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THE FINANCIAL OUTLOOK FOR

THE HIGH COUNCIL OF

STATUTORY AUDITING

Flash audit

CONTENTS

Executive Summary

...............................................................................................................................

INTRODUCTION

......................................................................................................................................

Chapitre I The gradual assertion of a regulatory authority

...............................................................

I - Improved coverage of its missions

.......................................................................................................

A - Adaptation of entity auditing in terms of risk

................................................................................................

B - Monitoring the continuous training obligation: an ancillary task

...................................................................

C - Structuring of the disciplinary field, progress to be continued and amplified

................................................

II - Structural changes that have given the institution new room for manoeuvre

...................................

A - The 2020-2022 strategic plan

......................................................................................................................

B - Review of the delegation policy with respect to the CNCC

..........................................................................

C - Redefinition of PIE and non-PIE audits, to be gradually deployed from the 2021 programme

....................

D - Diversification of career paths: a human resources challenge

.....................................................................

III - The continued modernisation of information systems

......................................................................

A - The introduction of a business information system for the management of registrations and membership

fees

....................................................................................................................................................................

B - The deployment of an IS dedicated to audits until 2024

..............................................................................

IV - The outlook: regulator faces the emergence of new risks and new professions

.............................

A - More complex risks due to the development of new technologies

...............................................................

B - The prospect of developing a mission for regulating independent third-party organisations (ITOs) in the

SER field

...........................................................................................................................................................

Chapitre II Continued financial fragility

............................................................................................

I - A renewed, dynamic funding method, but constrained by the effects of the Pact law

.......................

II - An upcoming strong increase in expenses

.......................................................................................

A - Uncontrolled growth in the wage bill

............................................................................................................

1 - An excessive employment ceiling relative to the resources available

..............................................................................

2 - A 20% increase in the number of employees between 2018 and 2021

............................................................................

3 - Over 20% predicted growth in the workforce until 2024

...................................................................................................

B - An increase in other operating expenses strongly linked to the deployment of the information system

.......

III -

The H3C’s announcement of a series of loss

-making years

............................................................

IV - Unfavourable financial projections that would lead to a change in the balance sheet

....................

A - Equity capital characterised by significant but declining reserves

................................................................

B - Strong growth in intangible fixed assets

.......................................................................................................

C - Structural deterioration in overall net working capital

...................................................................................

Chapitre III Financial recovery prospects

.........................................................................................

I -

Simplify the legal framework of intervention to improve the H3C’s efficiency

....................................

II - Streamlining existing expenses

.........................................................................................................

III - The prospect of an increase in membership fees

............................................................................

A - An increase in membership fee rates to be considered

...............................................................................

B - A change of basis with limited effects

..........................................................................................................

Appendices

...........................................................................................................................................

PROCEDURES AND METHODS

Court of Accounts

reports are produced by one of the Court’s six chambers or by a group

involving several chambers and/or several regional or territorial chambers of accounts.

Three fundamental principles govern the organisation and activity of the Court as well as

of the regional and territorial chambers of accounts, thus the performance of their audits and

investigations as well as the preparation of the resulting public reports: independence, review

and collegiality.

The

institutional independence

of the financial courts and the statutory independence

of their members ensure that the audits conducted and the conclusions drawn are done with

complete freedom of assessment.

Review

implies that all findings and assessments made during an audit or investigation,

as well as all subsequent observations and recommendations, are systematically submitted to

the heads of the authorities or bodies concerned; they can only be made final after taking into

account the responses received and, where appropriate, after hearing the views of the officials

concerned.

Collegiality

intervenes to conclude the main steps of the audit and publication

procedures. All audits and investigations are entrusted to one or more rapporteurs. The

investigation report, as well as subsequent draft observations and recommendations,

provisional and final, are reviewed and discussed on a collegial basis by a group involving at

least three judges. One of the judges acts as quality reviewer and ensures the quality of the

audits.

Except for reports made at the request of parliament or the government, the publication

of a report is necessarily preceded by the communication of the draft text that the Court

proposes to publish to ministers and officials of the bodies concerned, as well as to other

directly interested legal or natural persons. Their responses are presented in an appendix to

the report published by the Court.

This audit was conducted on the basis of articles L. 111-2 et seq. of the Financial

Jurisdiction Code. It is made public in accordance with the provisions of article L. 143-1

paragraph 2 of the same code. Unlike other publications of the Court of Accounts, instead of

providing an exhaustive report on an organisation or a public policy, it allows a factual

assessment of a well-defined public system to be drawn up within a short timeframe. The

investigation was accelerated in the fourth chamber and the length of the review was reduced

to two weeks. It was based on discussions with the high council of statutory auditing (

Haut

conseil du commissariat aux comptes

, H3C), the Civil Affairs and Seals Directorate, the

Directorate General of the Treasury and the national institute of statutory auditors (

Compagnie

nationale des commissaires aux comptes

, CNCC). It was based on the documents submitted

by the H3C, concerning both the financial execution of previous years and the provisional

budget for 2022, and the financial projections presented on that occasion.

The draft report was prepared then deliberated on 3 March 2022 by the fourth chamber,

chaired by Mr Gilles Andréani, president of the chamber, and comprised of Mr Rémi Frentz

and Mr Jacques Tenier, senior advisors, in addition to, as rapporteurs, Mr Bertrand Rolin, chief

advisor in extraordinary service, and Ms Marie-Noëlle Termini, auditor, and, as quality

reviewer, Mr Yves Rolland, chief auditor.

It was examined on 10 March 2022 by the publication and planning committee of the

Court of Accounts, comprised of Mr Moscovici, First President, Ms Camby, general rapporteur

of the committee, Mr Morin, Mr Charpy, Ms Podeur, Mr Gautier, Ms Démier, Mr Bertucci

presidents of chambers, Mr Martin, Mr Meddah, Mr Advielle, Mr Lejeune, Ms Bergogne, Ms

Renet, presidents of regional chambers of accounts, and Ms Hirsch, General Prosecutor,

whose opinions were noted.

Public reports by the Court of Accounts are accessible online on the website of the Court

and the regional and territorial chambers of accounts:

www.ccomptes.fr

Executive Summary

The high council of statutory auditing (

Haut Conseil du Commissariat aux Comptes

, H3C)

is an independent public authority that became an oversight authority following the order of 17

March 2016 transposing the European audit reform. The statutory auditor (SA) profession in

France includes nearly 18,000 SAs, in a market where the five largest firms dominate. The

H3C is funded by membership fees, which constitute the bulk of its income (€17m in 202

and ensure its financial independence. However, it registered two consecutive loss-making

years in 2019 and 2020. This report is the result of a flash audit conducted following the Court’s

in-depth audit of the H3C in 2019. It focuses on the matter of t

he H3C’s financial position and

the alignment of its expenditure and resources with the authority’s new regulatory missions.

The gradual assertion of a regulatory authority

The institution has undergone accelerated changes in its organisation and methods of

action. It provides greater coverage of the profession’s risks, thanks in particular to its ability

to interlink an audit and investigatory function and a disciplinary function, the resources of

which have been expanded. Twice in the last two years, the H3C has demonstrated its ability

to investigate and adjudicate on major cases involving large firms. However, the mandate audit

rates are still low. Fewer than half of the recommendations made following an audit are

implemented by firms. The average penalty rate is still six times lower than for notaries and

bailiffs. One third of the decisions to close disciplinary cases with no further action are linked

to the retirement or cessation of activity of the SA concerned.

The H3C now oversees the registration process and the collection of its revenues. The

improved monitoring of agreements to delegate to the French national institute of statutory

auditors (

Compagnie nationale des commissaires aux comptes

, CNCC) has resulted in

substantial savings. The audit policy was redefined and rolled out in the 2021 audit programme.

The H3C has embarked on rolling out an information system, for audit registration and

monitoring, which should correct the obsolescence of its previous tools.

However, the H3C could further explore ways to diversify its recruitment or establish

collaborations with academia. The institution must also plan ahead for developments in the

profession regarding digitisation, as well as in the new services offered in terms of corporate

social and environmental responsibility, by surrounding itself with new skills and adapting its

organisation.

Continued financial fragility

The H3C financed its transformation from its reserves, with the institution’s financing

arrangements having been adapted in 2018: membership fees are charged based on the entire

amount of SAs’ fees relating to their certification business and additional membership fees are

applied specifically based on fees for mandates concerning public-interest entities. The

Minister of Justice, who is responsible for setting the rates (between 0.5% and 0.7% for

membership fees and between 0.2% and 0.4% for PIE additional membership fees), chose the

lowest thresholds. While its revenues increased significantly in 2018 (+3.5%) and 2019

(+3.7%), the H3C anticipated an erosion between 2021 and 2024 due to the provisions of the

Pact law

. However, in 2021, this effect was not as pronounced as expected and was offset by

an increase in other mandates. The H3C forecast for the coming years (-

€1.2m between 2021

and 2024) could be supplemented by a less pessimistic alternative scenario.

At the same time, the H3C has embarked on a strategy of saturating its employment

ceiling, defined in the Budget Act, without having the resources to do so. As such, the

workforce has increased by 20% since 2018 (in the context of the end of delegations to the

CNCC) and a further 20% increase is envisaged by 2024. The H3C offers one of the highest

average pay levels among independent public and administrative authorities. While such pay

levels may be necessary to recruit very specific profiles, they are not so necessary for positions

further from the H3C’s core mission, such as those in the field of international cooperation.

Excluding payroll, expenses are expected to increase due to the rollout of the new information

system.

As such, the H3C is expecting a series of loss-making years. If not controlled, recruitment

and investment choices could lead to an excessive contraction in overall net working capital,

below the threshold of five months of expenses corresponding to the date of collection of

membership fees.

Financial recovery prospects

The decisive driver for improving the oversight authority’s performance is the

simplification of its legal framework for intervention, in terms of procedures, governance and

data management, which will enable improved use of the resources available to the institution

to perform its missions. However, the prospect of an increase in membership fees cannot be

uled out in view of the H3C’s needs in terms of skills and updating its information system.

Furthermore, this would not be disproportionate given the level of professional membership

fees determined by the CNCC and the network of regional companies (CRCC). For this

increase to be legitimate as far as the profession is concerned, it should be accompanied by

better control of the institution’s costs, particularly a prioritisation of recruitment in order to

focus on the H3C’s most important missions.

Law no.2019-

486 of 22 May 2019, known as the “Pacte” law, on the growth and transformation of businesses has

in particular raised the threshold above which the certification of accounts is mandatory in small and medium-sized

enterprises.

MAIN CONCLUSIONS OF THE AUDIT

The H3C recently implemented significant changes to its organisation and continued to

further its role as an oversight authority. However, its means of action remain limited, as shown

by the low rates of mandate audits, the rate of implementation of its recommendations following

audits and the rate of penalties. However, it has twice demonstrated its ability to investigate

and deliver major verdicts involving some of the largest firms. Furthermore, the changes in the

profession pose new challenges that the H3C must be able to plan ahead for by acquiring new

skills.

The financial forecasts presented by the H3C are worrying in this respect. The trajectory

they describe can be rectified by better prioritisation of recruitment and resource allocation.

The increase in certain expense items can be corrected. These forecasts should also include

alternative and less pessimistic scenarios on the growth of income from membership fees.

The performance of the H3C’s means of action could also be impr

oved by simplifying its

legal framework, in terms of procedures, governance and data management.

However, if the H3C is to carry out its tasks properly and be able to meet the challenges

ahead, its resources must be increased. An increase in membership fee rates does not seem

disproportionate given the level of professional membership fees determined by the CNCC

and the CRCC network. In order to make such an increase fully effective and legitimate as far

as the profession is concerned, it must be accompanied by management streamlining and an

assertion of the priority placed on the core of the H3C’s legal mission, particularly auditing.

INTRODUCTION

The deployment in European countries of oversight authorities able to effectively monitor

the activity of statutory auditors and audit professionals was enshrined in Directive No. 2014/56

EU of the European Parliament and of the Council of 16 April 2014 amending Directive

2006/43/EC on statutory audits of annual accounts and consolidated accounts. The facts have

confirmed this need. Twenty years after the bankruptcy of Enron and the disappearance of

Arthur Andersen, the bankruptcy in June 2020 of Wirecard in Germany, in the financial sector,

despite ten years of positive audits by Ernst&Young, provided a reminder that the major

international firms’ methods could still be ineffective and insufficient given the complexity of

financial and legal systems. In 2021, the British oversight body formally challenged KPMG for

providing misleading information in connection with the collapse of the Carillion construction

group.

The high council of statutory auditing (Haut conseil du commissariat aux comptes, H3C),

which was originally a supervisory body for the statutory auditor profession operating with the

assistance of the national institute, has become, with the transposition of the European audit

reform by order 2016-315 of 17 March 2016, the true regulator of a profession that includes

nearly 18,000 registered SAs in France. The H3C has the status of an independent public

authority. This flash audit was conducted as a follow-

up to the Court’s audit of the body in

2019, which highlighted the extent to which the H3C had delegated tasks to the national

institute of statutory auditors (Compagnie nationale des commissaires aux comptes, CNCC)

concerning the registration of statutory auditors and maintaining the list of registered members,

in the area of auditing firms that do not have mandates with public-interest entities (PIEs), in

verifying compliance with continuous training requirements for audit professionals and in

collecting the H3C’s financial resources. This situation was not conducive to the development

of the H3C and maintained an institutional imbalance between this body and the CNCC. The

opacity of the financial terms of the delegations granted also suggested that they undermined

the H3C’s budget.

Since the audit, the H3C has stepped up its work, building on the implementation of the

Court’s recommendations (I). Nevertheless, in view of its revenue forecasts and its

development project, the H3C is financially fragile (II). Ways of improving its efficiency and

redressing its financial position have already been identified (III).

Chapitre I

The gradual assertion of a regulatory authority

The expansion of the H3C’s remit in 2016

led to significant changes in its organisation

and means of action, enabling the emergence of a genuine supervisory authority. This

transformation has come about through better investment in its missions and the

implementation of structural changes that we

re the subject of the Court’s recommendations

and which must be continued through the modernisation of its information systems. The

institution must also be able to contend with new risks and even new missions.

I - Improved coverage of its missions

The

supervisory authority’s transformations have resulted in more effective regulation of

the profession. According to Directive No. 2014 EU of 16 April 2014

, the oversight authorities

of statutory auditors and audit firms have the task of ensuring “a high le

vel of investor and

consumer confidence”. This requires that they have “adequate capacity, expertise and

resources”, as well as “the necessary powers to undertake their supervisory tasks, including

the capacity to access data, obtain information and carry

out inspections”.

This harmonisation of European supervisory standards comes at a time when the

structure of the audit market is still diverse across different countries. The French market is

different due to being much more diversified than the markets of most European countries

. In

13 Member States, the Big Four are in an oligopoly situation. France has a network of medium-

sized firms, particularly in the regions, which has been fostered by the practice of joint auditing.

Many observers have presented this characteristic as an opportunity to maintain a certain

amount of competition on the audit market.

The French market is also characterised by a large number of small firms that practise

public accounting as their main activity but nevertheless maintain a certification activity (see

appendix 1).

The increase, under the so-

called “Pacte” law of 22

May 2019, in the threshold for the

obligation to certify accounts and the consequent reduction in the number of mandates relating

to small businesses is likely to weaken these small structures in particular. However, this

increase is in line with the obligations existing in other European countries.

Paragraph 22 of Directive 2014 EU of 16 April 2014.

European Commission report on monitoring developments in the EU market for providing statutory audit services

to public-interest entities, established in accordance with article 27 of Regulation (EU) No. 537/2014, January 2021,

available at

https://ec.europa.eu.

A - Adaptation of entity auditing in terms of risk

The audits conducted by the H3C on the profession must be performed based on a risk

analysis and proportionate to the scale and complexity of the professional activity carried out

(article R. 821-71 of the Commercial Code)

Since the Court’s previous findings, and pending the implementation of the renewal of

audits, the audit rates for all mandates have remained at a low level (0.3% of mandates held

by audited firms and 0.1% of mandates held by PIE firms in 2020

–

see appendix 2). However,

it is up to the annual planning to target the most sensitive or significant mandates.

In the course of these audits, the H3C examines compliance with procedures, but also

gives its opinion on the mandate and, in particular, on the quality of the opinion issued by the

statutory auditor. By comparison, foreign regulators have a similar approach in terms of audit,

albeit with different sets of standards (e.g. the British regulator). Conversely, the Canadian

regulator has the power to require a correction of the company’s accounts and the auditor’s

opinion where necessary.

An audit of non-PIE

audit units is carried out every six years (art. R. 821-75 of the

Commercial Code). It is mainly entrusted by delegation to the CNCC, which recruits practising

auditors from among its statutory auditors to perform this task among their peers. The H3C

retains control over the audit programme, the appointment of practising auditors and their

assignment. It also retains a specific audit capacity (around 15 audits per year by three agents),

which is directed at the largest, riskiest or most sensitive firms.

cording to the H3C’s 2020 activity report, the audit of non

-PIE firms found that opinions

or conclusions were unsupported in 9% of cases (148 mandates) and incorrect in 4% of cases

(63 mandates). Depending on the case, audits are concluded by the production of an end-of-

audit letter, the provision of a targeted follow-up letter, the formulation of a recommendation

by the individual cases panel or a referral to the principal Rapporteur

. Of the 892 non-PIE

audits conducted in 2020 and completed, 799 resulted in an audit completion letter, 85 in a

follow-up letter and 8 in the formulation of recommendations. None of these was submitted to

the principal Rapporteur.

PIE units are audited every three years by the H3C audit teams (art. R. 821-75 of the

Commercial Code). Unlike other European regulators, the H3C includes in the same audit the

mandate for the PIE entity and the mandates (often held by the same statutory auditor)

concerning the subsidiaries of that entity.

According to the 2020 activity report, the audits of PIE firms showed that opinions were

unsubstantiated in 52% of cases (out of 184 PIE and non-PIE mandates) and incorrect in 3%

of cases.

The 47 PIE cases audited in 2020 resulted in 22 follow-up letters (11 of which were in

draft form at the time th

e Court’s audit was completed), 19 recommendations and 6 referrals

to the principal Rapporteur.

Under the same article, audits are conducted on a selection of statutory certification engagements, for which

compliance with independence rules, compliance with professional practice standards, the adequacy of resources

allocated to the conduct of missions and the fees received are verified. They also cover the internal quality control

system and any other services provided under a statutory engagement.

The distinction between PIE and non-PIE audit units or mandates is specified in appendix 1

The H3C’s principal Rapporteur heads the department responsible for conducting investigations (article L.

821-3-

1 of the Commercial Code).

Findings of the 2020 audits by type of mandate

Source: H3C, 2020 annual report

The H3C follows up on the corrective actions taken by firms following the issuance of

recommendations. For 40% of mandates audited, corrective actions remained partial. For 11%

of them, they were not considered satisfactory by the H3C.

The H3C and the profession’s involvement in the fight against money laundering and

terrorism financing

In 2020, statutory auditors filed 113 suspicious transaction reports with TRACFIN

, involving a

total of €529m. These figures should be compared, among the legal and accounting professions, with

those of chartered accountants (516 declarations, €257m),

court administrators and legal

representatives (1,098 declarations, €1.336bn) and notaries (1,546 declarations, €2.305bn).

The fight against money laundering and terrorism financing is the subject of specific checks

during audits of PIE and non-PIE firms. Auditors ensure that the firm has integrated this issue into its

organisation, internal procedures and due diligence. In 2020, 26 of the 47 PIE audits and 169 of the

752 non-PIE audits conducted were non-compliant in this respect. The H3C publishes an annual

report on the system applicable to statutory auditors.

B - Monitoring the continuous training obligation : an ancillary task

Statutory auditors’ continuous training obligation is also subject to audit. It is entrusted

by delegation to the CNCC, which is also the main training body for the profession. The

proportion of auditors who are up to date with their training obligation (120 hours per year)

decreased from 61% in 2018 to 49% in 2020.

Neither the absence of an individual training declaration nor the failure to comply with

the compulsory hours are in practice followed by a penalty. The cumbersome nature of the

corresponding procedure makes these obligations ineffective.

French Ministry of the Economy, Finance and Economic Recovery,

Tracfin 2020, Activity and Analysis

, July 2021,

available at

www.economie.gouv.fr

C - Structuring of the disciplinary field, progress to be continued and

amplified

The Inspectorate-General of Justice (IGJ) noted in 2020

the weakness of the

disciplinary field within the legal and accounting professions (see appendix 7). The average

penalty rate for auditors (0.5 per 1,000 professionals) is six times lower than for notaries or

bailiffs and twelve times lower than for doctors.

The activity report for 2020 corroborates this observation: the H3C’s individual cases

panel (

formation statuant sur les cas individuels

, FCI) opened penalty proceedings against 11

auditors (6 cases). At the same time, it decided to close 49 cases. One third of the closure

decisions taken by the FCI (16 out of 49) are related to the retirement or cease of business of

the statutory auditor concerned. In 2021, out of 51 cases submitted to the FCI, 42 were closed,

eight were pursued and one resulted in an investigation extension.

The IGJ report presents the joint control of the audit and disciplinary functions within the

H3C as a model for the legal and accounting professions, insofar as this audit is both a

preventive action and an

“effective gateway to the possible implementation of disciplinary

action”

In this respect, the proportion of cases referred to the principal Rapporteur by the Chair

of the H3C following an audit is an important indicator. They represented 19 cases out of 34 in

2019, 5 cases out of 20 in 2020 and 7 cases out of 22 in 2021.

The H3C’s visibility has been significantly enhanced by two major decisions in 2020 and

2022, concerning large firms and the mandates of large companies. The publicity of these

decisions has helped to legitimise the H3C’s disciplinary action.

This progress has been made possible by the increase in power since 2016 of the

Investigations Division, which reports to the principal Rapporteur. However, the work of this

division was disrupted by the need to clear an initial backlog of 129 cases submitted in 2016.

This goal has now been achieved. The backlog of open cases reached 104 cases on

31 December 2020 and was expected to be reduced to 69 cases by the end of 2021. 14% of

the cases handled resulted in prosecution.

II - Structural changes that have given the institution new room

for manoeuvre

A - The 2020-2022 strategic plan

Since 2017, the H3C has been engaged in a process of redefining its strategy, which

initially focused on the issue of redefining audits. On 28 November 2019, it adopted a 2020-

2022 strategic plan. A similar document had been defined for 2015-2016. The strategic plan

takes note of the need to strengthen the H3C’s functioning in the context of the new regulato

functions entrusted to it by the 2016 European audit reform, but also of the profession’s

transformation announced following the adoption of the law on the growth and transformation

of businesses (the so-

called “Pact law”) of 22 May 2019.

This strategic

plan defines three “imperative” priorities: the renovation of audits, the

expansion of the institution’s visibility and the adaptation of its internal functioning. This last

Inspectorate-General of Justice,

Mission on the discipline of the legal and accounting professions

, October 2020,

available at

www.justice.gouv.fr

priority includes strengthening staffing and skills within the institution. The relative emphasis

on communication aspects may come as a surprise. The strengthening of communication and

the introduction of an events and publications policy were given a similar priority to the

renovation of audits and a higher priority than the increase in the power of the investigations

department.

The strategic plan also endorsed the revision of the delegation policy with respect to the

CNCC in the field of registration, training and the collection of membership fees.

B - Review of the delegation policy with respect to the CNCC

The Court’s audit highlighted the need to restrict the scope of delegations granted to the

Compagnie nationale du commissariat aux comptes

(CNCC). As such, the annual cost of

delegations was reduced by €3.15m between 2019 and 2021.

The internalisation in 2020 of two delegated missions resulted in a significant reduction

in costs and improved financial control. As a result, the H3C now collects its revenue directly

from firms and is now able to verify declarations. The registration list is currently managed by

one of the H3C’s departments. A digital portal has been set up for this purpose and 87% of

registrations are now processed electronically.

In addition, the H3C has implemented an audit of invoicing for delegations by the CNCC

for 2019 and 2020. The checks carried out focused on the indirect costs of these delegations

(reinvoicing by the practising auditors, by the CRCC and by CNCC services). They resulted in

the H3C requesting the reimbursement of overpayments amounting to almost

€86,000

for

2019 and €307,000

for 2020.

Discrepancies still remain in the monitoring of expenses reversed.

C - Redefinition of PIE and non-PIE audits, to be gradually deployed from

the 2021 programme

The H3C has redefined its PIE audit policy to be based on a risk-based approach (see

appendix 3). An evaluation will be required to assess the appropriateness of the risk

identification methods and verify that the resources allocated (in “units of audit time”) are

indeed proportionate to the risk levels.

However, the rollout and development of these new auditing arrangements is limited by

the obsolescence of the H3C’s data processing system. These data concern the identity and

activity of statutory auditors. They stem from both declarations made by statutory auditors and

collected during audits. They are still processed in several Excel spreadsheets.

With regard to non-PIE audits, the H3C confirmed that the current methods for

conducting audits do not allow them to be targeted across the board, for example on a set of

mandates corresponding to a sector of activity or a status considered risky. As such, the

national analysis of money laundering and terrorism financing risks resulted in the identification

of art and luxury companies and certain associations or endowment funds among the sectors

of activity posing a high risk. However, the corresponding mandates are not yet identified in

the H3C database and the details of a sample check have not been defined. At this stage, only

the audited firms’ compliance with anti

-money laundering and financing of terrorism obligations

(and in particular the application of professional practice standard 9605) is verified.

D - Diversification of career paths: a human resources challenge

The H3C continues to face recruitment difficulties, which are amplified by its ethical rules.

Following the Court’s recommendation, in 2019 it set up a skills bridge designed to enable it

to take on a greater number of audit professionals by guaranteeing them the possibility of

subsequently returning to their original firm, if they so wish, thanks to a prior commitment from

the latter. This approach, which is new in France, is inspired by the practice in the US and the

Netherlands, which allows for the exchange of skills with audit firms. This system has produced

mixed results. Audit firms have not been keen to provide resources for the H3C and this has

not led to large-scale recruitment.

As of 2019, the H3C does not appear to have undertaken any new thinking on

diversifying recruitment profiles. The recruitment of auditors is still very much focused on

statutory auditor profiles, which is still costly in terms of pay. However, the H3C has tried to

recruit junior profiles. Some profile diversification avenues have not been explored, such as

the recruitment of public officials within the audit divisions (e.g. senior accounting officers).

New skills for which the roles have not yet been properly defined by the H3C do not necessarily

require recruitment and could be outsourced. As such, it would be useful for the H3C to

strengthen its collaboration with the academic world. It could also reflect on the opportunity to

use external service providers for very targeted skills, such as the utilisation of its databases

(data analyst skills, in which recruitment is planned at this time).

III - The continued modernisation of information systems

The implementation of robust information systems is a major efficiency and productivity

challenge for the H3C. The deployment of an enrolment management information system,

featuring a platform open to professionals, is a major step forward. The planned introduction

of an information system dedicated to the implementation, monitoring and management of

audit and investigation data will make up for lost ground in terms of a delay that is detrimental

to its organisation.

A - The introduction of a business information system for the

management of registrations and membership fees

The end of the delegation to the CNCC of registrations management required the H3C

to set up a specific secure tool, within a constrained timeframe. The institution invested over

€600,000

in this respect in 2020, resulting in the launch of a dedicated portal for statutory

auditors on 5 November 2020, which has a very high usage rate (see above).

Individual withholding tax returns (total and PIE), which determine the amount of

membership fees for the following year, are submitted on the same portal.

The tools available to the H3C to gain knowledge about the population it supervises are

still too limited. In addition to the data collected during updates to the registration list or

declarations of the total amount of fees, statutory auditors’ activity declarations collected and

submitted by the CNCC should be added. The latter data is still declarative by nature. A

contract was signed at the end of 2021 to modify the business information system so that it

can aggregate this data from activity declarations. This aggregation will make it possible to

perform consistency checks, with withholding taxes used to calculate membership fees.

The CNCC also has ongoing declarations regarding new mandates of statutory auditors.

However, the corresponding information is not communicated to the H3C in real time,

and takes a year for the High Council to be able to identify the arrival of a risky mandate in a

statutory auditor’s portfolio.

The development of the information system should enable the H3C to conduct a real-

time analysis of the structure of and changes in each firm’s portfolio of mandates and to map

the associated risks.

In the future, information could be added to the information system on the reports

received regarding firms and the history of audits of firms by the H3C.

It could also aggregate the data on continuous training declarations and declarations

concerning other activities outside the mandate of SAs (nature of the mission and amounts),

which the firms in question currently file with the CNCC.

B - The deployment of an IS dedicated to audits until 2024

To date, there is no real information system for PIE and non-PIE audits, either in terms

of the organisation and planning of audits or the use of the data collected and the identification

of risks. The principle of setting up this proprietary information system has been validated.

Access to the business information system database should make it possible to integrate

firms’ declarative data. This database will be corrected and made more reliable as audits of

these entities are conducted. The information system will also be able to aggregate data on

alerts and the scheduling of audits, as well as information from previous audits and on the

progress of current audits.

This project was presented to the panel in four lots. On 2 November 2021, the panel

decided to implement three of them and validated all of the functionalities proposed in the

specifications. The total cost of the project is put at €825,000

plus €368,000

in annual costs

excluding depreciation. The departments also requested the recruitment of two data analysis

specialists.

The H3C expects the first lot to be commissioned by the end of 2022 and the second

and third lots in 2024.

The fourth lot, concerning the deployment of an artificial intelligence module for the

conduct of the H3C’s missions, was not selected by the panel. It is of little interest since, unlike

other oversight a

uthorities, the number of entities concerned by the H3C’s regulation remains

modest and the only data to utilise only concern the profession’s activity.

IV - The outlook: regulator faces the emergence of new risks

and new professions

Audit oversight authorities must be prepared to adapt to new risks and demands.

A - More complex risks due to the development of new technologies

The digital transformation of the economy poses a challenge to the reliability of

accounting audits in large companies. The audit profession must adapt to the emergence of

new technologies and innovative financial tools (e.g. the use of the blockchain), as well as the

development of artificial intelligence algorithms

, which will make large companies’ information

systems even more complex. In addition, international account audit firms are already

conducting

–

for their own business

–

projects to develop intelligent algorithms suited to their

mission.

The French supervisory authorities have developed active monitoring and reflection

regarding transformations of the economy, particularly in the financial sector, by artificial

intelligence technologies and their consequences in terms of adapting regulatory methods

Like audit supervisory institutions in other countries, the H3C will be required to

determine methods for monitoring these intelligent algorithms. This involves, for example,

testing the quality of the risk analysis of the algorithms of each audited entity using alternative

models applied to the same data sets or, conversely, testing the model in place on an external

data set.

The development of these methods requires enhanced cooperation between supervisory

bodies. Above all, it requires the development of new skills. Given their strong specialisation,

opportunities for pooling between French supervisory authorities, or cooperation with the

academic world, should be explored as a priority.

B - The prospect of developing a mission for regulating independent

third-party organisations (ITOs) in the SER field

Businesses’ increasing certification

obligations regarding social and environmental

responsibility (SER) offer statutory auditors extensive opportunities in prospecting for new

missions. These prospects are also thought to have become a key argument for firms to recruit

young staff.

The profession values the fact that statutory auditors are already involved in the SER

field, through their obligation to certify that the non-financial performance statement is present

in large companies’ management report and to verify the absence of obvious inco

nsistencies

with the financial statements. They also have an obligation to certify the production of

companies’ carbon footprint. However, to date, the H3C’s audits do not include verifying the

performance of these mandatory tasks.

In terms of their activities outside the scope of account certification, and therefore outside

the H3C’s supervisory scope, around ten firms in France have positioned themselves as

independent

third-party

organisations

(ITO),

responsible

for

auditing

non-financial

performance statements or, in the case of benefit corporations, for ensuring that objectives are

met. These ITOs are accredited by the French accreditation committee (

comité français

d’accréditation

, COFRAC). The majority of accredited ITOs are currently statutory auditors. In

order to obtain the appropriate expertise, SAs can draw on a professional practice standard,

which sets out the conditions under which they may use external expertise.

This ITO mission is identified as a growth driver for statutory auditors’ activit

y. The

development under EU law of supervisory obligations regarding this activity, with a level of

requirement that is still uncertain, has prompted the H3C to propose an extension of its

Artificial intelligence, defined as all technologies that tend to imitate human functioning in an autonomous way,

refers in particular to the development of programmes with autonomous learning capability, known as machine

learning.

The French Prudential Supervision and Resolution Authority (ACPR) has set up a Fintech-Innovation unit (see

ACPR,

Artificial Intelligence: challenges for the financial sector

, December 2018 and

Governance of artificial

intelligence algorithms in the financial sector

, June 2020, available at https://acpr.banque-france.fr).

missions. The H3C panel has undertaken a process of reflection on the subject and is trying

to contribute to the standardisation work under way.

However, at this stage, the H3C has not acquired the specific skills needed to understand

or anticipate a supervisory mission of this type, and in particular to identify the types of risk

–

including greenwashing

–

to cover as part of audits. The recruitment of two auditors, set to be

integrated into the PIE division, is planned in 2023 and 2024. This stance is curious, as it

assumes that this new mission would not justify the creation of a new division or the

implementation of specific investigation methods. It is also incompatible with the fact that not

all ITOs are statutory auditors.

The transposition into French law of the future European directive on corporate

sustainability reporting will also need to specify the nature of the specific resources allocated

to this new mission and its exact content

. A change in the H3C’s remit would in any case

require a change in its governance and in the composition of the panel, the commissions and

the individual cases panel

For example, COFRAC accreditation fees are charged to the applicant companies.

As representatives of public interests, the board of the COFRAC, an association under the 1901 law, includes a

representative of the ministry in charge of the environment and a representative of an environmental protection

association.

Chapitre II

Continued financial fragility

The transformations of the H3C, partly funded from the institution’s reserves, keep it in

something of a fragile state. The High Council’s funding arrangements have been modernised

since 2018. However, they are still controlled by the Ministry of Justice, which keeps the rates

of membership fees whose proceeds are allocated to the H3C at their lowest level. At the same

time, the Budget Act has set an employment ceiling for the H3C that appears to be oversized.

This contradiction interferes with the message about resources that central government

intends to allocate to the institution to carry out its missions. The H3C has embarked on a

strategy of saturating its employment ceiling, without having the resources to do so. Future

operating expenses are expected to increase due to the new information system. As such, the

H3C is expecting a series of loss-

making years. If left unchecked, the H3C’s recruitment and

investment choices could lead to an excessive contraction in overall net working capital.

I - A renewed, dynamic funding method, but constrained by the

effects of the Pact law

The 2018 Budget Act changed how the H3C is funded, following the review of its

missions in 2016. Previously, this fun

ding included a fixed membership fee of €10

per

registered statutory auditor, a fixed fee on each certification report and a fee payable by the

CNCC. Proportionally, it affected the smallest firms more.

Article L. 821-6-1 of the Commercial Code now provides for two additional membership

fees, one based on the total amount of fees invoiced during the previous calendar year and

the other based on the total amount of fees invoiced to public-interest entities. These

membership fees are due on 31 March each year

. They constitute the bulk of the H3C’s

revenue

This funding method has the advantage of adapting the institution’s resources to price

changes. The law gives the Ministry of Justice the ability to adjust the membership fee rates.

The rates of these membership fees are fixed by decree of the Minister of Justice, in a range

between 0.5% and 0.7% for the first membership fee and between 0.2% and 0.3% for the

second membership fee. Despite the H3C’s requests, a decree on 30 December 2017 set the

rates for both membership fees at their minimum level.

Article L. 821-5 of the Commercial Code also introduces a resource ceiling for the H3C.

This has been set at €19.4m, which is nearly 125% of the amount of revenue currently

recorded.

The flat-rate membership fee provided for in article L. 821-5 II of the French Commercial Code generates marginal

revenue.

The H3C’s revenue significantly

increased in 2018 and 2019 due to the rise in reported

PIE and non-PIE mandates (+3.5% in 2018 and +3.7% in 2019 respectively). The H3C is

concerned about an erosion of its income due to the implementation of the provisions of the

Pact law of 22 May 2019

. This included two provisions affecting the profession’s activity and

consequently the basis for calculating membership fees. The end of the obligation to appoint

an SA in small companies has caused a great deal of concern within the profession. The effects

of this non-renewal of mandates will be spread over several years, until 2024.

Dynamics of the membership fee basis since 2018

Source: Court of Accounts, according to H3C data

According to a first assessment in mid-2020, just 31% of mandates were not renewed.

At the same time, an optional three-year statutory audit assignment specifically for small

companies (“ALPE”) was created. At the end of 2020, the number of mandates concluded

under these missions was put at 1,600. In 2021, income from membership fees turned out to

be significantly higher than expected (€15.6m, compared to an initial estimate of €14.8m). The

scenario of a 2% contraction in membership fees, foreseen in the H3C’s 2021 budget, did not

occur. The decrease in non-PIE mandates was smaller than expected (-1.2%) and was partly

offset by a significant increase in PIE mandates (+2.9%).

The H3C’s preferred assumption for the change in the membership fee basis in its

budgetary forecasts is a 1% decrease in 2022 (limited by an increase in services other than

account certification), then 2% in 2023 and 2024. In the 2022 budget, this reduction in the level

of membership fees is increased to 2.7%, not taking into account surcharges for late payment.

However, the recurrence of these surcharges should be taken into account.

The latest growth forecasts for the French economy drawn up by the Banque de France

(7% in 2021, 2.8% in 2022, 1.3% in 2023)

should lead the H3C to draw up an alternative

scenario of stability in the membership fee basis over this period.

Law no. 2019-486 of 22 May 2019 on the growth and transformation of businesses.

Downgraded scenario incorporating the consequences of the war in Ukraine. Banque de France,

Macroeconomic

projections

, March 2022, available at www.banque-france.fr.

Furthermore, the H3C anticipates that “other revenues”, which were expected to total

€360,000 in 2021, will disappear in 2022. These are mainly reimbursements from the

organisations for the payment of social security and family benefit contributions (URSSAF) and

the institute of supplementary pensions for non-permanent government employees

(IRCANTEC), as well as financial income linked to the obligation to deposit cash at the

Treasury (€20,778).

Since the H3C collects its membership fees directly, the institution is able, from June, to

more accurately estimate the actual level of its income for the year and adjust its expenses

accordingly. Recently observed significant errors in declarations by audit firms, particularly the

larger ones, require more stringent checks of these declarations.

II - An upcoming strong increase in expenses

At the audit committee’s request, the H3C introduced in 2020 a presentation of its budget

execution in seven main functions identified as follows: international, PIE audits, non-PIE

audits, investigations, restricted committee, registration, standards and ethics. The costs

identified in an additional, “support”, function are distributed among the main functions in

proportion to the staffing levels assigned to them.

This tool is already invaluable for monitoring the allocation of resources to each of the

H3C’s major missions over time.

Breakdown of the annual cost of the different divisions (as at 31 December 2020)

Source: Court of Accounts, according to H3C data. The graph shows the

breakdown of the 2020 annual expenses between the different divisions

identified in the analytical table. It appears that some inconsistencies

can still be corrected. As such, the cost of the delegation relating to the

audit of the continuous training obligation is charged by default to the

“support” function. Moreover, this presentation is not yet used in the

preparation of budgets.

As part of its budget preparation, the H3C has also produced a forecast of its expenditure

and income up to 2024. The High Council anticipates a significant increase in cost items.

Forecast of the increase in expenses presented by the H3C (amounts in €)

2021 Fore.

BP2022

2023

2024

Staff

8,709,908

9,495,658

10,369,791

10,772,553

Purchasing

24,092

38,220

48,220

External

services

4,708,533

4,940,243

4,892,417

4,929,840

Other external

services

1,370,514

1,538,677

2,285,452

2,411,766

Allowances for

depreciation and

provisions

493,655

400,000

626,920

Total costs

15,360,279

16,424,798

18,234,800

18,801,299

Source: H3C

A - Uncontrolled growth in the wage bill

The profile of H3C recruitments has prompted the institution to offer average pay that is

among the highest at independent public and administrative authorities. The H3C has also

embarked on a policy of saturating its employment ceiling, the level of which nevertheless

exceeds its financial resources.

Average cost per FTE of several independent public and administrative authorities:

Source: Court of Auditors, according to the 2022 Budget Act

This recruitment policy will have an impact on future financial balances.

1 - An excessive employment ceiling relative to the resources available

Each year, the Budget Act sets an employment ceiling for the H3C, as it does for each

independent administrative or public authority, for all of its staff, whether public or private.

However, due in particular to the cost of H3C staff with the most specific profiles, this

employment ceiling is substantially oversized relative to the financial capacity it is able to

devote to its payroll. The gap between this employment ceiling and the actual number of H3C

staff was 30% in 2018. Since the end of the delegations to the CNCC, it is around 15%.

Employment ceiling and actual staffing: indesing

2017

2018

2019

2020

2021

TOTAL ceiling

(in FTE)

Actual FTE staff

at 31/12

47.9

45.5

54.2

58.1

Sources: Budget acts and H3C. This breakdown

is presented in support of the H3C’s requests.

The institution interprets this employment ceiling as an allocation of resources validated

by the legislator. The presentation of the H3C’s activity in the appendix to the 2022 draft Budget

Act states:

“Due to budgetary restrictions limiting recruitment, the H3C’s staffing levels have

remained below the level necessary to satisfactorily fulfil all of its missions.”

Therefore, the

H3C presents the saturation of the employment ceiling as an objective, independently of

changes in its income, expenses and remuneration policy. The minutes of the audit committee

meeting of 7 December 2020 reflect this confusion:

“the H3C panel must not lose sight of the

need to strengthen its resources, as evidenced by the employment ceiling of 68, which should

[Court emphasis]

enable it to carry out all of its missions within the current legislative and

regulatory framework and to fully implement its strategic plan and the renovation of its audit

procedures.”

It should be noted that the employment ceiling does not specify the proportion of

recruitments with executive or senior executive status.

The budget presented by the H3C to its panel foresees reaching this employment ceiling

in 2023 and exceeding it in 2024. However, the purpose of an employment ceiling is not to set

a target to be reached at all costs.

2 - A 20% increase in the number of employees between 2018 and 2021

The recruitment policy in 2020 and 2021 led to a significant increase in personnel costs

(see appendix 5). It came alongside the end of the delegations to the CNCC and the rise of

the divisions in charge of audits and investigations.

However, the H3C still faces recruitment difficulties regarding the most sensitive

positions.

Breakdown of staff (FTE) by division at 31 December 2020:

Source: Court of Accounts, according to H3C data. Staff numbers are

stated in FTE.

At a time when the H3C is posting operating losses, there seems little justification for

increasing staffing levels in the international division from 2020. An advisor to the President on

international matters and an additional task officer were recruited in 2020, at some of the

highest pay levels in the H3C. The institution justifies these by the level of qualification of the

individuals concerned, which would guarantee the H3

C’s credibility relative to the major

international audit networks. Further recruitment is planned for 2022.

Between 30 September 2020 and 30 September 2021, personnel costs related to the

international division increased by over 50%. Staffing levels in this division are now higher than

in the standards and ethics division. The personnel costs allocated to it are higher than those

related to the non-PIE audit division and monitoring of the corresponding delegation.

The H3C justifies this by its greater international involvement

, which has resulted in it

taking over the chairmanship of the Committee of European Auditing Oversight Bodies

(CEAOB)

for the 2020-2024 period. This chairmanship is formally held by the special advisor.

The H3C actively participates in the working groups of the CEAOB and the International Forum

of Independent Audit Regulators (IFIAR)

. For half of these groups, this involvement is directly

handled by operational departments and the general manager. It is therefore only a partial

justification for the increased resources assigned to the international division.

Cooperation with the supervisory authorities in other countries is one of the tasks entrusted by law to the H3C

(art. L821-1 of the Commercial Code). This cooperation allows French audit concepts to be defended at the

international level.

Committee of European Auditing Oversight Bodies

. The CEAOB is a European committee that reports to the

European Commission and brings together the European audit supervisors.

International Forum of Independent Audit Regulators

3 - Over 20% predicted growth in the workforce until 2024

The H3C has presented an ambitious project to expand its teams, aiming to saturate the

current level of its employment ceiling in 2023 and exceed it in 2024.

Forecast of position openings presented to the panel and FTEs/ IA and PNG

Source: Court of Accounts, according to H3C data. Several recruitments are not planned until some time

during the year. Their full effect in terms of FTE is therefore not seen until the following year. As such, an

additional auditor post was filled at the end of 2021 and will have an effect on the 2022 payroll.

The recruitment of auditors specialising in “non

financial information” corresponds to

pectations of an extension of the H3C’s missions in the field of auditing independent third

party bodies (ITOs), without prejudging its future needs or the organisation to put in place. The

conduct of this new mission would also require the establishment of earmarked revenues,

which have not been identified at present.

In addition to these new positions, the dynamic rates of growth in the wage bill used by

the H3C in its forecasts were also taken into account.

Forecast wage bill growth presented to the panel, by date of opening of positions:

Source: Court of Accounts, according to H3C data

B - An increase in other operating expenses strongly linked to the

deployment of the information system

Operating expenses are characterised by high subcontracting expenses, which include

the delegation of missions to the CNCC (+€4.2m between 2018 and 2019). From 2020

onwards, when the H3C terminated several delegations and monitored more closely the

services reinvoiced by the CNCC, subcontracting expenses fell sharply (-

€1.8

m in 2020 and -

€1.35m in 2021). However, this decrease in subcontracting costs has been partly offset by the

increase in personnel costs (+€0.9m in 2020 and +€0.6m in 2021). In addition, the conditions

linked to the pandemic significantly limited travel, mission and entertainment expenses in 2020

€0.23m). Fees increased by €0.12m in 2021 due to litigation before the Council of State.

Tableau n° 1 : Main operating expense items

(amounts in €):

2018

2019

2020

Subcontracting

2,896,215

7,093,186.48

5,327,074

Real estate rentals

1,306,722.55

1,019,869.58

895,192.63

Personnel costs

6,178,884.84

6,367,864.73

7,304,927.25

Total operating costs

12,848,275.28

17,027,082.62

16,211,396.76

Source: H3C

The budget forecasts for the 2022-2024 period include an increase in operating costs.

Within “external services” expenses, the savings resulting from improved monitoring of

delegation agreements would be offset by an increase in the costs of organising conferences

and seminars.

Among “other external services”, travel expens

es would increase sharply, without the

benefit of the increased use of videoconferencing being included. Primarily, the cost of IT

services will increase significantly, due to the development of the information system dedicated

to audits, as well as the new sovereignty constraints in hosting digital data.

Allowances for depreciation and amortisation will also increase as a result of information

system fixed assets.

III -

The H3C’s announcement of a series of loss

-making years

In 2019 and 2020, the H3C posted significant deficits that were significantly higher than

the deficits recorded in 2013 to 2015. As confirmed by the Ministry of Justice, these deficits

were anticipated and accepted by the H3C’s supervisory body: they correspond to the desire

to take part of t

he H3C’s reserves in order to finance its growth. The 2021 budget was

constructed based on a forecast deficit. Ultimately, the financial year should show a strong

surplus (€1.6m) thanks to an increase in revenue, exceptional income linked to the correction

of a declaration error by a major firm, management savings and recruitment difficulties.

This positive result is put into perspective by the H3C, which argues that it corresponds

to non-recurring items that must be restated. These restatements concern in particular the

correction of the above-mentioned error, membership fees for previous years, income linked

to the rebilling of expenses for delegations from previous years and reimbursements from the

URSSAFs and the IRCANTEC.

Results (amounts in €)

2018

2019

2020

2021 forecasts

Operating

income

14,953,192.97

15,470,654.32

15,368,835.36

16,967,161

Operating

expenses

12,848,275.28

17,027,082.62

16,211,396.76

15,360,279

Result

2,181,655.51

-1,513,455.50

-842,561.40

1,606,882

Source: H3C

The succession of two years of losses, in 2019 and 2020, has already damaged the

institution’s image in its relations with financial institutions. In the specific context of the

pandemic, the H3C reported to its audit committee that it had approached four banks to open

cash lines and had received only one full response at too high a cost

The choices and the accelerated pace of the institution’s development presented to the

panel do not match the level of resources currently available to the High Council. This

presentation is based on pessimistic assumptions that the H3C would not achieve further cost

containment and that it would meet its full recruitment targets. It also does not take into account

the hypothesis of unanticipated departures.

Effects on the forecast result of the new decisions presented in the 2022 BP, as well

as the revenue contraction scenario led by the H3C (amounts in M€)

Source: Court of Accounts according to H3C data. Projection based on an assumption of

stable revenue, excluding exceptional revenue identified in 2021. The effect related to a

loss of income (scenario H3C) is isolated. Current framework for decisions: includes the

deployment of digital tools and the recruitment of a data analyst (whose currently

anticipated pay level could be rethought). Cost decision 1: planned increase in costs for

conferences, seminars and travel; recruitment of a staff member in the international

division. Cost decision 2: reinforcement of auditors, a second data analyst and an auditor

Audit committee meeting on 28 July 2020.

in the financial division. Cost decision 3: recruitment of auditors specialising in non-

financial information.

IV - Unfavourable financial projections that would lead to a

change in the balance sheet

The H3C has had sizeable overall net working capital for a decade. By pursuing the

strategy of financing its growth from its reserves, it is deteriorating its working capital, at the

risk of weakening its financial position and its ability to make future investments, particularly in

the development of an information system dedicated to audits.

A - Equity capital characterised by significant but declining reserves

The H3C built up substantial reserves from 2008 to 2010, thanks to a significant level of

income and gradually increasing management costs. This situation was used to strengthen

equity capital. At the end of 2020, reserves reached €10.5m, a level comparable to 2012. At

the same time, the institution did not resort to borrowing.

Change in equity capital (actual and forecast, in €m)

2017

2018

2019

2020

2021

2022

2023

2024

10.9

12.9

11.4

10.7

12.2

10.9

7.6

3.5

Source: Court of Accounts, according to H3C data

The H3C’s loss forecasts for the next three years would lead to a significant reduction in

equity capital, which would total just

€3.5m in 2024. This strategy of drawing on reserves to

fund, among other things, the increase in staff numbers has major drawbacks. Similarly,

resorting to borrowing to finance new fixed assets seems delicate in a context of successive

years of losses.

B - Strong growth in intangible fixed assets

While the institution had significant equity capital since 2010, the level of its fixed assets

remained modest. The modernisation of information systems initiated in 2020 is resulting in a

considerable change in the net value of assets. The implementation of the registrations

information system resulted in fixed assets of €0.6m. The implementation of the information

system dedicated to audits should result in fixed assets of €0.87m in 2022, €0.78m in 2023

and €0.26m in

2024.

Change in net asset value (actual and forecast, €m)

2017

2018

2019

2020

2021

2022

2023

2024

0.6

0.9

1.4

1.1

1.5

1.7

1.3

Source: Court of Accounts, according to H3C data

These fixed assets are an expression of the H3C’s digitisation and its essential

adaptation to changes in the profession. However, the increase in their value will transform the

balance sheet structure over time. The depreciation period for these intangible assets is just

three years.

C - Structural deterioration in overall net working capital

Overall net working capital has reached an unusually high level in recent years, covering

nearly a year’s worth of expenses in 2018. Its predicted deterioration must be m

onitored so

that it does not undermine the institution.

Change in overall net working capital in days of real non-exceptional expenses (actual

and forecast)

2017

2018

2019

2020

2021

2022

2023

2024

268 days

342 days

225 days

210 days

268 days

210 days

122 days

44 days

Source: Court of Accounts, according to H3C data

The H3C collects membership fees in May. The appropriate level of overall net working

capital is therefore five months of expenses, or 150 days. This balance needs to be assessed

in light of the desired increase in real operating costs, particularly the wage bill. The level of

equity capital required to maintain an overall net working capital of 150 days is equal to €9m if

the amount of expenses is as expected in 2023 and 2024. It amounts to €7.

3m with a cost

level equivalent to 2021.

Chapitre III

Financial recovery prospects

The first way to improve the efficiency of the H3C’s resources is to simplify its legal

framework for intervention, in terms of procedures, governance and data management. In

addition to the choices of control and moderation in terms of recruitment, the H3C must not

give up on the prospect of streamlining its existing expenses, in order to better concentrate its

resources on its priority missions. Lastly, the prospect of an increase in membership fees

cannot be ruled out.

I - Simplify the legal framework of intervention to improve the

H3C’s efficiency

The H3C’s work can be improved if resources remain constant. Indeed, the financial

means at its disposal can be optimised by a change to its legal framework of intervention.

These projects are already the subject of exploratory discussions between the H3C and the

ministries.

The first area for improvement concerns procedural and investigative means.

The existing procedure is not suitable for small-scale disputes (primarily disputes relating

to breaches of the continuous training obligation). For these low-level disputes, the

implementation of a streamlined procedure would make it possible to significantly reduce the

investigation time and reinforce the credibility of both the disciplinary procedure and the

supervisor’s function. At this stage, a mechanism similar to that of prior acknowledgement of

guilt is favoured. The mechanism would involve offering the offending statutory auditors a

“transaction”, which would be advertised

Conversely, the scale of penalties seems relatively unsuitable for exceptional cases of

fraud such as those recently dealt with by the H3C. Article L. 824-2 of the Commercial Code

limits the amount of financial penalties fo

r natural persons to €250,000 and for legal persons

to €1 million, which is not sufficient. Furthermore, although the range of penalties that the H3C

can impose has increased since it was created, it could be expanded.

Publicity around the consequences of audits could therefore be enhanced. At present,

H3C reports are only intended for the relevant statutory auditor, which is obliged to inform the

company’s audit committee. However, compliance with this obligation is not verified. The

international benchmarking carried out by the H3C in 2020 highlights the publication rules

followed by the AFM, its Dutch counterpart: not only does the AFM publish its PIE audit reports,

in which firms are named and failures detailed, but the firm must provide it with evidence of the

A similar mechanism has been created for the French national commission for data protection and liberties (CNIL)

(included in PJL 4D) and exists for the AMF financial markets regulator, which was inspired by the criminal model

of court appearance on prior acknowledgement of guilt introduced by act no. 2004-204 of 9 March 2004 (Perben II

Act).

communication of this report to the relevant audit committee. In South Africa, any report on a

PIE mandate must be forwarded by the firm to the audit committee within five days.

The H3C’s governance rules could also be simplified. Its panel meets

more frequently

than the bodies of other independent administrative authorities. According to the Treasury’s

directorate general, the number of subjects submitted to the panel is excessive, mainly

because of the existing texts, and distracts it from its role as a decision-making and guidance

body. The scope of delegations to the chairmanship could be extended in order to lighten the

workload of the bodies.

Lastly, the data collection and processing procedures could be further improved. The

H3C and the CNCC have set up several data exchange agreements, which simplify the

declarations made by auditors, avoiding similar queries. To date, these exchange agreements

remain subject to the verification procedure conducted by the CNIL. Setting up a single portal

would further facilitate reporting procedures and data aggregation. The H3C has indicated that

it is considering how changes to the Commercial Code could enable recognition and facilitation

of such data exchanges.

II - Streamlining existing expenses

The H3C has room to optimise its recruitment policy, in terms of controlling staff

numbers, prioritising open positions with regard to its core mission, choosing profiles,

diversifying recruitment pools and even using academic collaboration or subcontracting for

certain skills.

In addition, the H3C can contain the increase in its other expenses. For example, the

communication ambitions of the strategic plan, which were curtailed in 2020 and 2021 by the

pandemic, still seem disproportionate given the existence of significant losses in 2019 and

2020.

A further reduction in rental costs, which had been identified as a lever due to under-

occupation of the H3C’s office space, appears to have been abandoned in view of the need to

carry out partitioning work

. The changes in employee practices brought about by the growth

in remote work prompt further consideration of this subject in order to envisage reducing the

surface area occupied.

The reduction in resources resulting from the fall in the number of mandates for small

companies should lead the H3C to focus more resources on monitoring high-stakes mandates

and organisations. The regulatory missions still delegated (non-PIE audit -

€4.1m in 2020 and

continuous training audit -

€0.2m) mainly concern firms most affected by th

e loss of these

mandates.

The budget for 2022 includes a €334,000 decrease in the cost of delegations compared

to 2021. A further €50,000 decrease, specifically linked to the reduction in the number of firms

and the effect of the renovation of audits, is expected in 2023. While maintaining the delegation

of non-PIE audits seems justified

, an objective of reducing the overall cost of these

The H3C now occupies an entire floor.

With regard to the capacity of the CNCC network to recruit and mobilise practising auditors throughout the

country. The H3C retains effective control over the organisation of audit campaigns.

delegations could be envisaged, either by reducing the expenses taken into account

through greater differentiation of the specifications according to the size of firms, which would

make it possible to streamline the audits of those that present the lowest stakes. The decision

taken by the panel in January 2019 to increase the hourly rate and the hourly scales for audits

seems contradictory in this respect.

III - The prospect of an increase in membership fees

Increasing the revenue from membership fees, both by increasing the rates and by

broadening the membership fee basis, may be considered in order to restore the H3C’s

financial balance. This is in addition to the need for the H3C to strengthen its checks on audit

firms’ activity declarations.

A - An increase in membership fee rates to be considered

The increase in membership fee rates would fund the development of the H3C’s

monitoring and investigation capabilities, particularly those related to the deployment of the

information system. The chosen scenario should be in line with the growth rate that is

sustainable for the H3C organisation.

Rate increase scenarios

Rate for all

mandates

PIE rate

Gain

Current rates

0.5%

0.2%

Scenario 1

0.5%

0.3%

€0.44m

Scenario 2

0.55%

0.25%

€1.65m

Scenario 3

0.6%

0.2%

€2.85m

Scenario 4

0.6%

0.3%

€3.29m

Maximum rate

0.7%

0.4%

Source: Court of Accounts. The amounts have been established from the 2021 contribution bases. Assuming a

decrease in the number of non-PIE mandates in 2022 and 2023 would not change the order of magnitude.

Such an increase needs to be assessed in light of the other levies borne by SAs to fund

the operation of the CNCC network and their professional insurance.

As such, according to the amounts communicated by the CNCC, scenario 1 in table 8

above would enable the H3C to reach a level of membership fees equivalent to that of the

CNCC. Scenarios 3 and 4 remain well below the combined membership fees of the entire

CNCC and CRCC network.

These expenses concern auditors (as regards mission expenses, for example, the scales for overnight stays

–

€155

per night in the regions

–

and meals

–

€30

–

seem high), but above all the structural expenses presented by

the CRCC and the CNCC.

As such, the hourly rate for audits by practising auditors has increased from €95 to €100 excluding tax. The hourly

rate per audit has been increased between 7% and 40% depending on their difficulty.

Other statutory auditors’ membership fees (CNCC network and professional

insurance)/INDESIGN

Basis

2020 amount

CNCC membership fees

Fixed at €405

+ Variable

0.28% fees for all mandates

€15.5m

CRCC membership fees

Different for each CRCC

€10.6m

Insurance fees

Fixed at €120

+ Variable

0.56% fees for all mandates

€18.7m

Source: CNCC

B - A change of basis with limited effects

Some missions conducted by audit firms are not included in the basis for calculating the

membership fees paid to the H3C (audits of contributions or transformations, financial audits,

etc.). The CNCC collects a specific declaration concerning these missions, which are outside

of the membership fee basis defined by the Commercial Code. The total amount of these

declarations in 2020 was €47m. There is no assurance of the completeness and reliability of

these statements and this amount should be treated with caution. Nevertheless, if this order of

magnitude is correct, the application of the current membership fee rates would generate

resources of around €0.25m.

Conversely, it is wrong to present a possible extension of the scope of competence as a

factor of H3C financial equilibrium, other than in a scenario in which the High Council would

fall short in conducting this new supervision. As such, the Ministry of Justice indicates it is fully

aware of the need to increase the H3C’s revenue. However, it mentions the

need to decide

beforehand on the scope of transposition of the future directive on corporate sustainability

reports in order to set an increase in rates that is as close as possible to the H3C’s needs.

However, not all actors in ITO missions are auditors and therefore do not necessarily contribute

to the H3C’s funding.

The hypothesis of an audit concerning ITO missions would require setting up a dedicated

division and bolstering the investigation department. It would also require implementing

rigorous monitoring of the resources concerned to ensure they are allocated to this mission

only.

Appendices

Annexe n° 1.Presentation of the regulated population

Annexe n° 2.

Change in auditing of PIE firms’ mandates by the H3C/INDESING

Annexe n° 3.Renewal of the audit policy/AI AND PNG

......................

Annexe n° 4.Change in workforce

......................................................

Annexe n° 5.Change in personnel costs

............................................

Annexe n° 6.Activity of the principal Rapporteur and the investigation department

Annexe n° 7. . Comparative approach to disciplinary decisions for the various legal and accounting

professions

.....................................................................................................................................

Annexe n° 8.Balance sheet (2018-2021)

...........................................

Annexe n° 9.Income statement (2018- 2021)

....................................

Annexe n° 1 : Presentation of the regulated population

The audit profession in France (H3C 2020 activity report)

At the end of December 2020, 17,984 SAs were registered, of which 11,632 were natural

persons and 6,352 legal persons. The overall number of registered members was down 1.4%

compared to 2019 mainly due to retirements (the average age of registered SAs is 52 and 17% of the

registered population is over the age of 60). The Paris and Versailles-Centre CRCCs account for 36%

of registered statutory auditors.

Of the mandates declared (262,610 in 2020), 86% are held by legal persons (the remainder

are held by natural persons) and 48% by SAs registered in the Paris and Versailles-Centre CRCCs.

Concentration of PIE and non-

PIE audit fees (€2.7408bn in 2019)

Source: Court of Accounts, according to H3C data

Concentration of SACC fees (€135.6m in 2019)/ AI AND PNG

Source: Court of Accounts, according to H3C data

Revenue share of the five largest firms/

Source: Court of Accounts, according to H3C data

Auditing “PIE firms”

Under article L. 821-9 of the Commercial Code, as amended by order 2016-315 of 17

March 2016, auditing of the professional activity of statutory auditors working with public

interest entities (PIEs) is carried out by auditors of the

Haut conseil du commissariat aux

comptes

(High Council of Statutory Auditing) under conditions that comply with the provisions

of article 26 of Regulation (EU) No. 537/2014 of 16 April 2014.

PIEs are defined by article L. 820-1 III of the Commercial Code. The types of entities concerned

are:

- Credit institutions that have their registered office in France;

- Insurance and reinsurance organisations under the Insurance Code, with the exception of mutual

insurance companies exempt from administrative approval;

- Provident institutions and their unions governed by Title III of Book IX of the Social Security Code,

with the exception of those not covered by the so-

called “Solvency II” regime or fully reinsu

red;

- Mutual insurance companies and mutual associations governed by Book II of the Mutual Code,

with the exception of those not covered by the “Solvency II” regime or fully substituted or reinsured;

- Persons and entities whose financial securities (equity securities issued by corporations, debt

securities, units or shares of collective investment schemes) are admitted to trading on a regulated

market;

- And subject to a consolidated or combined balance sheet total

: financial holding companies of

which one of the subsidiaries is a credit institution, mixed financial holding companies of which one

of the subsidiaries is a public-interest entity, insurance group companies, mutual insurance group

companies, mutual group unions and social protection insurance group companies;

- Supplementary occupational pension funds, supplementary occupational pension associations

and institutions for supplementary occupational retirement provision.

The audit framework (PIE and non-PIE)

The framework for audits, common to both PIE and non-PIE audits, was set out in the

High Council decision no. 2017-14 of 24 July 2017. The High Council retained the notion of

“firm” as an entry point and as an audit unit. This decision defines firm withi

n the audit sense:

“A firm, in the audit sense, is defined as one or a group of registered statutory auditing

structures, holding mandates, that share common procedures. A statutory auditing structure

may be a natural person practising alone, or a legal person within which one or more natural

persons practise. Within the structures identified, auditors who are employees, partners or non-

partners and who perform their functions there are concerned by the audit.” A “PIE firm” is any

firm that has at least one mandate with a public-interest entity.

The purpose of the auditing is to ensure that the opinion given on the accounts is

appropriate in light of the audit work performed, that the audit work performed complies with

the regulations in force at the time of the audit and that the internal quality control system in

place is appropriate and effective. It should detect shortcomings that need to be corrected or

failures that may lead to prosecution.

Over €5 billion for two

successive financial years starting from the first financial year after 31 December 2017.

Typology of 2019 PIE mandates

PIE type

No. of

mandates

Fees

TOTAL

2,341

€409,993,423

Regulated market

841

€261,305,692

Mutual insurance companies and mutual associations

(Book II of the Mutual Code) not fully substituted or

not fully reinsured

315

€11,806,554

Unlisted company governed by the insurance code

351

€38,423,506

Unlisted credit institution

530

€63,221,774

Provident institution (Title III of Book IX of the Social

Security Code)

€3,354,505

Listed issuer of debt securities on a regulated market

(France or EEA) without equity securities

112

€25,088,768

Supplementary occupational pension fund

€201,638

FTE

€302,226

Insurance group company

€2,963,339

Financial holding company

€1,241,199

Mutual insurance group company

€1,565,682

Social protection insurance group company

€121,380

Group mutual association

€251,000

Mutual insurance company or supplementary

professional pension union

€62,500

Supplementary occupational pension institution

€35,000

Regulated market abroad in an EEA member country

€48,660

Source: H3C

Membership fees

2020

2021

Number of membership fees

17,254

16,943

Of which membership fees at 0

9,161

9,248

Of which non-zero membership fees

8,093

7,695

No PIE fees

7,660

7,309

With PIE fees

433

386

Source: H3C

Breakdown by decile of non-zero membership fees

2020

2021

Lowest membership fee amount

10% decile

20% decile

30% decile

132

131

40% decile

207

204

50% decile

303

301

60% decile

453

70% decile

678

675

80% decile

1,070

1,061

90% decile

2,052

2,040

99% percentile

9,869

10,519

Highest membership fee amount

1,858,214

2,007,880

Source: H3C

2020

2021

Average amount

1,888

1,973

Median amount

303

301

Annexe n° 2 :

Change in auditing of PIE firms’ mandates by the

H3C

2017

2018

2019

2020

2017

2018

2019

2020

Audited

mandates

285

131

142

190

Audited PIE

mandates

151

Mandates held

by the audited

firms

83,453

48,285

42,254

51,872

PIE mandates

held by firms

1,888

1,215

856

1,085

Mandates held

by PIE firms

110,783

113,048

130,770

128,908

Total number

of PIE

mandates

2,722

2,590

2,478

2,450

Source: H3C data (raw data from unaudited and unadjusted activity reports in yellow)

Rate of auditing of mandates and PIE mandates (2017 to 2020)

2017

2018

2019

2020

2017

2018

2019

2020

Audited

mandates

Audited PIE

mandates

Mandates

held by the

audited

firms

0.3%

PIE

mandates

held by

audited firms

8.5%

6.7%

Mandates

held by

PIE firms

0.2%

0.1%

Total number

of PIE

mandates

5.5%

2.95%

2.97%

Source: Court of Accounts, based on H3C data

Audit rates for large audit firms’ mandates in 2019

Firms

Mandates

PIE

mandates

Non-PIE

mandates

Audited

PIE

mandates

% of PIEs

audited

Non-PIE

mandates

audited

% of non-

PIEs

audited

4,104

110

3,994

Mazars

9,658

370

9,288

0.024

0.001

10,257

289

9,968

PwC

12,565

451

12,114

Deloitte

16,939

237

16,702

KPMG

22,454

3,178

22,136

0.002

0.001

Total

75,977

4,635

74,202

0.003

0.0003

Source: Court of Accounts, based on H3C data

Audit rates for large audit firms’ mandates in 2020

Firms

Mandates

PIE

mandates

Non-PIE

mandates

Audited

PIE

mandates

% of PIEs

audited

Non-PIE

mandates

audited

% of non-

PIEs

audited

4,014

104

3,910

7.7

0.3

Mazars

9,828

363

9,465

10,587

281

10,306

3.8

0.11

PwC

14,543

436

14,107

2.3

0.08

Deloitte

13,187

243

12,944

KPMG

21,840

304

21,536

0.009

Total

73,999

1,731

72,268

1.6

0.05

Source: Court of Accounts, based on H3C data

Audit rates for large audit firms’ mandates in 2021

Firms

Mandates

PIE

mandates

Non-PIE

mandates

Audited

PIE

mandates

% of PIEs

audited

Non-PIE

mandates

audited

% of non-

PIEs

audited

3,779

3,682

0.03

0.0016

Mazars

9,962

376

9,586

0.01

0.0001

10,331

264

10,067

0.01

0.0003

PwC

12,302

382

11,920

0.008

Deloitte

12,980

233

12,747

0.04

0.001

KPMG

20,709

295

20,414

0.01

0.0005

Total

70,063

1,647

68,416

0.01

0.0005

Source: Court of Accounts, based on H3C data

The H3C’s annual reports give an account of the audits conducted on firms with PIE

mandates.

The 2019 annual report indicates that the number of PIE firms audited by the H3C is 49

out of a total number of 244 PIE firms, i.e. 20% of PIE firms audited. The number of mandates

audited is 142, which is 0.3% of the number of mandates held by the audited firms and 8.5%

of the number of PIE mandates held by these firms.

The 2020 annual report states that the H3C’s inspections covered 47 PIE firms out of a

total of 256 PIE firms, i.e. 18% of PIE firms audited. The number of mandates audited is 190,

which is 0.3% of the number of mandates held by the audited firms and 6.7% of the number of

PIE mandates held by these firms.

The annual reports do not detail the audits of the six largest French firms, which held

75,977 mandates in 2019 including 4,635 PIEs and 73,999 mandates in 2020 including 1,731

in 2020. Of the 142 mandates audited by the H3C in 2019, 39 were held by the six largest

French firms, including 15 PIE mandates.

Of the 190 mandates audited by the H3C in 2020, 68 were held by the six largest French

firms, including 29 PIE mandates.

The H3C was asked to provide a breakdown of PIE and non-PIE mandates and audits

carried out by the six major French firms.

The f

igures provided by the H3C highlight what the Court’s previous report found, namely

that the low rates of mandate auditing do not enable the regulator to make an overall

assessment of the profession’s functioning. With regard to the audit rates for the man

dates of

the large audit firms, while the rate of audits of PIE firms by the H3C (20% in 2019 and 18% in

2020) appears to be in line with the frequency of audits set under regulations, the mandate

audit rate appears to be low or very low given the number of mandates held by the six large

firms.

Annexe n° 3 : Renewal of the audit policy

Source: H3C

Annexe n° 4 : Change in workforce

Monitoring of workforce (in persons present on 31 December, without adjustment for

part-time work or time spent during the year)

2018

2019

2020

2021 (P)

Executive

52*

Private law

41*

Public law

11**

Non-executive

Private law

Public law

Total

58* **

+10

-2

Entries

Exits

30..

* **

PIE and non-PIE auditors

(+3

/-2)

(+8/-6)

(+5/-2)

Investigators

+1/-3**

Source: H3C.

* two departures on 31 December 2021: the number of staff is therefore 56 on 1 January 2022 and 2 departures

are already planned on 1 January 2022.

** of which an employee placed on unpaid leave to follow his or her spouse pursuant to article 20 of decree no. 86-

83 no longer consumes the employment ceiling (Guide to counting central government operator jobs, p. 22). The

FTE is therefore 57 or 55 after the departures.

2 non PIE auditors, 3 investigators, 1 computer scientist, 1 standards and ethics officer, 1 auditor recruited under

the job bridging scheme with the large firms, 1

assistant for the principal Rapporteur’s department.

27 1 director of PIE audits, 1 advisor to the President on international matters, 7 PIE auditors, 2 lawyers (restricted

committee and contracts), 1 membership fees fixed-term contract, 2 international mission officers, 2 assistants

(standards and non-PIE), 3 registration lawyers, 1 assistant to the accounting officer, 1 investigator, 1 standards

and ethics fixed-term contract.

28 5 PIE auditors, 1 investigator, 1 chief of staff, 1 registration lawyer, 1 policy officer in the standards and ethics

division and 1 PIE assistant.

29 2 PIE auditors, 1 registrar of the restricted committee, 3 assistants, 1 manager in the financial division.

30 1 director of PIE audits, 1 director of the financial division, 5 PIE auditors, 1 international task officer, 1 market

lawyer,

1 membership fees fixed-term contract, 1 standards and ethics officer, 1 registration lawyer.

31 2 auditors, 1 legal supervisor, 1 investigator, 1 chief of staff, 1 task officer in the standards and ethics division,

1 deputy to the accounting officer, 2 PIE assistants and 1 non-PIE assistant, 1 standards and ethics fixed-term

contract and 1 unpaid mobility leave. 1 auditor and 1 investigator were present on 31 December 2021, but left the

H3C on that date.

32 2 non-PIE auditors, 1 PIE auditor recruited by the gateway / -2 auditors.

Table summarising the number of staff at 31 December 2019, 2020 and 2021

in FTEs

(taking into account part-time work and presence during the year)

2022(P)

2021 (P)

2020

2019

at 31/12

FTE

at 31/12

FTE

at 31/12

FTE

Investigations

9.0

10.6

11.0

10.1

10.0

8.0

PIE audits

19.0

18.2

17.0

16.6

13.8

13.5

Non-PIE audits

4.8

5.5

5.8

5.6

4.8

4.5

Monitoring

32.8

34.3

33.8

32.2

28.6

25.9

Other divisions

24.6

23.8

24.8

22.0

20.0

21.1

Total

57.4

58.1

58.6

54.2

48.6

47.0

Difference N-1

-1.2

3.9

10.0

7.2

Employment ceiling

68 (P)

Source: H3C

Annexe n° 5 : Change in personnel costs

Change in the wage bill and personnel costs over the 2017-

2021 period (in €)

2017

2018

2019

2020

2021

Remuneration

3,802,196

3,554,615

4,174,516

4,940,883

5,194,889

Bonuses and

allowances

764,384

793,473

336,969

366,055

369,728

Employer’s

charges

2,011,176

1,917,084

1,856,379

1,997,989

2,022,704

Payroll tax

569,200

549,668

571,765

581,473

705,550

Other personnel

costs

141,524

101,946

199,021

210,018

230,839

Total personnel

costs

7,288,480

6,916,786

7,138,650

8,096,418

8,523,710

Total operating

costs

14,060,638

12,848,275

17,027,083

16,211,397

15,662,713

Share in %

52%

54%

42%

50%

54%

Source: Court of Accounts, based on H3C data

[...]

Annexe n° 6 : Activity of the principal Rapporteur and the

investigation department

Origin of investigations

Origin of the investigations opened

2019

2020

Report

President of the H3C

CRCC

Third parties (legal and natural persons)

Court of Accounts/CRC

Public prosecutor’s offices

CNCC

Total

Follow-up of periodic activity audits

President of the H3C (following committee decision ruling on individual cases)

Other

Total

Vocational training/non-payment of membership fees/Obstacle to audit

CRCC

International cooperation

Foreign counterpart

TOTAL

Source: Data from the H3C 2020 activity report

Criteria for the closure of 49 files in 2020

Closure with no further action:

2020

No deficiency identified

Removed from the list of registered SAs (retired and not subject to a financial penalty)

Subsequent regularisations for minor breaches

Reports outside the scope of the H3C

Prescribed facts

Total

Closure with warning letter

SAs aged 70 and over, retired, without PIE mandate

Resignations from mandates of non-active micro political parties

Other

Total

TOTAL

Source: Data from the H3C 2020 activity report

Annexe n° 7 : Comparative approach to disciplinary decisions for

the various legal and accounting professions

The October 2020 report by the Inspectorate General of Justice on the discipline of the

legal and accounting professions

provides a comparison of penalty rates for 1,000

professionals in the various legal and accounting professions, as well as a comparison with

the medical profession.

Disciplinary decisions for the various legal and accounting professions

Number of decisions

by profession (2018-

2019 average)

Workforce of the

profession

Number of decisions

issued per 1,000

professionals

Statutory auditors

18,610

0.5

Lawyers

151

70,000

Notaries

14,395

Bailiffs

3,251

Disciplinary

Chamber of First

Instance of

Physicians

1,402

226,000

Source: IGJ

In 2020, the H3C’s individual cases panel opened penalty proceedings against 11

auditors (6 cases). At the same time, it decided to close 49 cases.

Inspectorate-General of Justice,

Mission on the discipline of the legal and accounting professions

, October 2020,

available at www.justice.gouv.fr

Annexe n° 8 : Balance sheet (2018-2021)

Balance sheet

BALANCE SHEET OF ASSETS

2018

2019

2020

2021

Intangible assets

242,463.05

303,464.79

829,925.14

Balance sheet not

available

Property, plant and

equipment

€517,537.59

451,000.68

419,580.89

Financial assets

€189,818.72

190,127.88

157,841.75

FIXED ASSETS

949,819.36

944,593.35

1,407,347.78

Receivables

2,306,042.45

1,649,472.26

360,308.38

Transferable securities

270,330.43

10,755.10

35,000.90

Liquid funds

12,057,580.8

10,703,854.2

12,828,878.9

CURRENT ASSETS

14,633,953.7

12,364,081.6

13,224,188.2

Prepaid expenses

251,728.12

326,758.53

318,749.63

TOTAL ASSETS

15,835,501.1

13,635,433.5

14,950,285.6

Reserves

10,828,726.8

12,819,222.4

11,305,766.9

Retained earnings

-191,159.88

Result

2,181,655.51

1,513,455.5

813,385.6

EQUITY CAPITAL

12,819,222.4

11,305,766.9

10,492,381.3

Provisions for risks

Provisions for charges

89,967.00

106,523.00

180,955.40

Trade payables

1,946,763.25

1,125,954.76

3,023,741.40

Tax and social security

liabilities

918,058.83

1,042,226.36

871,215.19

Debts on fixed assets and

related accounts

22,312.79

54,962.39

356,168.30

Other debts

39,176.83

25,823.95

TOTAL DEBTS

2,926,311.70

2,223,143.51

4,276,948.84

Deferred income

TOTAL LIABILITIES

15,835,501.1

13,635,433.5

14,950,285.6

Source: based on H3C financial statements

Annexe n° 9 : Income statement (2018- 2021)

Income statement

2018

2019

2020

2021

(provisional)

OPERATING INCOME

Membership fees

15,193,710.88

15,104,794.50

16,122,226.26

Income from related activities

164,888.21

264,768.53

171,584.60

118,333.06

Reversal of provisions

16,947

Other income

53,073.27

12,174.91

92,456.26

701,459.93

TOTAL I

15,411,672.36

15,470,654.32

15,368,835.36

16,958,966.25

OPERATING EXPENSES

Non-stock purchases

216,897.31

72,567.05

103,222.14

24,091.63

Other external expenses, of

which:

subcontracting and leasing

2,896,215.00

7,093,186.48

5,327,074.00

3,739,909.00

Rent and rental charges

1,306,722.55

1,019,869.58

895,192.63

879,395.19

Maintenance and repair

17,927.96

12,601.22

9,576.47

14,841.85

Documentation, conferences

24,011.06

46,672.39

33,931.47

50,572.53

remuneration of intermediaries

and fees

499,129.85

420,688.66

633,599.24

760,162.49

Travel, missions, entertainment

161,896.46

284,854.57

50,289.42

41,643.64

Insurance premiums

61,361.54

23,403.45

25,138.45

23,814.28

Postage and communication

66,868.50

51,585.43

69,900.16

63,696.57

Recruitment costs

21,168.00

30,564.00

0.00

Training

49,292.73

43,366.27

20,271.20

10,403.53

Advertising, publications

32,234.00

38,539.00

39,883.00

22,508.16

Other services

122,367.72

282,960.57

446,076.92

383,688.57

Other

86,251.79

95,347.69

102,062.42

88,411.03

Taxes and duties

742,885.85

851,302.37

801,120.88

999,640.76

Staff salaries

4,348,088.32

4,511,485.43

5,306,937.95

5,548,088.28

Social security and welfare

costs

1,830,796.52

1,856,379.30

1,997,989.30

2,185,607.17

Allowances for depreciation

and provisions

252,687.79

273,796.90

348,021.36

493,654.54

Other expenses

111,472.33

17,912.26

1,109.76

30,149.39

TOTAL II

12,848,275.28

17,027,082.62

16,211,396.77

15,360,278.61

Operating income

2,104,917.69

-1,556,428.30

- 842,561.40

1,598,687.64

FINANCIAL INCOME

Other interest

76,737.82

42,972.80

29,175.78

8,194.26

FINANCING COSTS

Financial income

76,737.82

42,972.80

29,175.78

8,194.26

Extraordinary income

TOTAL INCOME

15,029,930.79

15,513,627.12

15,398,011.14

16,967,160.51

TOTAL EXPENSES

12,848,275.28

17,027,082.62

16,211,396.76

15,360,278.61

Deficit or Surplus

2,181,655.51

-1,513,455.50

-813,385.62

1,606,881.90

Source: based on H3C financial statements and 2021 H3C adjusted budget forecast