CERTIFICATES ISSUED BY EXTERNAL AUDITORS GUIDANCE NOTES FOR
CERTIFICATES ISSUED BY EXTERNAL AUDITORSGUIDANCE NOTES FOR BENEFICIARIES AND AUDITORSMATERIALS PREPARED BYTHE WORKING GROUP ON CERTIFICATE ON THE METHODOLOGY UNDER FP7:DG RESEARCH AND INNOVATIONDG COMMUNICATIONS NETWORKS, CONTENT AND TECHNOLOGYDG ENERGYDG MOBILITY AND TRANSPORTDG ENTERPRISE AND INDUSTRYDG BUDGETVERSION 25 JULY 2013DisclaimerThis guide is aimed at assisting beneficiaries and auditors. It is provided for information purposes only and its contents arenot intended to replace consultation of any applicable legal sources or the necessary advice of a legal expert, whereappropriate. Neither the Commission nor any person acting on its behalf can be held responsible for the use made of theseguidance notes.
IntroductionThese guidance notes have been compiled to guide research beneficiaries and externalauditors in the preparation of Certificates on the Financial Statements and on theMethodology for calculating personnel costs/indirect costs under the 7th RTDFramework Programme (FP7).In particular, the document considers the following topics and related issues:-FP7 model Grant Agreement1;-Guide to Financial Issues Relating to FP7 Indirect Actions2;-Frequently asked questions (FAQs) received by the European Commissionfrom external auditors, beneficiaries and the Commission’s operationalservices3.The objective of these guidance notes is to give an overview of the requirements andprovisions which are of importance in claiming costs for reimbursement and hence in theCertification on the Financial Statements and on the Methodology.The text of this document is valid as of the present date however it may be updated ifnecessary to reflect developments in the Certificate on the Financial Statements and onthe Methodology procedures as they occur.This document is composed of Part I dealing with the Certificates on the Methodology,Part II covering the Certificates on the Financial Statements and Part III which is acommon glossary for both types of Certificates.This is the fifth update of the Guidance Notes for Beneficiaries and Auditors on FP7audit certification issues. The main reason for this update is the adoption of the newFinancial Regulation4 which results in the following modifications to the FP7 generalmodel Grant Agreement: Art. 6 of the core: Reduction of the time-limit for payment of pre-financing to30 days from the entry into force of the grant agreementArt. II.5: Reduction of the time-limit for payment for interim and finalpayments to 90 days from the receipt of the reports.Art. II.6 Abolition of the coordinator's obligation to open and operate aninterest-bearing bank account;1See in particular Articles II.4 and II.14-II.19 of Annex II (General Conditions, Part B) of the modelgrant s/portal/page/fp7 documentation2See in particular Part A, Section 2 of the FP7 Guide to Financial ortal/ShowDoc/Extensions Repository/General Documentation/Guidance documents for FP7/Financial issues/financialguide en.pdf3See the al/ShowDoc/Extensions Repository/General Documentation/Guidance documents for FP7/Audits/audit certification faq en.pdf4The Regulation No 966/2012 on the financial rules applicable to the general budget of the Unionrepealing Council Regulation (EC, Euratom) No 1605/2002 (former Financial Regulation)2
II.19 Abolition of the coordinator's obligation to declare and reimburse to theCommission the interest generated by the pre-financing.These changes apply as from 01.01.2013 to both future and existing (on-going) grantagreements. For on-going grant agreements, these new rules will automatically apply asfrom 1.1.2013 without the need for individual amendments to the grant agreements.In addition, regarding financial statements (Form C), certificates on financial statementsand certificates on the methodology Art. 8 and Art II.4 of the Grant Agreement were alsomodified with the following implications relevant for the present Guidance Notes: For Grant Agreements signed before 31.12.2012, the consortia may apply thenew electronic-only transmission and signature system, provided they introduce arequest for an amendment via the coordinator. For Grant Agreements signed after 01.01.2013 the obligations of electronic-onlysignature and transmission of the Form C and the electronic-only transmission ofthe certificates on financial statements and certificates on the methodology havebeen introduced.As a consequence, in order to reflect the recent update of the new Financial Regulationand those of the FP7 model Grant Agreements, the following modifications have beenintroduced in the present "Guidance Notes for Beneficiaries and Auditors":– The abolition of the obligation to submit the certificates on financial statements inpaper form for Grant Agreements signed as from 01.01.2013 (Part II–5 and Part I–4respectively).– The abolition of the coordinator's obligation to open and operate an interest-bearingbank account and to declare and reimburse to the Commission the interest generatedby the pre-financing as from 01.01.2013 (Part II – 6.4.7);3
Table of Contents1.AUDITORS ELIGIBLE TO DELIVER THE CERTIFICATE ON THEFINANCIAL STATEMENTS AND ON THE METHODOLOGY (COMAND COMAV) . 92.REIMBURSEMENT OF THE COSTS OF THE CERTIFICATES . 113.PRACTICAL HINTS FOR BENEFICIARIES AND ESSENTIALBACKGROUND DOCUMENTS . 13PART I: CERTIFICATES ON THE METHODOLOGY . 141.REASONS FOR INTRODUCING THE CERTIFICATION ON THEMETHODOLOGY . 152.ADVANTAGES OF THE USE OF THE CERTIFICATION ON THEMETHODOLOGY . 163.SCOPE AND CONTENT OF THE CERTIFICATE ON THEMETHODOLOGY . 174.FORM OF THE CERTIFICATE ON THE METHODOLOGY - ANNEXVII . 185.SUBMISSION OF THE CERTIFICATE ON THE METHODOLOGY. 205.1Steps to be followed . 205.2Specific provisions for the Certificate on the Methodology for bothpersonnel and indirect costs (CoM). 215.35.45.2.1Criteria for submission of the CoM. 215.2.2Consequences of the acceptance and use of the Certificate onthe Methodology for both personnel and indirect costs (CoM) . 225.2.3Consequences of the rejection by the Commission. 235.2.4Consequences of withdrawal of a Certificate by thebeneficiary: . 24Specific provisions for the Certificate on the Methodology on averagepersonnel costs . 245.3.1Abolition of the mandatory certification on average personnelcosts . 245.3.2Consequences of the acceptance and use of the certificate onthe average personnel costs (CoMAv) . 245.3.3Consequences of the rejection by the Commission. 26New acceptability criteria for average personnel cost methodologies . 265.4.1New criteria for average personnel costs adopted byCommission Decision C(2011)714 . 265.4.2Definition of the new acceptability criteria for averagepersonnel costs. 274
5.565.4.3Retroactive application of calculation methods for averagepersonnel costs. 285.4.4Particular cases for already approved CoM (with averagepersonnel costs) and CoMAv . 29Specific case of natural persons and SME owners who do not receive asalary: Flat-rate financing. 305.5.1New context. 305.5.2Retroactive application and calculation of the flat-ratefinancing . 305.5.3New rules concerning the submission of CoMAv for SMEowners/natural persons without a salary . 31PROCEDURES FOR CERTIFICATES ON THE METHODOLOGYACCORDING TO ANNEX VII - FORM E . 326.1How should the beneficiary fill out Form E? . 326.2When can the auditor decide to adapt the model findings in the righthand column and when should he report an exception?. 326.3Use of the methodology by the beneficiary. 336.4Personnel . 336.56.4.1Existence of time recording and number of productive hours . 336.4.2Components of the personnel costs of the beneficiary. 366.4.3Correct calculation of hourly rates . 38Overheads/Indirect Costs . 416.5.1Components of overheads/ indirect costs . 416.5.2Exclusion of ineligible items (including shared costs) fromindirect costs. 436.5.3Use of estimates in the simplified indirect cost calculation . 456.5.4Allocation of indirect costs to the project . 476.6Specific provisions for Marie Curie grants . 486.7Specific provisions for ERC grants . 48PART II: CERTIFICATES ON THE FINANCIAL STATEMENTS . 491.THE CHANGE IN APPROACH FOR CERTIFYING COSTS CLAIMED . 502.KEY CHANGES REGARDING CERTIFICATES ON THE FINANCIALSTATEMENTS . 513.SCOPE AND CONTENT OF CERTIFICATES ON THE FINANCIALSTATEMENTS . TS . 545.FORM OF CERTIFICATES ON THE FINANCIAL STATEMENTS ANNEX VII . 565
6.PROCEDURES FOR CERTIFICATE ON THE FINANCIALSTATEMENTS ACCORDING TO ANNEX VII - FORM D . 576.1Procedures to be carried out by the auditor regarding Form D . 576.2When can the auditor change the model answer and when should hereport an exception? . 576.3Will all exceptions result in a rejection of costs by the Commission?. 576.4Procedures for Certificates on the Financial Statements according toAnnex VII – Form D . 586.4.1Personnel costs . 596.4.2Subcontracting. 706.4.3Other direct costs (equipment, travel costs, consumables) . 716.4.4Indirect costs. 746.4.5Exchange rates used . 796.4.6Identification of receipts. 806.4.7Identification of interest yielded. 816.5Specific provisions for Marie Curie grants . 826.6Specific provisions for ERC grants . 82PART III: GLOSSARY. 83ACCOUNTING RECORDS . 84EXCESSIVE OR RECKLESS EXPENDITURE. 84EXCEPTION. 84FINANCIAL STATEMENT (IN RTD CONTEXT) . 85GENERAL LEDGER. 85INDIRECT TAXES. 86NORMAL ACCOUNTING POLICY . 86NORMAL EMPLOYMENT COSTS. 87PRODUCTIVE TIME . 88PROJECT ACCOUNTS. 88"PRO FORMA" FINANCIAL STATEMENT. 89REPRESENTATION LETTER . 89SIMPLIFIED METHOD . 89UNDERLYING MANAGEMENT INFORMATION . 90ANNEX 1 – EXAMPLES OF LETTERS OF REPRESENTATION. 916
ANNEX 2 – TEMPLATE MODEL FOR CALCULATION OF HOURLYPERSONNEL RATE. 95ANNEX 3 – EXAMPLE OF TIME-RECORDING. 967
General principlesThe Certificates on the Financial Statements (CFS) and on the Methodology for bothpersonnel and indirect costs (CoM) and on the Methodology on average personnel costs(CoMAv) are independent reports of factual findings produced by an external auditor (orin the case of a public body it may be provided by a competent public officer) accordingto the requirements of Article II.4 of the Grant Agreement.The purpose of the report of factual findings is to give to the Commission relevantelements necessary to assess whether costs (and, if relevant, the receipts and interestsgenerated by the pre-financing) charged under the project are claimed by thebeneficiaries in accordance with the relevant legal and financial provisions of the FP7model Grant Agreement.N.B: The submission of a Certificate on the Financial Statements or on theMethodology does not waive the right of the Commission or the European Court ofAuditors to carry out their own audits5.Notwithstanding the procedures to be carried out, the beneficiary remains at all timesresponsible and accountable for the accuracy of the Financial Statements. A beneficiarymaking false declarations or failing to meet its obligations under the Grant Agreementshall be liable to financial penalties according to Article II.25 of the Grant Agreement.The auditor has a contractual relationship solely with the beneficiary. The auditor doesnot have a contractual relationship with the Commission and the Commission will notintervene in any dispute between the auditor and the beneficiary.The Auditor shall undertake that his work has been carried out:- in accordance with the International Standard on Related Services (‘ISRS’) 4400Engagements to perform Agreed-upon Procedures regarding Financial Information aspromulgated by the International Auditing and Assurance Standards Board (IAASB) ofIFAC;- in compliance with the Code of Ethics for Professional Accountants issued by theInternational Ethics Standards Board for Accountants (IESBA) of IFAC. Although ISRS4400 provides that independence is not a requirement for agreed-upon proceduresengagements, the European Commission requires that the Auditor also complies with theindependence requirements of the Code of Ethics for Professional Accountants.5“The Commission may, at any time during the grant agreement and up to 5 five years after the end ofthe project, arrange for audits to be carried out [ ]” (Article II.22 of the FP7 Model GrantAgreement).8
1. AUDITORS ELIGIBLE TO DELIVER THE CERTIFICATE ON THEFINANCIAL STATEMENTS(COM AND COMAV)ANDONTHEMETHODOLOGYEach beneficiary is free to choose a qualified external auditor, including its statutoryexternal auditor, provided that the following cumulative requirements are met: the external auditor must be independent from the beneficiary; the external auditor must be qualified to carry out statutory audits of accountingdocuments in accordance with national legislation implementing the Directive onstatutory audits of annual accounts and consolidated accounts6 or anyUnion/Euratom legislation replacing this Directive. Beneficiaries established inthird countries must comply with equivalent national regulations in the same fieldand the certificate on the financial statements provided will consist of anindependent report of factual findings based on procedures specified by theUnion/Euratom.The services provided by the auditors to the beneficiaries follow the requirements relatedto subcontracts in the framework of FP7 Grant Agreements and are therefore subject tothe requirements of best value for money (Article II.7 of the FP7 model GrantAgreement). Beneficiaries shall ensure that the rights of the Commission and the Courtof Auditors to carry out audits are extended to cover the auditors.According to the provisions of Article 27 of the Treaty on the functioning of theEuropean Union, Article 142 of the Financial Regulation and Article 19§10 of the FP7Rules for Participation, the Court of Auditors has the right to access the records on thepremises of any natural or legal person in receipt of payment. Although this would notautomatically include the working documents of the auditors, the external auditors mighthave to provide access to their working papers if the Court of Auditors requests so andwhen it is necessary to carry out its task. Therefore, the access to working papers shouldnot be required as a matter of course but because there is a genuine concern about theway in which the funds have been spent by the beneficiary. If this access requested bythe Court of Auditors would concern working papers subject to a professional secrecy orconfidentiality requirements of the national jurisdiction, the auditors concerned areadvised to address this issue in a bilateral manner
CERTIFICATES ISSUED BY EXTERNAL AUDITORS GUIDANCE NOTES FOR BENEFICIARIES AND AUDITORS . 2 Introduction These guidance notes have been compiled to guide research beneficiaries and external auditors in the preparation of Certificates on the Financial Statements and on the
through the educational qualification and professional certificates, and objectivity, . and quality factors and audit function as issued by internal and external auditors Institute of Standards consisted of independence, . sample was current external auditors and their number (23) auditors, and potential external auditors and their numbered .
Methodology issued by the external auditors are eligible direct costs charged under the "Management" activity in the "Subcontracting" category. They are therefore subject to the requirements of best value for money (Article II.7 of the FCH JU Model Grant Agreement). - However the costs for the Certificates on the
Companies for empanelment as External Auditors for conducting Internal Audit at . The copies of offer/appointment letters issued by other Banks. other certificates etc. need not be submitted along with the application. . copies of registration certificate issued by ICAI, proof of UCN registration issued by RBI etc., within the specified .
Beneficiaries and Auditors on Certificates issued by external auditors available on Cordis (EC portal for FP7) Since each . beneficiary will establishthe methodology in line with the usual accounting and management principles depending on the national legislative and financial frame, the approved methodology cannot be
1 While we recognize that internal auditors also play an important role in detecting fraud, the focus of our study is on the effectiveness of external auditors. As such, we use the word “auditor” to refer to external auditors of the financial statements.
27 Components of a Certification System Request and issue certificates (different categories) with verification of identity Storage of certificates Publishing/distribution of certificates (LDAP, HTTP) Pre-installation of root certificates in a trusted environment Support by OS platforms, applications and services Maintenance of database of issued certificates (no private
safeguards employed by Austraclear is the use of external audi tors. Austraclear' s Internal Audit Department reports directly to its external auditors, KPMG Peat Marwick, who in turn report to Austraclear' s Independent Audit Committee. The external auditors also formally report to all Members (and their auditors) on a quarterly basis.
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