# C_2008287EN.01011101.xml

| 10.11.2008 | EN | Official Journal of the European Union | C 287/111 |
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THE COURT'S STATEMENT OF ASSURANCE PROVIDED TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

(2008/C 287/02)

| I. | Pursuant to the provisions of Article 248 of the Treaty the Court has audited
(a)
the ‘Annual Accounts of the European Communities’( 1 ) which comprise the ‘Consolidated financial statements’( 2 ) and the ‘Consolidated reports on implementation of the budget’( 3 ) for the financial year ended 31 December 2007; and (b)
the legality and regularity of the transactions underlying those accounts. | (a) | the ‘Annual Accounts of the European Communities’( 1 ) which comprise the ‘Consolidated financial statements’( 2 ) and the ‘Consolidated reports on implementation of the budget’( 3 ) for the financial year ended 31 December 2007; and | (b) | the legality and regularity of the transactions underlying those accounts. |
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| (a) | the ‘Annual Accounts of the European Communities’( 1 ) which comprise the ‘Consolidated financial statements’( 2 ) and the ‘Consolidated reports on implementation of the budget’( 3 ) for the financial year ended 31 December 2007; and | | | | |
| (b) | the legality and regularity of the transactions underlying those accounts. | | | | |

Management's responsibility

| II. | In accordance with Articles 268 to 280 of the Treaty and the Financial Regulation, management( 4 ) is responsible for the preparation and fair presentation of the ‘Annual Accounts of the European Communities’ and the legality and regularity of the transactions underlying them:
(a)
Management's responsibility in respect of the ‘Annual Accounts of the European Communities’ includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies, on the basis of the accounting rules adopted by the Commission's accounting officer( 5 ); and making accounting estimates that are reasonable in the circumstances. According to Article 129 of the Financial Regulation, the Commission approves the ‘Annual Accounts of the European Communities’ after the Commission's accounting officer has consolidated them on the basis of the information presented by the other institutions( 6 ) and bodies( 7 ) and established a note, accompanying the consolidated accounts, declaring, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the European Communities in all material aspects. (b)
The way in which management exercises its responsibility for legality and regularity of underlying transactions depends on the method of implementation of the budget. In the case of direct centralised management, implementation tasks are performed by the Commission's departments. Under shared management, implementation tasks are delegated to Member States, under decentralised management to third countries and under indirect centralised management to other bodies. In the case of joint management, implementation tasks are shared between the Commission and international organisations (Article 53 to 57 of the Financial Regulation). Implementation tasks have to comply with the principle of sound financial management, requiring designing, implementing and maintaining effective and efficient internal control including adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used. Regardless of the method of implementation applied, the Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Communities (Article 274 of the Treaty). | (a) | Management's responsibility in respect of the ‘Annual Accounts of the European Communities’ includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies, on the basis of the accounting rules adopted by the Commission's accounting officer( 5 ); and making accounting estimates that are reasonable in the circumstances. According to Article 129 of the Financial Regulation, the Commission approves the ‘Annual Accounts of the European Communities’ after the Commission's accounting officer has consolidated them on the basis of the information presented by the other institutions( 6 ) and bodies( 7 ) and established a note, accompanying the consolidated accounts, declaring, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the European Communities in all material aspects. | (b) | The way in which management exercises its responsibility for legality and regularity of underlying transactions depends on the method of implementation of the budget. In the case of direct centralised management, implementation tasks are performed by the Commission's departments. Under shared management, implementation tasks are delegated to Member States, under decentralised management to third countries and under indirect centralised management to other bodies. In the case of joint management, implementation tasks are shared between the Commission and international organisations (Article 53 to 57 of the Financial Regulation). Implementation tasks have to comply with the principle of sound financial management, requiring designing, implementing and maintaining effective and efficient internal control including adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used. Regardless of the method of implementation applied, the Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Communities (Article 274 of the Treaty). |
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| (a) | Management's responsibility in respect of the ‘Annual Accounts of the European Communities’ includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies, on the basis of the accounting rules adopted by the Commission's accounting officer( 5 ); and making accounting estimates that are reasonable in the circumstances. According to Article 129 of the Financial Regulation, the Commission approves the ‘Annual Accounts of the European Communities’ after the Commission's accounting officer has consolidated them on the basis of the information presented by the other institutions( 6 ) and bodies( 7 ) and established a note, accompanying the consolidated accounts, declaring, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the European Communities in all material aspects. | | | | |
| (b) | The way in which management exercises its responsibility for legality and regularity of underlying transactions depends on the method of implementation of the budget. In the case of direct centralised management, implementation tasks are performed by the Commission's departments. Under shared management, implementation tasks are delegated to Member States, under decentralised management to third countries and under indirect centralised management to other bodies. In the case of joint management, implementation tasks are shared between the Commission and international organisations (Article 53 to 57 of the Financial Regulation). Implementation tasks have to comply with the principle of sound financial management, requiring designing, implementing and maintaining effective and efficient internal control including adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used. Regardless of the method of implementation applied, the Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Communities (Article 274 of the Treaty). | | | | |

Auditor's responsibility

| III. | The Court's responsibility is to provide, on the basis of its audit, the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. The Court conducted its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions, in so far as these are applicable in the European Community context. These standards require that the Court plans and performs the audit to obtain reasonable assurance whether the ‘Annual Accounts of the European Communities’ are free from material misstatement and the transactions underlying them are legal and regular. |
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| IV. | An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated accounts and the legality and the regularity of the transactions underlying them. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated accounts and of material non-compliance of the underlying transactions with the requirements of the legal framework of the European Communities, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the consolidated accounts, and supervisory and control systems implemented to ensure legality and regularity of underlying transactions, in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated accounts and the annual activity reports. |
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| V. | In the case of Revenue, the scope of the Court's audit work was limited. Firstly, VAT and GNI own resources are based on macroeconomic statistics for which the underlying data cannot be audited directly by the Court, and secondly, the audits of traditional own resources cannot cover imports that have not been subject to custom supervision. |
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| VI. | The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for its statement of assurance. |
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Opinion on the reliability of the accounts

| VII. | In the Court's opinion, the ‘Annual Accounts of the European Communities’ present fairly, in all material respects, the financial position of the Communities as of 31 December 2007, and the results of their operations and cash flows for the year then ended, in accordance with the provisions of the Financial Regulation and the accounting rules adopted by the Commission's accounting officer. |
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| VIII. | Without calling into question the opinion expressed in paragraph VII, the Court notes that weaknesses in the accounting systems, which are partly due to the complex legal and financial framework, still put at risk the quality of financial information of certain Directorates-General of the Commission (in particular for pre-financing, the related cut-off and for invoices/cost claims) and decentralised bodies whose accounts are subject to consolidation (in particular for fixed assets of the European GNSS( 8 ) Supervisory Authority (GSA)). These weaknesses led to a number of corrections after the presentation of the provisional accounts. |
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Opinion on the legality and regularity of the transactions underlying the accounts

| IX. | In the Court's opinion, revenue, commitments and payments for ‘Administrative and other expenditure’ and ‘Economic and financial affairs’ are free from material error. In these areas the supervisory and control systems are implemented in a manner which ensures adequate management of the risk of illegality and irregularity. |
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| X. | In the Court's opinion, in the other areas of expenditure payments are still materially affected by errors, although to different levels. The Commission and the Member States and other beneficiary states need to make further efforts to implement adequate supervisory and control systems, so as to improve the management of the risk of illegality and irregularity. These areas are: ‘Agriculture and natural resources’, ‘Cohesion’, ‘Research, energy and transport’, ‘External aid, Development and enlargement’ and ‘Education and citizenship’.
(a)
In ‘Agriculture and natural resources’, the Court found that the transactions underlying the expenditure declared for this policy group, taken as a whole, are affected by a material level of error of legality and/or regularity. On the basis of its audit work, the Court concludes that supervisory and control systems are only partially effective in providing assurance as to compliance with EU rules. However, the Court concludes that the Integrated Administration and Control System (IACS) continues to be effective in limiting the risk of irregular expenditure where properly implemented and if accurate and reliable data are entered into the system. (b)
In ‘Cohesion’, the Court found that the reimbursement of expenditure to Cohesion policies projects is affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory system of the Commission and the control systems of the Member States are generally only partially effective in preventing overstated or ineligible expenditure. (c)
In ‘Research, energy and transport’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that, despite some improvements, the Commission's supervisory and control systems are only partially effective in mitigating the risk of reimbursement of overstated or ineligible costs. (d)
In ‘External aid, development and enlargement’, the Court found that transactions underlying the expenditure in the policy group are affected by a material level of error of legality and/or regularity, mostly at the level of implementing organisations. The Court concludes on the basis of its audit work that, despite the improvements at the level of the Commission, the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. (e)
In ‘Education and citizenship’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. | (a) | In ‘Agriculture and natural resources’, the Court found that the transactions underlying the expenditure declared for this policy group, taken as a whole, are affected by a material level of error of legality and/or regularity. On the basis of its audit work, the Court concludes that supervisory and control systems are only partially effective in providing assurance as to compliance with EU rules. However, the Court concludes that the Integrated Administration and Control System (IACS) continues to be effective in limiting the risk of irregular expenditure where properly implemented and if accurate and reliable data are entered into the system. | (b) | In ‘Cohesion’, the Court found that the reimbursement of expenditure to Cohesion policies projects is affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory system of the Commission and the control systems of the Member States are generally only partially effective in preventing overstated or ineligible expenditure. | (c) | In ‘Research, energy and transport’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that, despite some improvements, the Commission's supervisory and control systems are only partially effective in mitigating the risk of reimbursement of overstated or ineligible costs. | (d) | In ‘External aid, development and enlargement’, the Court found that transactions underlying the expenditure in the policy group are affected by a material level of error of legality and/or regularity, mostly at the level of implementing organisations. The Court concludes on the basis of its audit work that, despite the improvements at the level of the Commission, the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. | (e) | In ‘Education and citizenship’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. |
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| (a) | In ‘Agriculture and natural resources’, the Court found that the transactions underlying the expenditure declared for this policy group, taken as a whole, are affected by a material level of error of legality and/or regularity. On the basis of its audit work, the Court concludes that supervisory and control systems are only partially effective in providing assurance as to compliance with EU rules. However, the Court concludes that the Integrated Administration and Control System (IACS) continues to be effective in limiting the risk of irregular expenditure where properly implemented and if accurate and reliable data are entered into the system. | | | | | | | | | | |
| (b) | In ‘Cohesion’, the Court found that the reimbursement of expenditure to Cohesion policies projects is affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory system of the Commission and the control systems of the Member States are generally only partially effective in preventing overstated or ineligible expenditure. | | | | | | | | | | |
| (c) | In ‘Research, energy and transport’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that, despite some improvements, the Commission's supervisory and control systems are only partially effective in mitigating the risk of reimbursement of overstated or ineligible costs. | | | | | | | | | | |
| (d) | In ‘External aid, development and enlargement’, the Court found that transactions underlying the expenditure in the policy group are affected by a material level of error of legality and/or regularity, mostly at the level of implementing organisations. The Court concludes on the basis of its audit work that, despite the improvements at the level of the Commission, the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. | | | | | | | | | | |
| (e) | In ‘Education and citizenship’, the Court found that payments for the policy group are affected by a material level of error of legality and/or regularity. The Court concludes on the basis of its audit work that the supervisory and control systems are only partially effective in providing assurance that expenditure is eligible and supported by adequate evidence. | | | | | | | | | | |

| XI. | The Court emphasises that:
(a)
Rural development accounts for a disproportionately large part of the overall error rate estimated for the area of ‘Agriculture and natural resources’; for EAGF expenditure the Court estimates the value of the error rate to be slightly below materiality whereas for EAFRD expenditure it is estimated to be significantly above. (b)
Complicated or unclear legal requirements (such as eligibility rules) have a considerable impact on the legality and/or regularity of transactions underlying the expenditure in the areas of ‘Agriculture and natural resources’, ‘Cohesion’, ‘Research, energy and transport’ as well as ‘Education and citizenship’. | (a) | Rural development accounts for a disproportionately large part of the overall error rate estimated for the area of ‘Agriculture and natural resources’; for EAGF expenditure the Court estimates the value of the error rate to be slightly below materiality whereas for EAFRD expenditure it is estimated to be significantly above. | (b) | Complicated or unclear legal requirements (such as eligibility rules) have a considerable impact on the legality and/or regularity of transactions underlying the expenditure in the areas of ‘Agriculture and natural resources’, ‘Cohesion’, ‘Research, energy and transport’ as well as ‘Education and citizenship’. |
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| (a) | Rural development accounts for a disproportionately large part of the overall error rate estimated for the area of ‘Agriculture and natural resources’; for EAGF expenditure the Court estimates the value of the error rate to be slightly below materiality whereas for EAFRD expenditure it is estimated to be significantly above. | | | | |
| (b) | Complicated or unclear legal requirements (such as eligibility rules) have a considerable impact on the legality and/or regularity of transactions underlying the expenditure in the areas of ‘Agriculture and natural resources’, ‘Cohesion’, ‘Research, energy and transport’ as well as ‘Education and citizenship’. | | | | |

| XII. | The Court has identified further progress in the Commission's supervisory and control systems, in particular concerning, on the one hand, the impact of the reservations on the assurance given in the declarations by the Directors-General; and, on the other hand, the greater consistency of these declarations with the Court's findings. However, the Court notes that the Commission is not yet able to demonstrate that its actions to improve supervisory and control systems have been effective in mitigating the risk of error in large areas of the budget. |
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24 and 25 September 2008. Vítor Manuel DA SILVA CALDEIRA President

European Court of Auditors

12, rue Alcide De Gasperi, L-1615 Luxembourg

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( 1 )  The ‘Annual Accounts of the European Communities’ are presented in volume I of the Annual Accounts of the European Communities financial year 2007.

( 2 )  The ‘Consolidated financial statements’ comprise the balance sheet, the economic outturn account (including segment reporting), the cash flow table, the statement of changes in net assets and a summary of significant accounting policies and other explanatory notes.

( 3 )  The ‘Consolidated reports on implementation of the budget’ comprise the consolidated reports on implementation of the budget and a summary of budgetary principles and other explanatory notes.

( 4 )  At the level of the European institutions and bodies management includes the members of the institutions, Directors of the Agencies, Authorising Officers by delegation and sub-delegation, Accounting Officers and the leading staff of financial, audit or control units. At the level of Member and Beneficiary States, management includes Authorising Officers, Accounting Officers and the leading staff of paying authorities, certifying bodies and implementing agencies.

( 5 )  The accounting rules adopted by the Commission's accounting officer are derived from International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants or, in their absence, International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. In accordance with the Financial Regulation, the ‘Consolidated financial statements’ for the 2007 financial year are prepared (as they have been since the 2005 financial year) on the basis of these accounting rules adopted by the Commission's accounting officer, which adapt accruals based accounting principles to the specific environment of the Communities, while the ‘Consolidated reports on implementation of the budget’ continue to be primarily based on cash movements.

( 6 )  Before the adoption of the Annual Accounts by the institutions, the different accounting officers sign them off, thereby certifying that they have a reasonable assurance that the accounts present a true and fair view of the financial situation of the institution (Article 61 of the Financial Regulation).

( 7 )  The Annual Accounts are drawn up by the respective directors and sent to the Commission's accounting officer together with the opinion of the management board concerned. In addition, the respective accounting officers sign them off, thereby certifying that they have a reasonable assurance that the accounts present a true and fair view of the financial situation of the bodies (Article 61 of the Financial Regulation).

( 8 )  GNSS: Global Navigation Satellite Systems.

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