EU dialogue

Last Wednesday I was in Brussels with my fellow members of the European Court of Auditors (ECA) for a meeting with the College of the European Commissioners. This is an annual event but, nevertheless, remains a very formal and, I would say, even delicate occasion as, in actual fact, are all meetings between the distinct institutions of the European Union (EU).

This is an aspect about which I have written before. Although the different EU institutions (Parliament, Council, Commission, Court of Justice and Court of Auditors) are all part of the same and one 'ensemble', namely the EU, they all have distinct functions and a different focus.

For example, the Council is made up of the representatives of the governments of the member states, whereas Parliament offers direct representation to EU citizens, independently of their nationality.

For this reason, while each EU institution must seek to collaborate, even closely, with the others towards the common goal of serving the interests of the EU citizen, it must also safeguard its independence, as necessary, for it to cover effectively its particular role.

This general consideration is very pertinent when commenting on contacts between the ECA and the Commission. The role of the former is that of external auditor of the EU finances while the latter is the principal auditee. It is clear that the ECA must be in a position to act with full autonomy when formulating its opinion, which could be, and many times has been, quite critical of the Commission.

On the other hand, the overriding objective is not merely to establish where errors have taken place and where weaknesses exist but also to facilitate an understanding of the causes behind these errors and weaknesses, with the ultimate objective of eliminating or at least reducing significantly their incidence in the future.

This is the other aspect of the required inherently complex interaction between the ECA and the Commission, keeping at a distance but still co-operating quite closely, at the same time. This requires a careful balance, which is why I used the word "delicate" in my opening paragraph.

The annual ECA-Commission meeting is intended to assist this process. The meeting is structured into two parts. First, there is a formal component with the meeting following rigidly a pre-set agenda, where all the interventions are made in representation of the two institutions.

This is followed by an informal working lunch where it is possible for those present to exchange personal opinions and even impressions, always with the objective of gaining a better understanding of the environment within which each institution has to exercise its function.

Of course, even outside the EU context, the relationship between auditor and auditee will always remain a delicate matter. The former must be sufficiently detached not to compromise its ability to provide an objective and impartial opinion.

On the other hand, it needs to be close enough to obtain the required feel for the subject on which it must express itself. Last year I was on a fact-finding visit to the UK National Audit Office and it was very interesting for me to note that this body has purposely introduced the practice of referring to its auditees as its 'clients'.

Effectively, the departments and agencies that are the subject of the audits are recognised as having the identical overall objective of making the best use of taxpayers' money and the audit is conceived as a mechanism, which should assist them in achieving this goal. In other words, the underlying philosophy is of being independent but sharing the same ultimate purpose.

This was my second ECA-Commission meeting but this time I had the task to give a brief presentation on the changes that the ECA has decided to introduce in the methodology it follows in drawing up its Statement of Assurance, which is always referred to using its French name "Declaration D'Assurance" - DAS for short.

The DAS represents the formal opinion of the ECA on the reliability of the EU's accounts and on the legality and regularity of the underlying transactions. Quoting again from one of my recent articles:

"The main objectives of the DAS are to establish a) whether the consolidated financial statements of the general budget of the EU, as drawn by the Commission, present a true and fair picture of the financial activities through the preceding year and of the year-end situation; and (b) whether legal and contractual provisions have been duly respected during the implementation of the budget."

The DAS has been a formal requirement since the coming into effect of the Maastricht Treaty in 1993 and, from the following year, the ECA has issued its statement of assurance as part of its annual report. The 'Revised DAS Approach', as we have come to call the recently sanctioned changes, will come into effect as from the audit of the 2006 accounts.

The revised approach has sought to build on the experience gained over these 12 years. The revision exercise has also served to confirm that the ECA's methodology is compliant with the relevant international auditing standards, giving due consideration to the very specific context and complexity of the EU budget.

The Revised DAS is based on the classical audit approach, which gives due weight to each of the following essential stages in an audit: understanding properly the audit environment, planning carefully the audit procedures, performing the audit and evaluating adequately the results and forming judiciously the audit conclusions and audit opinion.

The most important development in the revision of the DAS has been the introduction of an Assurance Model. In layman's terms: this is a conceptual tool that is applied to link and compile together the two principal sources of audit evidence, namely the evaluation of supervisory and control systems and the "substantive, meaning direct, testing of transactions on the basis of samples drawn in representation of the overall population."

The assurance model is an important framework to guide the auditors in their difficult task but it does not replace the need for them to apply their professional judgment. Inasmuch as the assurance model facilitates the desired co-ordination between substantive testing and the assessment of supervisory and control systems, it makes the audit process more robust and its application more consistent, both between auditors as well as between audit areas.

In conclusion, it may be said that the revised approach introduces additional transparency and robustness to the Court's overall DAS assessment, which should put the Court in a better position to identify where major weaknesses are, which is an essential requirement to the implementation of effective measures which can help to resolve them.