1 AN OVERVIEW OF THE FRENCH PUBLIC OVERSIGHT SYSTEM Vienna, 15 March 2006

2 Contents of the presentation  1 - Structure and organization of the H3C  2 - Inspections  3 - Professional Standards and Ethics  4 - Jurisdictional  5 - International affairs

3 1 – Structure and organization

4 High Council for Statutory Audit : H3C  Created by the Financial Security Law, written into the Commercial Code (1 August 2003)  In line with intra EU 8 th Company Law Directive  Independent administrative authority on statutory audit  under the Minister of Justice  Funds written into the budget of the Ministry of Justice  12 members of the Board  appointed by Decree for 6 years, half replacement every 3 years.  Government Commissioner appointed by the Minister of Justice  to sit on H3C meetings with consultative powers.

5 The Board : 12 members  Wide and balanced representation with backgrounds in accounting, finance, industry, academia or jurisprudence  3 magistrates - a member of the Cour de cassation (Chairperson), a member from the Cour des comptes, and a member from the judicial body;  1 Chairperson of the Financial Markets Authority (AMF) -or his representative,  1 representative of the Minister of Finance and Economic Affairs  1 university professor -specialized in the domain of Law, Economics or Finance;  3 persons qualified in the domains of economics and finance; -2 for their expertise in public-listed companies, -1 for his expertise in the domain of medium-small companies, private-law corporate bodies having an economic activity or associations;  3 certified statutory auditors -2 holding experiences in auditing public-listed entities or charities.

6 Supervision of the statutory audit profession, with the assistance of the CNCC Role of the H3C Ensure compliance with the rules of professional ethics, and independence of the statutory auditors Definition of the role of H3C by the Commercial Code (Financial Security Law)

7 The main bodies in French audit profession Minister of Justice Public Oversight H3C Profession CNCC Statutory auditors (individuals + firms) are members

8 The French National Institute of Statutory Auditors (CNCC)  Public-Interest Corporation, with legal personality  Resources : Annual dues of statutory auditors  Assist H3C in supervision of the profession (with CRCCs)  Conduct of periodic & occasional inspections - under supervision of H3C  Proper exercise, defense of honor & independence  Representation of the profession to the public

9 Responsibilities of the H3C (1/2)  Main responsibilities defined by law  Standards and professional practices - Identify and promote good professional practices and good conduct - Issue an opinion on Audit Standards before homologation by the Minister of Justice  Ethics - Issue an opinion on Professional Code of Ethics before approval by council of state Decree - Evaluate the compatibility between the performance of services by the network to which the statutory auditor of an audited entity is affiliated, to the legal mission of statutory audit

10 Responsibilities of the H3C (2/2)  Inspections - Define the framework, orientation and methods of periodic inspections, supervise their implementation, ensure the proper conduct of these inspections and their follow-up  International - Establish and maintain good relations with other State authorities that exercise analogous competences  Jurisdictional - Appellate authority for decisions by: Regional registration commissions for registration of statutory auditors Regional chambers on disciplinary matters

11 The Secretary General  Appointed by the Minister of Justice  Management of H3C permanent services  Preparation and follow-up of H3C work, as well as all other matters entrusted to his attention  Examination of case files established by the CNCC following inspections  Examination of individual cases before referral to H3C Board under anonymity

12 Permanent services  The permanent services of the Secretariat General -Standards and professional practices -Quality Control - Inspections -Legal Studies -International Affairs  Provide technical and administrative support to the Board, and to H3C specialized committees -Preliminary studies and follow up -Organize 2 to 4 boards meetings a month

13 Specialized committees  4 specialized consultative Committees -Public-Listed Entities - Non-Profit Private Entities and Associations – SME Small- and Medium-sized Entities - Legal Matters. -Each Committee is chaired by a Member of the H3C and includes at least 2 other Members. Experts may be called upon to become members of a Committee with a consultative role.  Role -Preparation of H3C decisions and opinions -For each decision or opinion, at least two Committees are referred to in order to guarantee a multi-disciplinary approach  The Committees are provided with the support of permanent services within the Secretariat General

Inspections

15 Scope of the inspections  Article (Commercial Code) …Statutory auditors are subject to periodic & occasional inspections…  Applies to all professionals registered under regional Registration Commissions: individual professionals, audit firms, whatever the nature and structure of entities audited

16 Role of H3C in inspections  Defines the orientation, framework and methods of inspections  Supervises implementation of H3C decisions  Ensures proper conduct of inspections by CNCC  Follow-up by direct supervisory review of CNCC controlled files

17 Conduct of inspections PERIODIC & OCCASIONAL INSPECTIONS: ● Listed entities and mutual funds: By CNCC, with the co- operation of the Financial Markets Authority (AMF) ● Non-listed & other entities By CNCC & CRCCs H3C CNCC CRCC AMF

18 3 – Standards and Ethics

19 Drawing up of professional practice standards by the CNCC (L C. Com.) Referral, by the Minister of Justice, to the H3C for opinion (L C. Com.) Consultation with the AMF, the Banking Commission and the Commission for the Regulation of Insurance, Mutual and Contingency Institution, where applicable (L C. Com.) Preparation of H3C opinion through specialised consultative committees (L C. Com.) Opinion of the H3C submitted to the Minister of Justice Homologation by the Minister of Justice and official publication Professional standards

20 « Good professional practices »  The identification of good professional practices is part of the H3C legal mission  Good professional practices allow the promotion of good working practices that are to be implemented by statutory auditors and audit firms in situations which are not provided for in the framework of standards  H3C issues opinions on proposals written by the CNCC

21 Professional Code of Ethics  H3C mission : ensure that statutory auditors comply with ethics and independence principles  On this matter, it has rendered an opinion on the Professional Code of Ethics before official approbation by decree ( Conseil d’Etat) (Art. L of the Commercial Code)  New Code of Ethics published in November 2005  Referrals to H3C on specific cases

22 4 – Jurisdictional : Appelate role of H3C

23 Disciplinary proceedings (first instance) REGIONAL DISCIPLINARY CHAMBERS CHAIRPERSON OF THE CNCC CHAIRPERSON OF THE CRCC MINISTER OF JUSTICE DISTRICT ATTORNEY PUBLIC PROSECUTOR REFER FOR DISCIPLINARY ACTION CHAIRPERSON OF THE AMF

24 Appelate role of the H3C  On disciplinary matters - Appeal for decisions taken by the regional Disciplinary Chambers, who stands as first instance for disciplinary actions against statutory auditors

25 Regional Registration Chambers A magistrate from the judicial order who stands as Chairperson; A magistrate from the regional Chamber of Accounts; Two qualified persons in Law, Economics or Finance; A representative of the Minister of Finance and Economic Affairs; A member of the regional Company of Statutory Auditors The functions of a statutory auditor may not be exercised without preliminary registration on the list established to the effect Art. L of the Commercial Code Registration Application Registration procedures for auditors

26 Appelate role of the H3C  On registration issues - Appeal for decisions taken by the regional Registration Chambers against registration matters

27 Investigations  Powers of the Minister of Justice - may prompt investigations where he sees fit: Disciplinary/penal sanctions are justified In the best interests of the public Matters of urgency - can suspend the statutory auditor from professional duties and activities  Powers of the AMF - may prompt investigations of statutory auditors of public-listed entities and mutual fund organizations

28 Sanctions  Warning  Reprimand  Temporary suspension (maximum 5 years) - + probation (Additional Sanction)  Struck off the list of statutory auditors

29 5 – International Affairs

30 International Affairs  Bilateral discussions opened with counterpart oversight bodies and authorities  Participation at roundtables, conferences and discussion groups on audit matters  In line with the intra EU Eighth Company Law Directive, involvement in the European Group of Audit Oversight Bodies (EGAOB)

31 Conclusions  Compliance with the provisions of the intra EU Eighth Company Law Directive - Structure of public oversight article 31 : Majority of non-practitioners at the Board - Cooperation with other EU member states Articles 32 to 34 Mutual recognition  Registration, Quality assurance review, standards, Ethics and independance Professional secrecy Regulatory cooperation

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