Subsection 2: Certification of accounts

The professional practice standard relating to the assessment of misstatements identified during the audit, approved by the Minister of Justice, is shown below:

. NEP-450. ASSESSMENT OF ANOMALIES IDENTIFIED DURING THE AUDIT

Introduction

1. The purpose of the standard "Application of the concept of materiality when planning and performing an audit" is to define the principles relating to the application by the statutory auditor of the concept of materiality when planning and performing an audit.

The purpose of the standard "Application of the concept of materiality when planning and performing an audit" is to define the principles relating to the application by the statutory auditor of the concept of materiality when planning and performing an audit. 2. The purpose of this standard is to explain how the concept of materiality is applied by the auditor in considering the effect of identified misstatements on the audit and in assessing the effect of uncorrected misstatements, if any, on the financial statements. The statutory auditor takes this assessment into account when preparing his reports on the financial statements in accordance with the principles defined by the standard "Statutory auditor's report on the annual and consolidated financial statements", which specifies the consequences for his opinion of the presence of material misstatements in these financial statements.

Definitions

3. Misstatement: inaccurate, inadequate or omitted accounting or financial information due to error or fraud. An anomaly arises from a difference between the amount, classification, presentation or information provided in the accounts for an item and the amount, classification, presentation or information to be provided, required for this same item by the applicable accounting standards.

. 4. Material misstatement: inaccurate, inadequate or omitted accounting or financial information due to error or fraud of such significance that, alone or in combination, it could influence the judgement of a user of financial or accounting information.

. 5. Uncorrected misstatements: misstatements other than obviously insignificant ones that the auditor has summarised during the audit and which have not been corrected.

. 6. Materiality threshold: the amount beyond which economic decisions or judgement based on the accounts are likely to be influenced.

. 7. Planning threshold: a threshold below the materiality threshold used by the statutory auditor to define the nature and scope of his work. The planning threshold is set at such an amount as to reduce to an acceptable level the risk that the amount of uncorrected identified misstatements and undetected misstatements exceeds the materiality threshold.

Summary of anomalies identified

8. The statutory auditor shall provide a summary of all misstatements, other than those that are clearly immaterial, identified during the audit of the financial statements for the financial year, as well as uncorrected misstatements identified during previous financial years, the effects of which are still continuing.

Impact on the audit of anomalies identified

. 9. The statutory auditor shall consider whether the auditor's overall approach and design of the audit procedures need to be revised when:

a) The nature of the misstatements identified has changed. a) The nature of the misstatements identified and the circumstances of their occurrence indicate that other misstatements may exist which, in aggregate with the misstatements identified, could be material; or

. b) The aggregate of the misstatements identified is approaching the materiality level(s) determined in accordance with the principles set out in the standard "Applying the concept of materiality in planning and performing an audit".

. 10. Where, at the request of the statutory auditor, management has reviewed a transaction flow, account balance or disclosure with a view to identifying the cause and extent of an identified misstatement and has made appropriate corrections to the accounts, the statutory auditor will perform further audit procedures to determine whether any misstatements remain.

Communication to management and correction of misstatements

11. In the course of the engagement, the statutory auditor shall communicate in a timely manner to the entity's management, at the appropriate level of responsibility, misstatements that it has identified other than those that are clearly immaterial. The statutory auditor shall request management to correct such misstatements.

12. Where management refuses to correct all or part of the misstatements that the statutory auditor has communicated to it, the statutory auditor will obtain management's reasons for not correcting them and will take these reasons into account when assessing whether or not the accounts, taken as a whole, are materially misstated.

Assessment of the impact of uncorrected misstatements on the accounts

. 13. Before assessing the effect of uncorrected misstatements on the financial statements, the auditor reconsiders the materiality threshold(s) and, where applicable, the planning threshold(s), in accordance with paragraphs 22 and 23 of the standard "Application of the concept of materiality when planning and performing an audit" in order to verify that they remain relevant in relation to the final financial statements prepared by the entity.

14. The statutory auditor determines whether the uncorrected misstatements, taken individually or cumulatively, are material. In making this determination, the statutory auditor shall consider the significance and impact, by amount or nature, of the uncorrected misstatements for the year and of the uncorrected misstatements from prior years, both with respect to the flow of transactions, account balances or disclosures in the notes to the financial statements, and with respect to the financial statements taken as a whole, as well as the particular circumstances in which they arose.

Determining whether a misclassification is material involves taking into account qualitative aspects, such as the impact of the misclassification on liabilities or on the application of financing contract clauses, its impact on an individual item or on subtotals of items, or its impact on key ratios. There may be situations in which the auditor concludes that a misclassification is not material in the context of the financial statements taken as a whole, even though the misclassification exceeds the materiality threshold(s). For example, a misclassification between balance sheet items may not be considered material in the context of the accounts taken as a whole when the amount of the misclassification is small in relation to the amounts of the balance sheet items concerned and the misclassification has no impact on the income statement or one of the key ratios.

Communication with the bodies referred to in Article L. 823-16 of the Commercial Code

15. In accordance with the principles defined in the standard "Communication with the bodies referred to in Article L. 823-16 of the French Commercial Code", the statutory auditor communicates uncorrected misstatements to the bodies concerned and informs them of the impact that these misstatements may have, individually or in aggregate, on the opinion expressed in its report on the financial statements. At the time of this communication, the auditor shall mention each of the misstatements deemed to be material and uncorrected. He shall also specify the impact of uncorrected anomalies from previous financial years.

16. The statutory auditor asks the bodies mentioned in Article L. 823-16 of the Commercial Code to ensure that all uncorrected anomalies are corrected.

Written declaration

17. In the context of the provisions set out in the "Management Representations" standard, the statutory auditor shall request a written statement from the legal representative and, if the statutory auditor considers it necessary, from the members of the bodies referred to in Article L. 823-16 of the Commercial Code, confirming that, in their opinion, the effects of the uncorrected misstatements identified by the statutory auditor are not material, either individually or in aggregate, to the financial statements taken as a whole. A statement of uncorrected anomalies is attached to this written declaration.

Documentation

18. The statutory auditor shall include the following in his working papers:

a) The amount below which the audit has been carried out. a) The amount below which the misstatements identified are considered to be manifestly insignificant;

b) All misstatements other than those identified by the statutory auditor. b) all misstatements, other than material misstatements, identified in the course of the audit of the financial statements for the year and the audit of the financial statements of prior years, the effects of which are still material, with an indication of whether or not they have been corrected; and

. c) its conclusion as to whether or not the uncorrected misstatements are material, either individually or in the aggregate, and the basis for that conclusion.