INTERNAL CONTROL OF FINANCIAL REPORTING
In accordance with the Swedish Companies Act and the Swedish Code of Corporate Governance, the Board is responsible for internal control. This report has been prepared in accordance with the Code and describes how the internal control of the financial reporting is organised.
Control environment
Effective board work is a prerequisite for good internal control. The Board's work plan and the instructions for the CEO and the Board's committees ensure a clear delegation of roles and responsibilities to the benefit of effective management of risks in the Company's operations.
In addition, the Board has adopted a number of fundamental guidelines and policies designed to create the conditions for a good control environment. These include policies for social responsibility and environmental work, economic and financial reporting, finance and investment, among others. These policies are followed up and revised as needed.
The executive management continually draws up instructions on the Group's financial reporting which, together with the policies adopted by the Board, are included in the Group's financial manual.
The Group has a joint reporting system that serves as the base for the Group's monthly reporting, consolidation work and earnings follow-up.
Risk assessment
The Company has implemented a structured process for assessing risks that could affect financial reporting. This is an annually recurring process and is evaluated by the Audit Committee and the Board.
Through this risk assessment it has been ascertained that the Group's structure, consisting of a multitude of standalone companies of varying size that are independent from each other in various sectors and geographic markets, entails a considerable spread of risk. The risk assessment also covered the Group's income statement and balance sheet items to identify areas in which the aggregate risk for error and the effects of these would be greatest. The areas identified consisted primarily of revenue recognition, trade accounts receivable and inventories.
In addition, continuous risk assessment is conducted in connection with strategic planning, budgeting, forecasts and acquisition activities, aimed at identifying events in the market or operations that could give rise to changes in e. g. revenue streams and valuations of assets or liabilities.
Control activities
The Group's companies are organised in four business areas. In addition to a business area president, the respective business area management teams include a controller. The controller plays a central role in analysing and following up the business area's financial reporting and in ensuring compliance by the companies in the business area with Group policies that have an impact on the financial reporting. The Parent Company has additional functions for continuous analysis and follow-up of financial reporting by the Group, the business areas and subsidiaries. The Parent Company's finance department also initiates the work on the annual self-assessment routine regarding the internal control of financial reporting. This is a process that involves several parts.
In this evaluation, the Group's companies have been grouped into three categories, based on the nature and scope of the respective companies' businesses. For each group of companies, a questionnaire for evaluation of internal control has been prepared based on the performed risk analysis. A minimum acceptable level of internal control has been determined for each respective group, which served as the baseline for the evaluation.
All companies owned by Indutrade at the start of 2010 were required to respond to the evaluation questionnaire. The responses were compiled and evaluated per group of companies and for the Group as a whole. As a complement to this work, the auditors conducted a validation of the respective companies' completed questionnaires. Both the evaluation performed by Indutrade and the result of the auditors' validation have been reported and discussed with the Audit Committee and the Board of Directors. The overall assessment of the evaluation of the internal control of the Group's financial reporting will serve as documentation for the subsequent years' self assessment and work on further strengthening internal control.
Information and communication
The Company's key governing documents, consisting of policies, guidelines and manuals – to the extent that these pertain to financial reporting – are updated on a regular basis and communicated via different channels to the companies within the Group. Systems and routines have been created to provide management with necessary reports on the business results in relation to set targets.
Follow-up
The Board conducts a monthly evaluation of business development, earnings, position and cash flow based on a report packet containing comments on outcomes, forecasts and certain key factors.
The Audit Committee has an oversight role regarding the Company's financial reporting, risk management, and governance and control. In addition, the Audit Committee maintains regular contact with the Company’s auditors to ensure that the Company's internal and external reporting satisfies requirements made on market-listed companies and to follow up any observations that emerge from the audit.