Subsection 2: Certification of accounts

The professional practice standard relating to going concern, approved by the Minister of Justice, is shown below:

NEP-570. GOING CONCERN

Introduction

1. In preparing its accounts, an entity is presumed to be continuing in business. These are prepared on a going concern basis.

2. The purpose of this standard is to define the audit procedures that the statutory auditor performs to:

- assess whether the preparation of the financial statements on a going concern basis is appropriate; and

- determine whether there is any material uncertainty related to events or circumstances that may cast doubt on the going concern basis.

3. This standard also defines the consequences that the statutory auditor draws in his report from the translation in the accounts of events or circumstances likely to call into question the going concern that he would have identified during the audit.

Definition

4. An uncertainty is material when the extent of its potential impact and its likelihood of occurrence are such that, in the auditor's judgement, appropriate disclosure in the accounts of the nature and implications of that uncertainty is necessary to ensure the regularity, fairness and true and fair view of the accounts.

Appraisal of the preparation of the financial statements on a going concern basis

5. When obtaining an understanding of the entity and assessing the risks of material misstatement of the financial statements, the statutory auditor takes into account the existence of events or circumstances that may cast doubt on the going concern basis and inquires of management whether it is aware of any such events or circumstances.

6. Where the statutory auditor has identified events or circumstances that may call into question the going concern basis, the statutory auditor shall obtain an understanding of management's assessment of the entity's ability to continue as a going concern.

7. If management has formalised this assessment, the statutory auditor assesses its relevance. To do this:

- he enquires about the approach followed by management to establish this assessment and assesses the actions that the entity plans to take;

- he assesses the assumptions on which the assessment is based and the period to which it relates. Where the accounting framework does not define this period, going concern is assessed over a period of twelve months from the end of the financial year;

- it enquires of management whether it is aware of any events or circumstances subsequent to the period covered by its assessment that are likely to call going concern into question.

8. If management has not formalised this assessment, the statutory auditor shall enquire of management as to its reasons for preparing the accounts on a going concern basis.

9. In addition, throughout their engagement, the statutory auditor shall remain vigilant for any event or circumstance that may call into question the going concern basis. These events or circumstances may in particular be:

- of a financial nature: negative shareholders' equity, insufficient self-financing capacity, payment incidents, non-renewal of loans required for operations, litigation or disputes that may have significant financial implications;

- of an operational nature: departure of employees from the entity with a key role who have not been replaced, loss of a major market, conflicts with employees, technological or regulatory changes.

10. When the statutory auditor has identified such events or circumstances:

- it performs procedures enabling it to confirm or deny the existence of significant going concern uncertainty;

- it assesses whether management's action plans are likely to put an end to this uncertainty;

- it requests a written statement from management declaring that its action plans reflect its intentions.

Incidence on the report

11. Based on the evidence gathered, the auditor concludes, using professional judgement, whether or not there is a material uncertainty related to events or circumstances that, individually or in the aggregate, are likely to cast significant doubt on the entity's ability to continue as a going concern.

12. Where, on the basis of the evidence gathered, the statutory auditor considers that the use of the going concern basis in preparing the financial statements is appropriate but that there is significant uncertainty about the going concern basis, the statutory auditor shall ensure that relevant information is given in the notes to the financial statements.

13. If this is the case, and pursuant to the provisions of article R. 823-7 of the French Commercial Code, the statutory auditor shall specify in his report the significant uncertainty related to events or circumstances likely to call into question the going concern status.

To this end, he includes in his report a separate section, entitled "Significant uncertainty related to the going concern", placed before the justification of his assessments, in which:

- he draws the attention of the user of the financial statements to the information provided in the notes to the financial statements in respect of this significant uncertainty; and

- he states that, without calling into question his opinion, these events or circumstances indicate the existence of a significant uncertainty likely to call into question the going concern.

14. If the notes to the financial statements do not provide any information in respect of this material uncertainty or if the statutory auditor considers that the information given is not relevant:

- he shall issue a qualified opinion or a refusal to certify in accordance with the professional practice standard relating to the statutory auditor's reports on the annual and consolidated financial statements; and

- he shall state in the part of his report relating to the basis for the opinion that there is a material uncertainty likely to call into question the going concern and that the financial statements do not provide relevant information on this material uncertainty.

15. Where the accounts are prepared on a going concern basis, but the statutory auditor is of the opinion that management's application of the going concern principle is inappropriate, the statutory auditor shall decline to certify the accounts.

Warning procedure

16. When, in the course of his engagement, the statutory auditor identifies facts likely to compromise the going concern principle, he shall implement the alert procedure where the legal and regulatory provisions so provide.

Communication with the bodies mentioned in article L. 823-16 of the French Commercial Code

17. The statutory auditor shall inform the bodies referred to in article L. 823-16 of the French Commercial Code of any events or circumstances identified that may jeopardise the company's ability to continue as a going concern. This communication shall cover the following points:

- whether or not the events or circumstances constitute a material uncertainty;

- the appropriateness or otherwise of management's use of the going concern principle in preparing the financial statements;

- the relevance of the information given in the notes to the financial statements;

- where applicable, the impact on the statutory auditor's report.