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France

Financial Ratio Analysis in France — ISA 520 / NEP 570

Financial ratio analysis in France operates within a distinctive audit environment where the commissaire aux comptes holds a statutory mandate and applies Normes d'Exercice Professionnel (NEP) that have been progressively aligned with international standards. NEP 520 governs analytical procedures and requires the commissaire aux comptes to apply substantive analytical procedures as part of the audit approach, while NEP 570 addresses the assessment of continuité d'exploitation (going concern). The Haut Conseil du Commissariat aux Comptes (H3C) oversees audit quality and has conducted thematic inspections examining how French auditors perform analytical procedures. France's accounting framework, the Plan Comptable Général (PCG), produces financial statements with specific characteristics that affect ratio computation, including the distinction between résultat d'exploitation, résultat financier, and résultat exceptionnel, which differs from the IFRS presentation of profit or loss.

Regulatory Context — H3C / CNCC

The H3C's inspection programme has examined analytical procedures across both large networks (grands réseaux) and smaller firms. H3C findings indicate that French auditors frequently rely on descriptive ratio analysis at the planning stage without developing the precision required for substantive analytical procedures. The Compagnie Nationale des Commissaires aux Comptes (CNCC) has published technical opinions and practice notes on the application of NEP 520, emphasising the need for documented expectations, defined investigation thresholds, and rigorous follow-up of identified anomalies. The French regulatory environment also requires the commissaire aux comptes to issue an alert under the procédure d'alerte (Article L. 234-1 of the Code de commerce) when the entity's continuity of operations is compromised, creating a direct link between financial ratio deterioration and statutory reporting obligations.

Practical Guidance for France

French practitioners should consider the specific structure of PCG financial statements when computing ratios. The PCG's three-tier income classification (exploitation, financier, exceptionnel) allows auditors to isolate operational performance from financing costs and non-recurring items in ways that differ from IFRS-based analysis. The Banque de France's FIBEN database (Fichier Bancaire des Entreprises) provides extensive financial ratio benchmarks for French enterprises, disaggregated by sector code (code NAF) and company size. The Banque de France also publishes an annual report on company demographics and financial health, offering macroeconomic context for ratio analysis. For private company data, Infogreffe and Société.com provide access to filed annual accounts from the Greffe du Tribunal de Commerce. The Centrale de Bilans of the Banque de France is considered a primary benchmark source for French audit practitioners.

Audit Expectations

H3C inspections have identified specific areas where French audit firms should improve their ratio analysis practices. These include developing independent expectations based on external data rather than merely comparing to prior-year figures, documenting the relationship between ratio analysis findings and the risk assessment, performing ratio analysis at a sufficiently disaggregated level for diversified entities, and adequately investigating ratio movements that exceed defined thresholds. The CNCC's continuing education programme includes modules on analytical procedures, reflecting the profession's recognition that this area requires ongoing development. For mandats involving public interest entities, the H3C applies enhanced scrutiny to the quality of analytical procedures in the audit file.

France-Specific Considerations

France's insolvency framework, governed by Livre VI of the Code de commerce, provides a comprehensive suite of procedures for entities in financial difficulty. These range from informal mechanisms such as the mandat ad hoc and conciliation to formal proceedings including sauvegarde, redressement judiciaire, and liquidation judiciaire. The cessation des paiements test, which triggers the obligation to file for redressement judiciaire or liquidation judiciaire, focuses on whether the entity's available assets (actif disponible) can cover its due liabilities (passif exigible). This is fundamentally a liquidity test, making the current ratio, quick ratio, and cash conversion cycle particularly relevant for French going concern assessments. The procédure d'alerte mechanism requires the commissaire aux comptes to formally notify the entity's management when facts discovered during the audit compromise the continuity of operations. This statutory obligation makes financial ratio monitoring a legal duty, not merely a professional practice standard, and creates a direct consequence for the auditor who fails to identify deteriorating financial indicators.

Common Inspection Findings

Analytical procedures at the planning stage were limited to descriptive ratio computation without developing expectations or identifying risk indicators.

The procédure d'alerte obligation was not connected to the financial ratio analysis performed during the audit, with going concern indicators assessed separately.

Benchmarks from the Banque de France's FIBEN database were not consulted despite being readily available for the entity's sector.

Investigation of significant ratio movements relied exclusively on inquiry of management without obtaining corroborative documentary evidence.

Ratio analysis for multi-segment entities was performed only at the consolidated level, failing to identify divergent trends across business lines.

The distinction between PCG income categories was not leveraged in the analytical procedures, with ratios computed on aggregate profit figures only.