STATEMENT OF ASSURANCE 3. Pursuant to the provisions of Article 287 of the Treaty on the Functioning of the European Union (TFEU), the Court has audited: (a) the annual accounts of the Institute, which comprise the financial statements (3) and the reports on the implementation of the budget (4) for the financial year ended 31 December 2013; and (b) the legality and regularity of the transactions underlying those accounts. The management’s responsibility 4. The management is responsible for the preparation and fair presentation of the annual accounts of the Institute and the legality and regularity of the underlying transactions (5): (a) the management’s responsibilities in respect of the Institute's annual accounts include designing, implementing and maintaining an internal control system 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 (6); making accounting estimates that are reasonable in the circumstances. The Director approves the annual accounts of the Institute after its accounting officer has prepared them on the basis of all available information and established a note to accompany the accounts in which he declares, inter alia, that he has reasonable assurance that they present a true and fair view of the financial position of the Institute in all material respects; (b) the management’s responsibilities in respect of the legality and regularity of the underlying transactions and compliance with the principle of sound financial management consist of designing, implementing and maintaining an effective and efficient internal control system comprising adequate supervision and appropriate measures to prevent irregularities and fraud and, if necessary, legal proceedings to recover funds wrongly paid or used. The auditor’s responsibility 5. The Court’s responsibility is, on the basis of its audit, to provide the European Parliament and the Council (7) with a statement of assurance as to the reliability of the annual accounts and the legality and regularity of the underlying transactions. The Court conducts its audit in accordance with the IFAC International Standards on Auditing and Codes of Ethics and the INTOSAI International Standards of Supreme Audit Institutions. These standards require the Court to plan and perform the audit to obtain reasonable assurance as to whether the annual accounts of the Institute are free from material misstatement and the transactions underlying them are legal and regular. 6. The audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts and the legality and regularity of the underlying transactions. The procedures selected depend on the auditor’s judgement, which is based on an assessment of the risks of material misstatement of the accounts and material non-compliance by the underlying transactions with the requirements in the legal framework of the European Union, whether due to fraud or error. In assessing these risks, the auditor considers any internal controls relevant to the preparation and fair presentation of the accounts, as well as the supervisory and control systems that are implemented to ensure the legality and regularity of underlying transactions, and designs audit procedures that are appropriate in the circumstances. The audit also entails evaluating the appropriateness of accounting policies, the reasonableness of accounting estimates and the overall presentation of the accounts. 7. The Court considers that the audit evidence obtained is sufficient and appropriate to provide a basis for its statement of assurance. Opinion on the reliability of the accounts 8. In the Court’s opinion, the Institute’s annual accounts present fairly, in all material respects, its financial position as at 31 December 2013 and the results of its operations and its cash flows for the year then ended, in accordance with the provisions of its Financial Regulation and the accounting rules adopted by the Commission’s accounting officer. Basis for a qualified opinion on the legality and regularity of the underlying transactions No reasonable assurance on the legality and regularity of grant transactions 9. In 2013, the Institute made final payments and clearings of pre-financings (transactions) for grants amounting to 84,1 million euro (2012 activities). Grant expenditure represents some 97 % of total 2013 expenditure. All grant transactions are subject to review by the Commission before authorisation by EIT. The Institute itself continued to make considerable efforts to implement effective ex ante verifications with the aim of providing reasonable assurance on the legality and regularity of grant transactions. About 87 % of grant expenditure claimed by the KICs is covered by certificates issued by independent audit firms contracted by the KICs and their partners. EIT itself carried out ex ante verifications consisting of comprehensive desk checks. Supporting documents obtained from the KICs and their partners were reviewed by EIT in the case of particular risks identified. The Court found however that, although the quality of the audit certificates is improving, in part due to better guidance, there is room for further improvement in the work of the independent audit firms, in general. 10. In order to have a second layer of assurance on the legality and regularity of grant transactions, EIT contracted complementary ex post verifications for grant transactions that were carried out by an independent audit firm. The cost claims of 29 of the 300 KIC partners were verified ex post, corresponding to 29 % of the total grant transactions made in 2013. Ex post verification results confirmed that ex ante verifications are improving, but not yet fully effective. On the basis of the errors detected by the ex post verifications, EIT decided in 2014 to recover a total amount of 5 75 593 euro, corresponding to 3 % of the audited 2012 grants. Material procurement errors 11. Payments amounting to some 6 65 000 euro and 1 05 000 euro, in respect of two framework contracts which had been concluded in 2010 and 2012 using a negotiated procedure, were made in 2013. From the audit it emerged that the use of a negotiated procedure was not justified, the resulting payments are therefore irregular. 12. The combined error rate of the matters explained in paragraphs 9 to 11 is between 2 % and 3 % of total 2013 expenditure. Qualified opinion on the legality and the regularity of the transactions underlying the accounts 13. In the Court’s opinion, except for the possible effects of the matters described in the basis for a qualified opinion (see paragraphs 9 to 12), the transactions underlying the annual accounts for the year ended 31 December 2013 are legal and regular in all material respects.