaced by the euro.

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UK correction

At the Fontainebleau European Council in France on 25 and 26 June 1984, the then 10 Member States (Germany, Belgium, Denmark, France, Greece, Ireland, Italy, Luxembourg, the Netherlands and the UK) agreed on the rebate to be granted to the UK to reduce its contribution to the EU budget.

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value added tax (VAT)

VAT is an indirect tax, expressed as a percentage applied to the sale price of most goods and services.

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