1. THE EURO & THE AUDIT PROCESS RISK ANALYSIS, MATERIALITY AND CERTIFICATION November 14, 2000 Christian Perrier

2. 2 PricewaterhouseCoopers Agenda Introduction Introduction Business risks involved by the introduction of the euro Business risks involved by the introduction of the euro Impact of euro-related risks on the audit process Impact of euro-related risks on the audit process Incidence on auditor's opinion of inadequate preparation for the euro Incidence on auditor's opinion of inadequate preparation for the euro Euro implementation: the top priority for auditors in France Euro implementation: the top priority for auditors in France

3. 3 PricewaterhouseCoopers A new business environment Implications of the euro are likely to be profound for companies with business transactions in Europe Implications of the euro are likely to be profound for companies with business transactions in Europe Need for all companies to adapt their financial and other operating systems Need for all companies to adapt their financial and other operating systems Additional longer term implications as the euro will increase competition within a larger market Additional longer term implications as the euro will increase competition within a larger market  The importance of the economic event requires that every company addresses the issues arising from the introduction of the euro

4. 4 PricewaterhouseCoopers Progress of the changeover to the euro During the transitional period, the principle of "no compulsion, no prohibition" applies During the transitional period, the principle of "no compulsion, no prohibition" applies However, public awareness of the euro is still very limited according to a recent poll However, public awareness of the euro is still very limited according to a recent poll  It is therefore the management's responsibility to identify the impact of the euro and to make adequate preparations

5. 5 PricewaterhouseCoopers Progress of the changeover to the euro Question:Have you already started preparations for the changeover to the euro in your company ? Source:Survey by the French Ministry of Finance - September 2000 Size of company 0 employee 0 employee Total from 1 to 499 employees 1 to 9 employees 1 to 9 employees 10 to 49 employees 10 to 49 employees 50 to 249 employees 50 to 249 employees 250 to 499 employees 250 to 499 employees 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% % of preparation % of preparation 34% 60% 57% 66% 40% 43% 75%25% 84%16% 6% 94% YesNo

6. Business risks involved in the introduction of the euro PricewaterhouseCoopers

7. 7 Business risks involved in the introduction of the euro Key euro-related business risks include: Key euro-related business risks include: adverse impact on company's activity adverse impact on company's activity inadequate preparation inadequate preparation inappropriate systems and control process inappropriate systems and control process

8. 8 PricewaterhouseCoopers Adverse impact on company's activity The use of euro will increase competition The use of euro will increase competition Transparency of prices across the eurozone will lead to pressure for less price discrimination Transparency of prices across the eurozone will lead to pressure for less price discrimination  Reductions in the price of goods and services sold could lead to significant decreases in revenues and profitability

9. 9 PricewaterhouseCoopers Adverse impact on company's activity In order to prevent such risks a company must: In order to prevent such risks a company must: Compare its prices with those of competitors Compare its prices with those of competitors Determine the maximum discrimination acceptable Determine the maximum discrimination acceptable Assess the financial impact of alignment Assess the financial impact of alignment Revise commercial and industrial strategies accordingly Revise commercial and industrial strategies accordingly

10. 10 PricewaterhouseCoopers Inadequate preparation No commitment by top management No commitment by top management Inappropriate planning of the euro project Inappropriate planning of the euro project Inadequate arrangements for identifying and implementing necessary changes Inadequate arrangements for identifying and implementing necessary changes Inadequate resources allocated to the changeover process Inadequate resources allocated to the changeover process Inappropriate staff training Inappropriate staff training Non-compliance with the project plan Non-compliance with the project plan

11. 11 PricewaterhouseCoopers Inappropriate systems and control process Inadequate identification of key operating systems / software requiring adaptation or replacement Inadequate identification of key operating systems / software requiring adaptation or replacement Absence of procedures for handling both national currency and euro during the transitional period Absence of procedures for handling both national currency and euro during the transitional period Loss of reference points for employees Loss of reference points for employees Internal control risks Internal control risks

12. 12 PricewaterhouseCoopers Inappropriate systems and control process Inappropriate controls to prevent fraudulent activities and errors Inappropriate controls to prevent fraudulent activities and errors No identification of key customers / suppliers that will require transactions in euro during the transitional period No identification of key customers / suppliers that will require transactions in euro during the transitional period Non compliance with tax and legal regulations (as regards conversion method, rounding, tracking …) Non compliance with tax and legal regulations (as regards conversion method, rounding, tracking …)

13. Impact of euro-related risks on the audit process PricewaterhouseCoopers

14. 14 PricewaterhouseCoopers Impact of euro-related risks on the audit process Statutory auditor's responsibilities are not changed by the introduction of the euro Statutory auditor's responsibilities are not changed by the introduction of the euro However, the statutory auditor needs to: However, the statutory auditor needs to: have an adequate understanding of the issues that could arise from the euro have an adequate understanding of the issues that could arise from the euro consider the company's plans and preparations consider the company's plans and preparations identify any significant euro-related risks not yet addressed which could impact the going concern principle identify any significant euro-related risks not yet addressed which could impact the going concern principle

15. 15 PricewaterhouseCoopers Impact of euro-related risks on the audit process Depending on euro-related risks identified, the auditor should plan appropriate audit procedures (limited or extended) Depending on euro-related risks identified, the auditor should plan appropriate audit procedures (limited or extended) Auditors have a range of audit techniques and must adapt them to the changeover to the euro: Auditors have a range of audit techniques and must adapt them to the changeover to the euro: analytical review of balances expressed both in euros and in francs analytical review of balances expressed both in euros and in francs external confirmations to be requested in euros, francs or both units external confirmations to be requested in euros, francs or both units substantive tests on conversion… substantive tests on conversion…

16. 16 PricewaterhouseCoopers Impact of euro-related risks on the audit process A specific testing program should be implemented after the changeover date: A specific testing program should be implemented after the changeover date: review of the conversion method used review of the conversion method used detailed controls on conversion and roundings detailed controls on conversion and roundings conversion of management reporting schedules conversion of management reporting schedules

17. Incidence on auditor's opinion of inadequate preparation for the euro PricewaterhouseCoopers

18. 18 PricewaterhouseCoopers Incidence on auditor's opinion of inadequate preparation for the euro If the statutory auditor considers that the company has not made adequate preparation for the euro: If the statutory auditor considers that the company has not made adequate preparation for the euro: this situation casts doubts over the ability to remain a going concern this situation casts doubts over the ability to remain a going concern this situation is not addressed adequately in the financial statements this situation is not addressed adequately in the financial statements  his report will need to reflect the inadequacy of any such disclosure

19. 19 PricewaterhouseCoopers Incidence on auditor's opinion of inadequate preparation for the euro In the French context, the CNCC requires the statutory auditor to: In the French context, the CNCC requires the statutory auditor to: highlight in his report, during the transitional period, scope limitations deriving from: highlight in his report, during the transitional period, scope limitations deriving from:  inadequate implementation of procedures designed to prevent risks and errors  inappropriate adaptation of information systems to the euro qualify his report for uncertainty it there is a going concern issue due to: qualify his report for uncertainty it there is a going concern issue due to:  inadequate preparation for the euro  inappropriate information systems  loss in substance of the business

20. Euro implementation: top priority for auditors in France PricewaterhouseCoopers

21. 21 PricewaterhouseCoopers Euro implementation: top priority for auditors in France In order to be the driving force in the changeover to the euro, the OEC (Ordre des Experts- Comptables) has made several tools available to its professionals In order to be the driving force in the changeover to the euro, the OEC (Ordre des Experts- Comptables) has made several tools available to its professionals Tools have been developed to assist companies in preparing the changeover: Tools have been developed to assist companies in preparing the changeover: website dedicated to the euro (www.euro- expert.com) website dedicated to the euro (www.euro- expert.com)www.euro- expert.comwww.euro- expert.com dedicated web site that comprises software suppliers' details of euro compliance dedicated web site that comprises software suppliers' details of euro compliance euro diagnostic website (www.euro- diagnostic.com) to stimulate management awareness of what's at stake euro diagnostic website (www.euro- diagnostic.com) to stimulate management awareness of what's at stake(www.euro- diagnostic.com)(www.euro- diagnostic.com)

22. 22 PricewaterhouseCoopers Euro implementation: top priority for auditors in France Regular information about the introduction of the euro has been provided in magazines published by the OEC (SIC, …) Regular information about the introduction of the euro has been provided in magazines published by the OEC (SIC, …) A survey will be carried out on selected chartered accountants to measure the progress of the changeover to the euro among their clients A survey will be carried out on selected chartered accountants to measure the progress of the changeover to the euro among their clients The CD-rom "Euro start" will assist professionals in managing the changeover to the euro of their audit files The CD-rom "Euro start" will assist professionals in managing the changeover to the euro of their audit files

23. 23 PricewaterhouseCoopers Euro implementation: top priority for auditors in France In March 1998, the CNCC (Compagnie Nationale des Commissaires aux Comptes) issued a practical guide on the euro organised in three parts: In March 1998, the CNCC (Compagnie Nationale des Commissaires aux Comptes) issued a practical guide on the euro organised in three parts: the stakes, mechanisms and implementation of the euro the stakes, mechanisms and implementation of the euro the technical consequences of the changeover to the euro the technical consequences of the changeover to the euro the impact of the euro on the audit process the impact of the euro on the audit process This guide, updated twice since its first publication, has been distributed to all French auditors This guide, updated twice since its first publication, has been distributed to all French auditors

24. 24 PricewaterhouseCoopers Euro implementation: top priority for auditors in France In addition to their audit engagement, statutory auditors must endeavour to inform and encourage their clients to prepare the changeover to the euro through: In addition to their audit engagement, statutory auditors must endeavour to inform and encourage their clients to prepare the changeover to the euro through: awareness leaflets awareness leaflets seminar presentations seminar presentations training sessions training sessions

25. 25 PricewaterhouseCoopers Euro implementation: top priority for auditors in France Specific assignments can also be conducted: Specific assignments can also be conducted: analysis of euro-related impacts and risks analysis of euro-related impacts and risks assistance in the implementation of euro strategies assistance in the implementation of euro strategies assistance with the management of euro project assistance with the management of euro project adaptation of procedures and internal controls to the euro adaptation of procedures and internal controls to the euro staff training staff training