French Commercial code
In forceThe standard of professional practice relating to management declarations, approved by the Minister of Justice, is set out below:
MANAGEMENT STATEMENTS
Introduction
1. As part of the audit of the accounts, members of management, including the legal representative, make statements to the statutory auditor. These constitute elements collected to reach conclusions on which he bases his opinion on the accounts.
2. The purpose of this standard is to define:
- the principles relating to the use by the statutory auditor of management declarations obtained during the audit of the accounts;
- the principles relating to the declarations that the statutory auditor considers necessary to conclude on the assertions that he wishes to verify;
- the possible consequences that the statutory auditor draws on the expression of his opinion from the fact that the legal representative responsible for the accounts does not provide him with the written declarations requested.
Use of management representations
3. Throughout the audit of the accounts, management makes oral or written statements to the statutory auditor, either spontaneously or in response to specific requests. These statements may be made by members of management with different levels of responsibility and areas of expertise depending on the matters to which the statements relate.
4. When they relate to significant elements of the accounts, the statutory auditor:
- seeks to collect elements that corroborate management's statements;
- assesses, where appropriate, whether they are consistent with the other elements collected;
- determines whether the persons making these statements are those with the best competence and knowledge with regard to the elements on which they are expressing an opinion.
5. Where the statutory auditor identifies a management statement that does not appear to be consistent with other evidence gathered, the statutory auditor performs audit procedures to elucidate the inconsistency and, where appropriate, reconsiders the entity's other management statements.
Statements that the statutory auditor considers necessary to conclude on the assertions it wishes to audit
6. The statutory auditor shall request from the legal representative a written formulation of the statements he considers necessary to conclude on the assertions he wishes to verify.
7. Independently of other written statements that the statutory auditor may consider necessary, he shall request from the legal representative written statements whereby:
- he declares that controls designed to prevent and detect errors and fraud have been designed and implemented in the entity;
- he considers that the uncorrected misstatements identified by the statutory auditor are not, alone or in the aggregate, material in relation to the accounts taken as a whole. A statement of these uncorrected misstatements is attached to this written declaration. In addition, when the legal representative considers that certain items reported on this statement do not constitute misstatements, he mentions this in his statement;
- he confirms that he has communicated to the statutory auditor his assessment of the risk that the financial statements may contain material misstatements resulting from fraud ;
- it declares that it has reported to it all proven fraud of which it has knowledge or which it has suspected, and involving management, employees with a key role in the internal control system or other persons whenever the fraud is likely to result in material misstatement of the accounts;
- he declares that he has reported to him all allegations of fraud having an impact on the entity's accounts and brought to his attention by employees, former employees, analysts, regulators or others;
- he declares that, to the best of his knowledge, he has applied the legal and regulatory texts;
- it declares that it has provided in the notes to the financial statements, to the best of its knowledge, the information on related parties required by the accounting standards applied;
- when facts or events likely to call into question the entity's ability to continue as a going concern have been identified, it declares that it has communicated to it the action plans defined for the future of the entity. It further declares that these action plans reflect management's intentions;
- it declares that the main assumptions used to establish accounting estimates reflect management's intentions and the entity's ability, to date, to complete the planned actions...;
- it declares that to date it is not aware of any event occurring since the balance sheet date that would require accounting treatment or disclosure in the notes to the financial statements and/or in the report of the competent body to the body called upon to approve the financial statements.
8. Written statements may take the form of:
- a letter from the legal representative to the statutory auditor, referred to as a "letter of affirmation";
- a letter from the statutory auditor to the legal representative in which he explains his understanding of these statements.
In addition, certain statements made by the legal representative may be recorded in an extract from the minutes of a meeting of the body responsible for administration.
9. When the statutory auditor requests a letter of affirmation, he asks that the signatory specify that he is drawing up the letter as the person responsible for drawing up the accounts, that the letter be dated and signed and that it be sent directly to him.
Where one of the declarations relates to a specific element of the accounts that requires particular technical skills, it may be co-signed by the member of management competent on the subject.
10. The letter of affirmation shall be issued as close as possible to the date of signature of the auditor's report and may not be later than the latter.
11. When the statutory auditor sends a letter to the legal representative, he shall ask him to acknowledge receipt and to confirm in writing his agreement with the terms set out as close as possible to the date of signature of his report. This confirmation may not be later than the date on which the report is signed.
12. Where statements by the legal representative are recorded in an extract from the minutes of a meeting of a body referred to in Article L. 823-16 of the French Commercial Code, the statutory auditor shall ensure that the date of the meeting concerned is sufficiently close to the date on which his report is signed.
Consequences for the expression of the statutory auditor's opinion of the failure of the legal representative to provide the requested written statements
13. Where the legal representative refuses to provide or confirm one or more of the written statements requested by the statutory auditor, the statutory auditor shall enquire of the legal representative as to the reasons for such refusal.
Based on the answers provided, the statutory auditor draws any consequences for the expression of his opinion.
Documentation
14. The statutory auditor shall keep in his working file the minutes of his interviews with the entity's management and the written statements obtained from the latter.
