STATEMENT OF ASSURANCE 4. 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 2015; and (b) the legality and regularity of the transactions underlying those accounts. The management’s responsibility 5. 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 6. 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. 7. 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. In preparing this report and statement of assurance, the Court considered the audit work of the independent external auditor performed on the Institute’s accounts as stipulated in Article 208(4) of the EU Financial Regulation (8). 8. 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 9. In the Court’s opinion, the annual accounts of the Institute present fairly, in all material respects, its financial position as at 31 December 2015 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 qualified opinion on the legality and regularity of the transactions underlying the accounts Irregular flat rate for calculating indirect eligible costs related to grants 10. The EU contribution to the Institute’s budget in the period running from 1 January 2014 to 31 December 2020 is provided under the Horizon 2020 financial envelope which implies that the Institute has to apply Horizon 2020 (H2020) rules. H2020 is the successor programme of the Seventh Framework Programme for research, technological development and demonstration activities (FP7), adopted by Decision No 1982/2006/EC of the European Parliament and of the Council (9), that ran from 2007-2013. The EIT did not participate in this programme. 11. The Institute aligned its Financial Regulation with effect from 1 January 2014 to H2020 rules and as of that date only a uniform flat rate of 25 % is applicable for the calculation of indirect eligible costs related to grants (10). Following the assessment of the 2014 business plans the EIT had informed the KICs in October 2013 by official letter that this might happen. Contrary to this provision, the 2014 grant agreements signed in February 2014 with the KICs continue to provide for a flat rate of 40 % for non-profit public bodies, higher education establishments, research organisations and SMEs. 12. The 40 % flat rate was provided for in Article 75(8) of the EIT financial rules (preceding its Financial Regulation) which were repealed with effect from 1 January 2014. Whilst the EIT Financial Regulation provides a transitional period for two articles of said financial rules, it does not include such a period for Article 75(8) allowing the use of a 40 % flat rate. Such a transition period is not provided for in the H2020 rules either. Article 57 of the H2020 rules which deals with the transition from FP7 to Horizon 2020 provides in paragraph 2 that ‘this Regulation (Horizon 2020 rules) shall not affect the continuation or modification … of the actions concerned … until the award of financial assistance by the Commission or funding bodies under Decision No 1982/2006/EC (FP7) or any other legislation applying to that assistance on 31 December 2013, which shall continue to apply to the actions concerned until their closure’. However the EIT was not part of FP7 and consequently did not award assistance under it. Therefore the EIT financial rules do not fall under the legislation applying to that assistance (FP7). The transitional provisions under Article 57(2) of the H2020 rules are therefore not applicable to the 2014 grant agreements and the related payments. 13. In the absence of a valid legal basis, the flat rate of 40 % for the reimbursement of indirect eligible cost is irregular. The total amount overpaid in applying this flat rate is 5,5 million euro, corresponding to 3 % of the 2015 grant transactions (11). Outcome of the 2014 grant transactions ex post verification 14. The errors found as a result of ex post verification of a sample of 2015 grant transactions, after correcting for the overpayment described in paragraph 13 lead to a residual error rate of 2 % for the 2014 grant transactions (1,46 % without such correction). Combined error rate 15. The combined error rate of the matters described in paragraphs 10 to 14 is 5 % of the 2015 grant transactions or 4,9 % of the total 2015 expenditure. Qualified opinion on the legality and regularity of the transactions underlying the accounts 16. In the Court’s opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs 10 to 15, the transactions underlying the annual accounts for the year ended 31 December 2015 are legal and regular in all material respects.