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| 28.9.2018 | EN | Official Journal of the European Union | C 348/175 |

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

(2018/C 348/02)

Opinion

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| | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | | | I. | We have audited: | | | | --- | --- | | (a) | the consolidated accounts of the European Union, which comprise the consolidated financial statements [(1)](#ntr1-C_2018348EN.01017501-E0001) and the budgetary implementation reports [(2)](#ntr2-C_2018348EN.01017501-E0002) for the financial year ended 31 December 2017, approved by the Commission on 27 June 2018; 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

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| 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 2017 present fairly, in all material respects, the EU’s financial position as at 31 December 2017, 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

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| 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 2017 is legal and regular in all material respects. | |

Payments

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| 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 payments underlying the accounts’ paragraph, the payments underlying the accounts for the year ended 31 December 2017 are legal and regular in all material respects. | |

Basis for opinion

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| | | | | | --- | --- | --- | | | V. | We 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 further described in the ‘Auditor’s responsibilities’ section of our report. We are independent, in accordance with the International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities under those standards and requirements and the IESBA Code. 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 payments underlying the accounts | | | | | --- | --- | --- | | | VI. | The expenditure recorded in 2017 covering spending on a reimbursement basis [(3)](#ntr3-C_2018348EN.01017501-E0003) is materially affected by error. Our estimated level of error for payments made on a reimbursement basis is 3,7 %. Our overall estimated level of error (2,4 %) is still above our materiality threshold, but it is not pervasive. Payments made on an entitlement basis are not affected by a material level of error [(4)](#ntr4-C_2018348EN.01017501-E0004). | |

Key audit matters

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| | | | | | --- | --- | --- | | | VII. | Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the European Union’s consolidated accounts of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. | We assessed the accounting treatment of the European Fund for Strategic Investments (EFSI) guarantee for the equity portfolios | | | | | --- | --- | --- | | | VIII. | The European Fund for Strategic Investments (EFSI) is a joint initiative launched in 2015 [(5)](#ntr5-C_2018348EN.01017501-E0005) by the EU and the EIB Group, to encourage investment across the EU by increasing the risk-bearing capacity of the EIB Group. Under this initiative, the EU budget will provide a guarantee of up to 16 [(6)](#ntr6-C_2018348EN.01017501-E0006) billion euros to cover potential losses on EFSI operations for ‘Infrastructure and Innovation Window (IIW)’ and ‘Small and Medium-sized Enterprises Window (SMEW)’ investments [(7)](#ntr7-C_2018348EN.01017501-E0007). | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | IX. | We focused on this area in previous years because the set-up of the EFSI had given rise to a number of complex accounting issues resulting from the arrangements between the EU and the EIB. In November 2017, the Commission’s Accounting Officer consulted the Advisory Group of experts in relation to the appropriate accounting treatment of the SMEW equity operations guaranteed by the EU. In line with the advice received, and applying professional judgement, the Commission’s Accounting Officer decided that the Commission does not have control over the EFSI or share such control with the EIB [(8)](#ntr8-C_2018348EN.01017501-E0008). This implies for the 2017 EU consolidated annual accounts that the EU guarantee granted to the EIB Group is treated: | | | | --- | --- | | (a) | as a financial guarantee liability for the IIW debt portfolio; | | | | | --- | --- | | (b) | as a financial provision for the SMEW debt portfolio; and | | | | | --- | --- | | (c) | as a derivative (financial asset or liability at fair value through surplus or deficit) for both equity portfolios. | | | | | | | --- | --- | --- | | | X. | We have assessed the accounting treatment of the EFSI guarantee for the equity portfolios. We consider that it does not affect the true and fair view given in the 2017 EU consolidated annual accounts. | We assessed the liability for pension and other employee benefits | | | | | --- | --- | --- | | | XI. | The EU balance sheet includes a liability for pension and other employee benefits amounting to 73,1 billion euros at the end of 2017. This is one of the most significant liabilities in the balance sheet, accounting for almost a third of the total 2017 liabilities of 236,5 billion euros. | | | | | | --- | --- | --- | | | XII. | Most of this liability for pension and other employee benefits (64,0 billion euros) relates to the Pension Scheme of Officials and Other Servants of the European Union (PSEO). This pension liability covers the ‘defined benefit’ guaranteed by Article 83 of the Staff Regulations of Officials of the European Communities (the ‘Staff Regulations’) and Article 4(3) of the Treaty on the European Union (the ‘TEU’). 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 [(9)](#ntr9-C_2018348EN.01017501-E0009). In addition to retirement pensions, it covers invalidity pensions and pensions paid to widows/orphans of EU staff. Under Article 83 of the Staff Regulations, 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. | | | | | | --- | --- | --- | | | XIII. | The PSEO is a mandatory occupational pension scheme for EU civil servants, under which contributions from staff and from the institutions and bodies that employ them are used to finance future pensions. It is designed, through adjustments to the rate of contribution to the scheme and to pensionable age, to be in actuarial balance by default. The number and variety of parameters used to calculate a long-term projection of pension costs underlines the actuarial nature of this calculation, which is performed by Eurostat on an annual basis. | | | | | | --- | --- | --- | | | XIV. | As part of our audit, we evaluated the actuarial assumptions and the resulting valuation for the pension liability. We checked the numerical data, the actuarial parameters and the calculation of the liability, as well as the presentation made 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 is continuing to work towards strengthening its processes for calculating the employee benefits liability, which we will keep under review. | We assessed the accrued charges presented in the accounts | | | | | --- | --- | --- | | | XV. | At year-end 2017, the estimated value of incurred eligible expenses due to beneficiaries but not yet reported was 101 billion euros (year-end 2016: 102 billion euros). These amounts were recorded as accrued expenses [(10)](#ntr10-C_2018348EN.01017501-E0010). | | | | | | --- | --- | --- | | | XVI. | We examined the methodologies and control systems applied for year-end estimates in the main Directorates-General. We took samples of invoices and pre-financing payments and carried out work on these elements to address the risk of the accrual having been misstated. We sought additional clarification from the Commission’s accounting services on the general methodology. | | | | | | --- | --- | --- | | | XVII. | We can conclude that the estimate of the overall amount of accrued charges stated in the consolidated balance sheet is fair. | We assessed the potential impact on the 2017 accounts of the United Kingdom’s withdrawal from the European Union | | | | | --- | --- | --- | | | XVIII. | On 29 March 2017, the United Kingdom (UK) formally notified the European Council of its intention to leave the European Union (EU). On 22 May 2017, the negotiations started for the withdrawal agreement between the EU and the UK. | | | | | | --- | --- | --- | | | XIX. | Part Five (Financial Provisions) of the draft withdrawal agreement of 19 March 2018 concerning the financial settlement states that the UK will pay all its obligations under the current and previous Multiannual Financial Frameworks as if it were still a Member State. | | | | | | --- | --- | --- | | | XX. | Based on this, we conclude that the accounts as at 31 December 2017 correctly reflect the withdrawal process. | |

Other matters

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| | | | | | --- | --- | --- | | | XXI. | Management is responsible for providing ‘other information’, a term which encompasses the Financial Statement Discussion and Analysis but not the consolidated accounts or our report thereon. Our opinion on the consolidated accounts does not cover this other information, and we do not express any form of assurance conclusion thereon. 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 there is a material misstatement of the other information, we are required to report this accordingly. We have nothing to report in this regard. | |

Responsibilities of management

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| | | | | | --- | --- | --- | | | XXII. | 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 responsibility for the legality and regularity of the transactions underlying the EU’s accounts (Article 317 of the TFEU). | | | | | | --- | --- | --- | | | XXIII. | 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. | | | | | | --- | --- | --- | | | XXIV. | The Commission is responsible for overseeing the EU’s financial reporting process. | | | | | | --- | --- | --- | | | XXV. | According to the Financial Regulation (Title IX), the accounting officer of the Commission has to 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 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 in the given deadlines. Changes between provisional and final accounts would normally only result from our observations. | |

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

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| | | | | | --- | --- | --- | | | XXVI. | 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 transactions underlying them. 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 the economic decisions taken by users on the basis of these consolidated accounts. | | | | | | --- | --- | --- | | | XXVII. | 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 accounts of the customs authorities and analyse the flow of duties up to the point at which the amounts have been received by the Commission and recorded in the accounts. | | | | | | --- | --- | --- | | | XXVIII. | For expenditure, we examine payment transactions once expenditure has been incurred, recorded and accepted. This examination covers all categories of payments (including those made for the purchase of assets) 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. | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | XXIX. | As part of an audit in accordance with ISAs and ISSAIs, we exercise professional judgment 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 represent the underlying transactions and events in a manner that achieves fair presentation. | | | | | --- | --- | | (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. | | | | | | | --- | --- | --- | | | XXX. | 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. | | | | | | --- | --- | --- | | | XXXI. | 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. | |

12 July 2018

Klaus-Heiner LEHNE

President

European Court of Auditors

12, rue Alcide De Gasperi, Luxembourg, LUXEMBOURG

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[(1)](#ntc1-C_2018348EN.01017501-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_2018348EN.01017501-E0002)  The budgetary implementation reports also comprise explanatory notes.

[(3)](#ntc3-C_2018348EN.01017501-E0003)  This amounted to 46,7 billion euros. We provide further information in paragraphs 1.19 to 1.21 of our 2017 annual report.

[(4)](#ntc4-C_2018348EN.01017501-E0004)  This amounted to 53,5 billion euros. We provide further information in paragraph 1.18 of our 2017 annual report.

[(5)](#ntc5-C_2018348EN.01017501-E0005)  Regulation (EU) No 2015/1017 of the European Parliament and of the Council of 25 June 2015 on the European Fund for Strategic Investments, the European Investment Advisory Hub and the European Investment Project Portal and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013 — the European Fund for Strategic Investments ([OJ L 169, 1.7.2015, p. 1](http://publications.europa.eu/resource/oj/JOL_2015_169_R_TOC)) (the ‘EFSI Regulation’).

[(6)](#ntc6-C_2018348EN.01017501-E0006)  The guarantee was increased up to 26 billion euros in accordance with the amended EFSI Regulation of December 2017 (Regulation (EU) No 2017/2396 of the European Parliament and of the Council of 13 December 2017 amending Regulations (EU) No 1316/2013 and (EU) No 2015/1017 ([OJ L 345, 27.12.2017, p. 34](http://publications.europa.eu/resource/oj/JOL_2017_345_R_TOC))) and the EFSI Agreement amended in March 2018.

[(7)](#ntc7-C_2018348EN.01017501-E0007)  See paragraphs 1.12-1.16 of our 2015 annual report.

[(8)](#ntc8-C_2018348EN.01017501-E0008)  The EFSI Facility’s governance structure could be taken as an indication that it is under joint control, as could the use and allocation of the EU guarantee. However, according to the Commission, unanimous consent is not required for decisions on most relevant activities in relation to the SMEW Equity Product or the EFSI initiative as a whole, and therefore the Commission’s Accounting Officer concluded that joint control cannot exist.

[(9)](#ntc9-C_2018348EN.01017501-E0009)  See International Public Sector Accounting Standard (IPSAS) 25 — 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 to settle the pension obligations resulting from employee service in the current and prior periods.

[(10)](#ntc10-C_2018348EN.01017501-E0010)  These comprise accrued charges on the liabilities side of the balance sheet of 64 billion euros and, on the asset side of the balance sheet, 37 billion euros reducing the value of pre-financing.

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