© OECD

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EU Workshop on the forming

of Audit OpinionsForming and expressing an

opinion on government’s financial statements

The French SAI La Cour des Comptes

Jean-Michel CHAMPOMIER

Ankara, 26-27 October 2016

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EUContent

• Introduction: overview of the French SAI• 1. The State’s accounts• 2. The audit approach• 3. The audit organisation and the audit

work• 4. The opinion • 5. How we meet the challenges…

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EUIntroduction: legal missions of the Court

• The Cour des comptes (Court of Accounts), founded in 1807, is independent- From the executive power- From the legislative power- From the judicial system.

• The Court is...equidistant.

• The Cour des comptes has four missions to fulfil- “Contrôler” : compliance, SFM and performance audit- “Juger”: French specific judgement of accounts- “Evaluer” : evaluation of public policies-“Certifier” : financial audit.

• Further defined in the Code of financial jurisdictions.

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EUIntroduction: the court’s structure

The First President

The Secretary general

Presidents of chambers

The commitee for public reporting and programming CPRP

The rapporteur général

The public prosecutor

1 Finance budget Financial audit

2 Defense Energy

3 Education

4 ¨Police, Justice

5 Social policies

6 Health Social security

7 Agriculture, infrastructure

The Plenary

Technical support

directorates

7 chambers

Public reports

The inter-chambers committee

I.C.C

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EUIntroduction: the budget reform act

Constitutional bylaw on Budget Acts (2001)• Programme budgeting

- Missions-Programmes-Actions• Greater autonomy for Departments

- Globalised appropriations ; flexible management• Performance budgeting

- Annual Performance Plans; Annual Performance Reports• Greater Role for Parliament

- Extended power of amendment and scrutiny• New public accounting system

- Certification of the State’s accounts by the Court

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EUIntroduction: the mandate

« Society has the right to ask any public official to account for his administration » (The 1789 Declaration of the Rights of Man and of the Citizen) • Financial audit is part of parliamentary assistance

- « The Court of Accounts shall assist Parliament in monitoring Government action.

- It shall assist Parliament and the Government in monitoring the implementation of Finances Acts and of Social Security Financing Acts (...).

- By means of its public reports, it shall contribute to informing citizens ». (Constitution of the French republic 47-2)

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EUIntroduction: the mandate

The parliamentary assistance• Responding to requests for assistance• Filing specific annual reports

- Preliminary report to parliamentary discussion on public finance trends and national economy

- Report on budget execution, annexed to budget review bill- Report certifying that the State’s accounts are lawful,

faithful and give a true and fair view, annexed to budget review bill = the Opinion

- Certification report on the accounts of the Social security Scheme (2005 Const. bylaw on Social security).

© OECD

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1. The state accounts

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EUThe state accounts: 3 sets

• The French State shall keep 3 sets of accounts- Budget and revenue accounts- General accounts- An accounting system to analyse the cost of Govt. actions.

• The "General Account of the State" - The balance sheet- The income statement- The table of cash flows- The annexed notes

- notes to the financial statements- assessment of off-balance sheet commitments

- information on sustainability financing requirement of the retirement scheme for civil servants

- The introductory report.

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EU The state accounts: legal provisions

• The French Constitution and the budget reform act include provisions on accounting principles- The government accounts are true and fair. They give a

true view of the results of the management, the assets and the financial situation. (Constitution).

- The State’s accounts must be lawful, faithful and give a true and fair view of its assets and financial situation. (Budget reform act)

- The rules applicable to the general accounts of the State do not differ from those applicable to companies, except because of the State’s specificity. (idem)

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EUThe state accounts: accounting standards

• State’s financial reporting standards- a conceptual framework and a set of 21 accrual based

accounting standards- converging with private sector standards- subject to the specific nature of Government action - based on French rules (Plan Comptable General) and

International Accounting Standards (IAS/IFRS and IPSAS)

- issued by the National Board for Standards on Public Accounts (Conseil de Normalisation des Comptes Publics)

- ongoing discussion on introducing EU Standards : EPSAS.

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2. The audit approach

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EUThe audit approach: auditing standards

• The Court enforces the ISA as far as - they are compatible with the financial audit of the

accounts of the State and of the social security scheme and they are applicable

- See ISA 200 provisions on the case where the ISA are not applicable due to the specificity of the audit mission

- they are not contrary to provisions of the Code of financial jurisdictions

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EUThe audit approach: a risk based approach

• A risk-based approach • And a methodology which adapts

- to the State’s specificity- to the legal framework of the Court

- internal organisation - relation with audited entities- programming - contradictory procedure- decision process (collegiality)

• Risk assessment makes it possible to adapt the intensity of the final audit

• Court’s focus: IT systems and follow-up on previous audits.

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EUThe audit approach: planning

• The audit strategy - identifying risk and priorities- defining the extent of the verification - setting up a coherent organisation - managing human resources

• The strategy is formalised in an annual instruction of the Premier President

• Each audit cycle has a road map• The planning phase is closed by notification

- pursuant to Code of financial jurisdictions

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EUThe audit approach: assessing internal control

• Due to its risk based audit approach, the Court pays great attention to risk management in audited entities.

• Key criteria are :- Risk assesment.- Defining an action plan so as to reduce the risk level. - Setting up an effective internal control system.- Internal control is managed by the top

hierarchy of the Ministry.- Internal control system is evaluated by

internal audit.16

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EUThe audit approach: assessing internal audit

• Development of internal audit in ministries- Line ministries gradually establish internal audit units

based on former inspectorates- Internal audit shall evaluate internal control so as to

improve its effectiveness and efficiency

• The Court’s perspective- « External auditor shall take into account the work of

internal auditor and its potential impact on external audit procedures » (ISA 610)

- the Court assesses the internal audit function - to determine compliance with ISA 610- to evaluate the audit work supporting internal audit

conclusions and recommandations.17

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EUThe audit approach: working with internal audit• Based on quality criteria

- Independence and objectivity- relation with upper management- no responsibility in defining internal control system - freedom to communicate with external audit- formalised set of standards methodology - programming based on documented risk analysis - follow up of conclusions based on action plan- professionnal competence

• The Court works with internal auditors- exchange of letters with internal ministerial auditors - guidelines for working relation internal/external audit teams- audit meetings : programmation and follow up- permanent contacts- exchange of final conclusions. 18

© OECD

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3. The audit organisation and the audit work

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EUThe audit organisation: cycles and sub-cycles

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5 audit areas and 12 sub-areas

1. Financial statements

2. Debt and cash

3. Tangible and intangible assets

and stocks4. Financial

assets

5. Net expenditure and

taxes

1.1 IT and internal control

1.2 Off balance sheet liabilities

2.1 Financial debt and financial instruments 2.2 Cash

3.1 Assets and inventories

of civilian ministries

3.2 Assets and inventories

of the ministry of defense

4.1 Equity investment in State owned entities

4.2 Other equity investments and financial assets

5.1 Staff expenses

and pension liabilities

5.2 operating expenses

and subsidies

5.3 State vs. Social

security

5.4 Tax income

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EUThe audit organisation: a matrix

The inter chambers committee (I.C.C.)

chamber chamber chamber chamber chamber chamber chamber  coordination

team 

1 2 3 4 5 6 7

cycle subcycle              

1 1.1              

1.2              

2 2.1              

2.2              

3 3.1          3.1 ch 5    

3.2              

4 4.1              

4.2              

5

5.1              

5.2              5.2 CH 7

5.3              

5.4              

The audit team leader for each cycle

+ experts (M)

The audit team leader for each sub-cycle

+ experts (M)

The audit coordinator (M)

Each chamber has a

representative at the ICC

A focal point for financial audit in each chamber assessment of

internal control of line ministries

(M)=magistrate

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EUThe audit work: planning

Risk assessment (now merely on the basis of

previous missions)

Materiality

Understanding the entity and using professional

judgment

Audit planning

Collecting audit

evidence

The audit is based on risk assesment and is planned so as to cover error risks (ISA 300)

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EUThe audit work: the audit cycle

The interim phase (June to December n)• Review of- accouting procedures- information systems- internal control and audit • Interim reports on

internal control: risk assessment

- by ministry - by audit area

• Consolidated interim report

The final phase(January to May n+1)

Work to support the opinion• Data collection based on risk

assessment • Data IT analysis• Tests on samples• Analytical procedures• Tests on financial information• Drawing up audit

observations - correction- limitation- uncertainty

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EUThe audit work: key documents

June before starting: audit plan by area

July when starting : internal circular of Premier president (endorsed by ICC and reported to CPRP)

December end of interim audit : interim reports (a summary is reported to ICC and CPRP and submitted to the ministry of budget and accounts)

May end of final audit : final reports (a summary is reported to ICC and CPRP and submitted to the ministry of budget and accounts

End of cycle

Opinion and supporting report (validated by ICC, CPRP et endorsed by the plenary; to finance committee of National Assembly and the Senate)

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EUThe audit work: interim review

• Interim reports by audit area - mention the extent of the audit- communicate findings and audit conclusions- are subject to validation with management - are sent to Director general of the Public Accounting and

the Directors of all directorates concerned as «provisional conclusions»

• Internal reports per Ministry- evaluation of ministries accounting risk management

systems- specific verification items - interim reports by audit cycle conclusions relating to

each particular ministry- general overview released early March

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EUThe audit work: final and post review

• Final Audit - starts with the provision (early march) of a “first

stabilised balance” - overall objective : collecting sufficient appropriate

audit evidence to reduce audit risk and deliver the audit opinion.

• Post-review events- the Court implements verification in order to

- identify significant post-review events-modify, if required, the accounts or the

financial information in annexed notes and/orin the Public Report

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EUThe audit work: the quality review

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Audit reporter

(M)

Counter reporter

(M)

Audit report

Counter report

Public prosecutor Conclusions

ICC Collective decision

Audit reportCPRP

THE PLENARY

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EUThe audit work: quality assurance

• Audits are carried out by teams of highly qualified experts and rapporteurs

• A continuing revision process is in place• The office of the general prosecutor (Parquet

général) provides quality assurance• Audit reports are collegially endorsed by a

chamber and reviewed by a contre-rapporteur• The draft certification act is considered by the

Committee on public report and programs (CPRP)• The opinion is adopted by the council chamber in

plenary session

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EUThe audit work: quality assurance (2)

• By Management - Team leader, - Audit cycle manager, - Financial audit central management team

• By Court internal bodies, who are informed in real time of audit findings and reports- ICC- Contre-rapporteur- Public prosecutor - Any member of general assembly

• Peer review by the National auditor of Finland- 2012

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EUThe audit work: the contradictory procedure

• During interim and final phase, audit observations are sent to accounting departments - Auditors have permanent contacts and exchanges with

State accounting departments- There is a joint technical commitee to discuss

accounting issues• Draft certification report endorsed by ICC is sent

to accounting departement for technical contradiction

• Amended certification report endorsed by CPRP is sent to the Minister of public accounts.

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EUThe audit work: outputs

• Interim audit : early December- 12 summary reports by audit cycle + risk assessment- 10 reports on line ministries internal control - 270 audit recommendations (in average)• Final audit : March to May- 50 audit observations (in average)- 12 summary reports by audit cycle- one draft certification report to support the opinion

© OECD

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4.The opinion

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EUThe opinion: legal basis

• The validation and contradiction process for preparing the opinion is defined by the French law (in accordance to ISA 260 Standard)

• “In view of the statement of findings, the Court certifies that, with regard to the applicable accounting rules and principles, the Central Government general account as at 31 December nn is lawful, truthful and gives a true and fair view of the financial position and holdings of the Central Government, subject to x qualifications detailed in Part II.”

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EUThe opinion: a path of progress

Number of qualifications decreases over time

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EUThe opinion: 2015 accounts

• A qualified opinion• Qualification n° 1: the financial information

system- The linkage of the core software to other

softwares of the State’s FMIS

• Qualification n° 2: internal control and audit in line ministries- Ministries approach to strenghten internal

control- Effectiveness of internal control in key risky

operational processes.

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EUThe opinion: 2015 accounts (2)

• Qualification n° 3: tax income• Qualification n° 4: assets and liabilities of defense

ministry - Inventories- Materials- Lands and buildings

• Qualification n° 5 : financial assets- Equity investments in State owned entities- Other financial assets

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© OECD

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5. How we meet the challenges…

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EUSome challenges to meet

How does the judicial role of the Court and the compliance audit work impact on the financial audit and the opinions that are expressed ?How to prevent judicial function and financial audit function from conflicting?

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EUPeculiarities of the French PFM system

• Judicial audit on accounts held by general accountants

- the general accountants are in charge of regularity checks on payment orders, release of public funds, revenue collection, accounts holding,

- they are liable to the Court for any misstatement in accounts, wrong payment, under collection of taxes (based on fault)…

- their individual accounts are consolidated in the general account of the State

- basis for judgement is a specific compliance audit that the public prosecutor may (or not) use to require a fine or a compulsory reimbursement.

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EUThe auditor and the judge

Question: How to prevent judicial function and financial audit function from conflicting ?Answer 1: including cooperation arrangements in the work programme on systemic issues• From financial audit to compliance audit

Findings from financial audit, though non material, may help compliance audit to analyse local internal control systems

• From compliance audit to financial audit Performance audit on general accountants (expenditure,

revenue collection, accounts holding) may help to analyse internal control function. Finding may be transmitted to the financial audit team to improve risk assessment of systems.

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EUThe auditor and the judge

Answer 2: including different Court’s departments in the audit process• The Inter-chamber commitee (ICC) follows-up on

the audit process at any step- Audit programme- Interim report- Report on internal control- Members of ICC are responsible for audit areas

• The committee for public reports and programming- idem

• The plenary chamber : the data room- Each magistrate may consult audit files and ask questions

before the session. 41

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EUThe auditor and the judge

Answer 3: promoting common work to increase staff awareness and skills• Financial audit experts assist compliance audit

teams- Support compliance auditors on accounting issues

• Compliance auditors assist financial audit teams- Provide knowledge of ministries operations

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© OECD

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Conclusion

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EUAuditor is the judge’s best friend

• The approach of the French Court is to use its own strengths and to include the financial audit procedure in its existing structure, while applying international standards.

• In addition to providing an annual opinion, the Courts have defined a « path of progress » for the State’s accounting departements.

• The outcome is that public accounts are much more reliable now than 10 years ago.

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