Legislative Decree 136/2024 (correttivo-ter) amended Article 25 octies of Legislative Decree 14/2019 (CCII), extending reporting obligations to the statutory auditor as well.
The explanatory report accompanying the Correttivo Ter notes that the subject of the report must be a state of crisis or insolvency, not the mere existence of signs of difficulty (or pre-crisis); the rationale behind the legislation is to avoid unhelpful reports made by the supervisory body solely for self-protection purposes.
A 60-day deadline is established from the moment the supervisory body became aware of the crisis state, to avoid late or hasty reports.
The correttivo-ter establishes that supervisory bodies act “in the exercise of their respective functions” (Board of Statutory Auditors and Statutory Auditor) when making reports to the administrative body regarding the state of crisis.
To this end, it is useful to summarize the functions of the supervisory bodies.
Board of Statutory Auditors
- Continuous oversight of the directors’ actions, starting from the control under Article 2403 of the Civil Code on the proper establishment of “an organizational, administrative, and accounting structure adequate pursuant to Article 2086 of the Civil Code, for the timely detection of a state of crisis and the adoption of appropriate initiatives” under Article 3 CCII.
- The control extends to compliance with principles of proper management and observance of the law and bylaws by the directors.
- Specific inspection and activation powers, such as the power/duty to intervene in operations potentially harmful to the company, to convene the shareholders’ meeting (including under Articles 2446-2447 of the Civil Code), to challenge resolutions that may cause harm to the company, to file a complaint with the court under Article 2409 of the Civil Code, and to initiate liability actions.
Once the report has been made, the supervisory body (never the auditor) may take any useful initiative to remedy any inaction by the administrative body (for example, convening the shareholders’ meeting for recapitalization of the company under Article 2447 of the Civil Code or its liquidation).
Statutory Auditor
The auditor must carry out specific activities regarding going concern (ISA 570), given that the financial statements are prepared by the directors on the assumption of business continuity and the auditor obtains appropriate and sufficient audit evidence to assess the appropriateness of using this assumption.
The auditor is required to evaluate the assessments made by the directors based exclusively on facts and circumstances that came to their knowledge up to the date of the audit report.
It is not the auditor’s task to remedy the lack of a complete and accurate analysis by management. The auditor asks management whether it has considered any future events or circumstances that may raise significant doubts about the company’s ability to continue operating as a going concern. Therefore, dialogue with Company Management is relevant.
When doubts arise regarding the going concern assumption, the auditor’s report must contain:
- emphasis of matter paragraphs relating to significant uncertainties about business continuity;
- disclaimer of opinion;
- qualified opinion due to a significant uncertainty relating to going concern that is not adequately disclosed in the financial statements;
- adverse opinion.
Although the notion of “going concern” under ISA 570 does not perfectly coincide with that of “crisis” under Article 2 CCII, the elements learned during the course of the audit activity can usefully contribute to determining whether or not the conditions for reporting are met.
There are temporal differences: going concern must be assessed at the end of the audit process, while reports must be made during the financial year.
The auditor must consider the elements concretely available at that time (and will proceed on the basis of necessarily more limited information compared to what would be available at the time of issuing the report).
Following the report, the auditor, considering their specific functions, has no further obligations, even in the case of omitted or insufficient response from the administrative body.
