4.5.3 Company's internal auditors (commissaires aux comptes)

In this paragraph, the private law liability of X S.A.'s interaal auditors in regard to the information published in the prospectus will be briefly analysed.1 Section L. 225-218 of the French Commercial Code prescribes that each public limited company must have at least one interaal auditor. The auditor is required to certify in a supplementary report to the company's (consolidated) annual accounts that the laffer are drawn up regularly and sincerely and give a loyal impression of the company's operational results and financial situation.2 The issuer's annual accounts of the past three years have to be included in the prospectus.3 The auditors have to state whether the annual accounts presented in the prospectus give a true and fair view of the issuer's financial situation.4

X S.A.'s interaal auditors have to examine all the other information contained in a prospectus as well. This overall examination and any other special verification have to be carried out in accordance with the standards issued by the French national institute of statutory auditors (Compagnie Nationale des Commissaires aux Comptes) on prospectus verification.5 Upon completion of their overall examination and any other special verification that may have been made, the auditors draw up a completion letter (lettre de fin de travaux), in which they inform the issuer about their observations. A copy of this letter has to be sent to the AMF before the latter will consider approving the prospectus.6 However, this letter is not reproduced in the prospectus.7 Therefore, the investors cannot base their damage claim directly on this certification. The auditors can nonetheless incur liability, if they act in violation of their professional obligations when they audit the company's prospectus. 8

The professional obligations are laid down in the professional code of ethics for auditors (Code de déontologie des commissaries aux comptes)9 and the aforementioned standards on prospectus verification.10 The auditors need to verify the annual accounts and the prospectus diligently and if they encounter anomalies, they need to make a further in-depth inquiry. If they do not act in accordance with their professional standards, the company's auditors are liable to the company as well as to its investors,11 because they are obliged to perform their duties in the interest of the company's shareholders.12 However, the audit is explicitly not a guarantee that the information in the annual accounts or the prospectus is neither false nor misleading. It is the directors' duty, on behalf of the issuer, to make sure that the information in the prospectus is exact and precise. The auditors are not liable unless they knew about the false or misleading nature of the information.13

In a recent case14 decided by the Disciplinary Committee of the AMF, the company's auditors detected a wrongful item in the company's accounts and reported this wrongfulness to the company's director. Nonetheless, they certified the annual accounts without any reservation. Even though the auditors were aware of the anomaly, the Disciplinary Committee ruled that the auditors were not liable for dissemination of false information because the actual anomaly was not considered significant.15 It is noteworthy that in the same decision, it was held that the issuing company and its director did in fact disseminate false information because the distinction between significant and insignificant anomalies does not apply to the issuer and its directors. Even though this ruling was adopted in administrative proceedings, it is very likely that in a case dealing with the auditor's civil liability, the same distinction will be made, i.e. the auditors are only liable in case of a significant anomaly.

It is noteworthy that the losses sustained by the company's shareholders are personal and distinct from the losses incurred by the company.16 Furthermore, issuing companies in general contract with an auditing company, not being a natural person, to perform the audit. The question arises whether the shareholders and directors who act in the name of and at the expense of such an auditing company can be held personally liable17 if they violate their professional obligation.18 The French Supreme Court ruled on 23 March 2010 in the Liboreau v Chaboisson case19 that:

Daigre in his commentary to this decision20 rightly states that the director is personally liable not on the basis of French company law provisions as described in previous paragraph. In that case, the claimant needs to prove that the director's tortious behaviour fell outside the normal performance of director's duties. However, the director does not perform the auditing in his capacity as director of a company, instead the director exercises a professional activity. For that reason, he is bound by the law and the professional code of ethics applicable to auditors.