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AN OVERVIEW OF THE FRENCH PUBLIC

OVERSIGHT SYSTEM

Vienna, 15 March 2006

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Contents of the presentation

1 - Structure and organization of the H3C

2 - Inspections 3 - Professional Standards and Ethics 4 - Jurisdictional 5 - International affairs

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1 – Structure and organization

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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 8th 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.

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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.

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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)

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The main bodies in French audit profession

Minister of Justice

Public OversightH3C

ProfessionCNCC

Statutory auditors (individuals + firms)are members

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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

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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

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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

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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

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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

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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

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2 - Inspections

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Scope of the inspections

Article 821-7 (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

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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

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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 entitiesBy CNCC & CRCCs

H3CH3C

CNCCCNCC

CRCCCRCC

AMFAMF

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3 – Standards and Ethics

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Drawing up of professional practice standards by the CNCC (L. 821-1 C. Com.)

Referral, by the Minister of Justice, to the H3C for opinion (L. 821-1 C. Com.)

Consultation with the AMF, the Banking Commission and the Commission for the Regulation of Insurance, Mutual and Contingency Institution,

where applicable (L. 821-2 C. Com.)

Preparation of H3C opinion through specialised consultative committees (L. 821-3 C. Com.)

Opinion of the H3C submitted to the Minister of Justice

Homologation by the Minister of Justice and official publication

Professional standards

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« 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

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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. 822-16 of the Commercial Code)

New Code of Ethics published in November 2005

Referrals to H3C on specific cases

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4 – Jurisdictional : Appelate role of H3C

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Disciplinary proceedings (first instance)

REGIONAL DISCIPLINARY CHAMBERS

CHAIRPERSONOF THE CNCC

CHAIRPERSONOF THE CRCC

MINISTEROF

JUSTICE

DISTRICTATTORNEY

PUBLIC PROSECUTOR

REFER FORDISCIPLINARY

ACTION

CHAIRPERSONOF THE AMF

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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

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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. 822-1 of the Commercial Code

Registration ApplicationRegistration Application

Registration procedures for auditors

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Appelate role of the H3C

On registration issues- Appeal for decisions taken by the regional

Registration Chambers against registration matters

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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

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Sanctions

Warning

Reprimand

Temporary suspension (maximum 5 years)- + probation (Additional Sanction)

Struck off the list of statutory auditors

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5 – International Affairs

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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)

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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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more information : www.h3c.org