xml version="1.0" encoding="UTF-8"?


C\_2019327EN.01016801.xml


| | | | |
| --- | --- | --- | --- |
| 30.9.2019 | EN | Official Journal of the European Union | C 327/168 |

---

THE COURT’S STATEMENT OF ASSURANCE PROVIDED TO THE EUROPEAN PARLIAMENT AND THE COUNCIL — INDEPENDENT AUDITOR’S REPORT

(2019/C 327/02)

Opinion

| | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | I. | We have audited: | | | | --- | --- | | (a) | the consolidated accounts of the European Union, which comprise the consolidated financial statements [(1)](#ntr1-C_2019327EN.01016801-E0001) and the budgetary implementation reports [(2)](#ntr2-C_2019327EN.01016801-E0002) for the financial year ended 31 December 2018, approved by the Commission on 26 June 2019; and | | | | | --- | --- | | (b) | the legality and regularity of the transactions underlying those accounts, as required by Article 287 of the Treaty on the Functioning of the European Union (TFEU). | | |

Reliability of the accounts

| | | | |
| --- | --- | --- | --- |
| Opinion on the reliability of the accounts | | | | | --- | --- | --- | | | II. | In our opinion, the consolidated accounts of the European Union (EU) for the year ended 31 December 2018 present fairly, in all material respects, the EU’s financial position as at 31 December 2018, the results of its operations, its cash flows and the changes in its net assets for the year then ended, in accordance with the Financial Regulation and with accounting rules based on internationally accepted accounting standards for the public sector. | |

Legality and regularity of the transactions underlying the accounts

Revenue

| | | | |
| --- | --- | --- | --- |
| Opinion on the legality and regularity of revenue underlying the accounts | | | | | --- | --- | --- | | | III. | In our opinion, the revenue underlying the accounts for the year ended 31 December 2018 is legal and regular in all material respects. | |

Expenditure

| | | | |
| --- | --- | --- | --- |
| Qualified opinion on the legality and regularity of payments underlying the accounts | | | | | --- | --- | --- | | | IV. | In our opinion, except for the effects of the matter described in the ‘Basis for qualified opinion on the legality and regularity of expenditure’ paragraph, the expenditure accepted in the accounts for the year ended 31 December 2018 is legal and regular in all material respects. | |

Basis for opinion

| | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | | | | | --- | --- | --- | | | V. | We have conducted our audit in accordance with the IFAC International Standards on Auditing (ISAs) and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions (ISSAIs). Our responsibilities under those standards are described in more detail below under ‘Auditor’s responsibilities for the audit of the consolidated accounts and underlying transactions’. We have also met independence requirements and fulfilled our ethical obligations under the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. | Basis for qualified opinion on the legality and regularity of expenditure | | | | | --- | --- | --- | | | VI. | In 2018 we found that high-risk expenditure (mainly spending on a reimbursement basis, which is subject to complex rules) [(3)](#ntr3-C_2019327EN.01016801-E0003) is materially affected by error. Our estimated level of error for high-risk expenditure is 4,5 %. Our overall estimated level of error (2,6 %) remains above our materiality threshold, but it is not pervasive. Low-risk expenditure, which is mainly made on an entitlement basis and subject to simplified/less complex rules is not affected by a material level of error [(4)](#ntr4-C_2019327EN.01016801-E0004). | |

Key audit matters

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| We assessed the potential impact on the 2018 accounts of the United Kingdom’s withdrawal from the European Union | | | | | --- | --- | --- | | | VII. | On 29 March 2017, the United Kingdom (UK) formally notified the European Council of its intention to leave the EU. On 10 April 2019, the European Council agreed to extend the deadline for the UK’s departure date ( [(5)](#ntr5-C_2019327EN.01016801-E0005)) for as long as necessary but, in any event, until no later than 31 October 2019. According to the Council’s decision, the UK is due to leave the EU on the first day of the month following the completion of the ratification procedures or on 1 November 2019, whichever is earlier. The United Kingdom will remain a Member State until the new withdrawal date, with full rights and obligations under Article 50 of the Treaty on European Union, and has the right to revoke its notification at any time. | | | | | | --- | --- | --- | | | VIII. | As indicated in paragraph II, the 2018 EU consolidated accounts have been prepared to reflect the EU’s financial position as at 31 December 2018 and the 2018 results, cash flows and changes in net assets. The 2018 EU consolidated accounts reflect the state of the negotiations as of 31 December 2018. On that date, and up until the date we completed our audit work, the UK still was an EU Member State. | | | | | | --- | --- | --- | | | IX. | We have not identified any events relating to the withdrawal process that would require adjustments according to the international accounting standard on events after the reporting date ( [(6)](#ntr6-C_2019327EN.01016801-E0006)). | | | | | | --- | --- | --- | | | X. | We will continue to assess the potential impact on the EU consolidated accounts of the United Kingdom’s withdrawal from the European Union. Future EU consolidated accounts will need to reflect the state or outcome of the withdrawal process. As of the date we completed our audit of the 2018 accounts, it was not yet known whether the UK would actually leave the EU and, if so, on what date and on what terms. | | | | | | --- | --- | --- | | | XI. | Based on this current situation, there is no financial impact to report in the 2018 EU consolidated annual accounts, and we conclude that the accounts as at 31 December 2018 correctly reflect the withdrawal process at that date. | We assessed the liability for pension and other employee benefits | | | | | --- | --- | --- | | | XII. | The EU balance sheet includes a liability for pension and other employee benefits amounting to 80,5 billion euros at the end of 2018. This is one of the most significant liabilities in the balance sheet, accounting for more than a third of the total 2018 liabilities of 235,9 billion euros | | | | | | --- | --- | --- | | | XIII. | Most of this liability for pension and other employee benefits (70,0 billion euros) relates to the Pension Scheme of Officials and Other Servants of the European Union (PSEO). The liability recorded in the accounts reflects the amount which would have been included in a pension fund had one been set up to pay existing retirement pension obligations ( [(7)](#ntr7-C_2019327EN.01016801-E0007)). In addition to retirement pensions, it covers invalidity pensions and pensions paid to widows or orphans of EU staff. The benefits paid under the pension scheme are charged to the EU budget. Member States jointly guarantee the payment of the benefits, and officials contribute one third of the cost of financing the scheme. Eurostat calculates this liability on behalf of the Commission’s accounting officer, using the parameters assessed by the Commission’s actuarial advisors. | | | | | | --- | --- | --- | | | XIV. | The second most significant part of the liability for pension and other employee benefits (8,7 billion euros) is the EU’s estimated liability towards the Joint Sickness Insurance Scheme (JSIS). This liability relates to EU staff members’ healthcare costs, which must be paid during post-activity periods (net of their contributions). | | | | | | --- | --- | --- | | | XV. | As part of our audit, we assessed, for the pension liability, the actuarial assumptions made and the resulting valuation. We based this evaluation on work done by external actuarial experts to produce a study on the pension and JSIS liabilities. We checked the numerical data, the actuarial parameters and the calculation of the liability, as well as the presentation in the consolidated balance sheet and the notes to the consolidated financial statements. As stated in note 2.9 to the consolidated financial statements, the Commission has continued to work towards strengthening its processes for calculating the employee benefits liability, which we will keep under review. | We assessed significant year-end estimates presented in the accounts | | | | | --- | --- | --- | | | XVI. | At year-end 2018, the estimated value of eligible expenses incurred by beneficiaries but not yet reported was 99,8 billion euros (year-end 2017: 100,9 billion euros). These amounts were recorded as accrued expenses ( [(8)](#ntr8-C_2019327EN.01016801-E0008)). | | | | | | --- | --- | --- | | | XVII. | At year-end 2018, the estimated amount unused by the financial instruments under shared management and aid schemes recognised in the EU accounts was 6,5 billion euros (year-end 2017: 4,7 billion euros), shown in the balance sheet as ‘Other advances to Member States’. | | | | | | --- | --- | --- | | | XVIII. | In order to assess these year-end estimations, we examined the system the Commission had set up for the cut-off calculations and ensured its correctness and completeness in the Directorates-General where most payments are made. During our audit work on the sample of invoices and pre-financing payments, we examined the relevant cut-off calculations in order to address the risk of accruals having been misstated. We sought additional clarification from the Commission’s accounting services on the general methodology for establishing these estimates. | | | | | | --- | --- | --- | | | XIX. | We conclude that the estimate of the overall amount of accrued charges and other advances to Member States stated in the consolidated balance sheet is fair. | |

Other matters

| | | | |
| --- | --- | --- | --- |
| | | | | | --- | --- | --- | | | XX. | Management is responsible for providing ‘other information’. This term encompasses the Financial Statement Discussion and Analysis, but not the consolidated accounts or our report on these. Our opinion on the consolidated accounts does not cover this other information, and we do not express any form of assurance conclusion on it. Our responsibility in connection with the audit of the consolidated accounts is to read the other information and consider whether it is materially inconsistent with the consolidated accounts or the knowledge we have obtained in the audit or otherwise appears to be materially misstated. If we conclude that the other information is materially misstated, we are required to report this accordingly. We have nothing to report in this regard. | |

Responsibilities of management

| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | --- | --- | --- | | | XXI. | In accordance with Articles 310 to 325 of the TFEU and with the Financial Regulation, management is responsible for preparing and presenting the EU’s consolidated accounts on the basis of internationally accepted accounting standards for the public sector, and for the legality and regularity of the underlying transactions. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Management is also responsible for ensuring that the activities, financial transactions and information reflected in the financial statements are in compliance with the authorities which govern them. The Commission is ultimately responsible for the legality and regularity of the transactions underlying the EU’s accounts (Article 317 of the TFEU). | | | | | | --- | --- | --- | | | XXII. | When preparing the consolidated accounts, management is responsible for assessing the EU’s ability to continue as a going concern, disclosing any relevant matters and using the going concern basis of accounting unless it either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. | | | | | | --- | --- | --- | | | XXIII. | The Commission is responsible for overseeing the EU’s financial reporting process. | | | | | | --- | --- | --- | | | XXIV. | Under the Financial Regulation (Title IX), the Commission’s accounting officer must present for audit the consolidated accounts of the EU first as provisional accounts by 31 March of the following year and as final accounts by 31 July. The provisional accounts should already give a true and fair view of the EU’s financial position. It is therefore imperative that all items of the provisional accounts are presented as final calculations, allowing us to perform our task in line with Title X of the Financial Regulation and by the given deadlines. Any changes between provisional and final accounts would normally result from our observations only. | |

Auditor’s responsibilities for the audit of the consolidated accounts and underlying transactions

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | | --- | --- | --- | | | XXV. | Our objectives are to obtain reasonable assurance as to whether the EU’s consolidated accounts are free from material misstatement and the underlying transactions are legal and regular and on the basis of our audit, to provide 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. Reasonable assurance is a high level of assurance, but it is not a guarantee that the audit has necessarily detected all instances of a material misstatement or non-compliance that may exist. These can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence any economic decisions taken on the basis of these consolidated accounts. | | | | | | --- | --- | --- | | | XXVI. | For revenue, our examination of VAT and GNI-based own resources takes as its starting point the macroeconomic aggregates from which these are calculated, and assesses the Commission’s systems for processing these up to the point at which the Member States’ contributions have been received and recorded in the consolidated accounts. For traditional own resources, we examine the customs authorities’ accounts and analyse the flow of duties up until the amounts have been received by the Commission and recorded in the accounts. | | | | | | --- | --- | --- | | | XXVII. | For expenditure, we examine payment transactions once expenditure has been incurred, recorded and accepted. This examination covers all categories of payments other than advances at the point they are made. Advance payments are examined once the recipient of funds has provided evidence of their proper use and the institution or body has accepted that evidence by clearing the advance payment, which might not happen until a subsequent year. | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | XXVIII. | As part of an audit in accordance with ISAs and ISSAIs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: | | | | --- | --- | | (a) | Identify and assess the risks of material misstatement of the consolidated accounts and of material non-compliance of the underlying transactions with the requirements of EU law, whether due to fraud or error. We design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. Instances of material misstatement or non-compliance resulting from fraud are more difficult to detect than those resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Consequently, there is a greater risk of such instances not being detected. | | | | | --- | --- | | (b) | Obtain an understanding of internal control relevant to the audit in order to design appropriate audit procedures, but not for the purpose of expressing an opinion on the effectiveness of the internal control. | | | | | --- | --- | | (c) | Evaluate the appropriateness of the accounting policies used by management and the reasonableness of management’s accounting estimates and related disclosures. | | | | | --- | --- | | (d) | Conclude as to the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, as to whether material uncertainty exists owing to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that such material uncertainty exists, we are required to draw attention in our report to the related disclosures in the consolidated accounts or, if these disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the entity to cease to continue as a going concern. | | | | | --- | --- | | (e) | Evaluate the overall presentation, structure and content of the consolidated accounts, including all disclosures, and assess whether the consolidated accounts fairly represent the underlying transactions and events. | | | | | --- | --- | | (f) | Obtain sufficient appropriate audit evidence regarding the financial information on the entities covered by the EU’s scope of consolidation to express an opinion on the consolidated accounts and the underlying transactions. We are responsible for directing, supervising and carrying out the audit, and are solely responsible for our audit opinion. | | | | | | | --- | --- | --- | | | XXIX. | We communicate with management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including findings of any significant deficiencies in internal control. | | | | | | --- | --- | --- | | | XXX. | Of the matters discussed with the Commission and other audited entities, we determine which were of most significance in the audit of the consolidated accounts and are therefore the key audit matters for the current period. We describe these matters in our report unless law or regulation precludes public disclosure or, as happens extremely rarely, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh any public interest benefits. | |

18 July 2019

Klaus-Heiner LEHNE

President

European Court of Auditors

12, rue Alcide De Gasperi, Luxembourg, LUXEMBOURG

---

[(1)](#ntc1-C_2019327EN.01016801-E0001)  The consolidated financial statements comprise the balance sheet, the statement of financial performance, the cash flow statement, the statement of changes in net assets, and a summary of significant accounting policies and other explanatory notes (including segment reporting).

[(2)](#ntc2-C_2019327EN.01016801-E0002)  The budgetary implementation reports also comprise explanatory notes.

[(3)](#ntc3-C_2019327EN.01016801-E0003)  This amounted to 61,0 billion euros. We provide further information in paragraphs 1.19 to 1.21 of our 2018 annual report.

[(4)](#ntc4-C_2019327EN.01016801-E0004)  This amounted to 59,6 billion euros. We provide further information in paragraph 1.18 of our 2018 annual report.

[(5)](#ntc5-C_2019327EN.01016801-E0005)  EUCO XT 20013/19 – European Council Decision taken in agreement with the United Kingdom extending the period under Article 50(3)TEU.

[(6)](#ntc6-C_2019327EN.01016801-E0006)  See International Public Sector Accounting Standard (IPSAS) 14 Events after the Reporting Date.

[(7)](#ntc7-C_2019327EN.01016801-E0007)  See IPSAS 39 — Employee benefits. For the PSEO, the defined benefit obligation reflects the present value of expected future payments that the EU will be required to make in order to settle the pension obligations resulting from employee service in the current and prior periods.

[(8)](#ntc8-C_2019327EN.01016801-E0008)  These comprise accrued charges of 62,9 billion euros on the liabilities side of the balance sheet and, on the assets side, 36,9 billion euros reducing the value of pre-financing.

---