Merck 2010 Annual Report Download - page 91

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The internal control system is geared to ensuring the accuracy of the consolidated accounting
process and the preparation of compliant financial statements.
Group Accounting and Controlling centrally steers the preparation of the consolidated financial
statements of Merck KGaA as the parent company of the Merck Group. This Group function
defines the reporting requirements that the Merck subsidiaries must meet as a minimum
requirement. At the same time, this function steers and monitors the scheduling and process-
related requirements of the consolidated financial statements.
The Group-wide accounting guidelines form the basis for the preparation of the statutory
financial statements of the parent company as well as the subsidiaries in Germany and abroad.
These are available to all employees in the relevant units via the Merck intranet. The intranet
is also used to adapt the guidelines to changes in the financial regulatory environment and
update them in accordance with internal reporting requirements. One of the requirements of
the Group-wide guidelines is to present Group-internal business processes as the basis for
proper settlement of intercompany balances. Additional controls have been implemented in the
consolidation process.
Group Accounting and Controlling also ensures the timely central management of changes to
the equity holding structure and correspondingly adapts the Merck Group’s scope of consolida-
tion. The individual companies have a local internal control system. Where finance processes
are covered via the Shared Service Center, the internal control system of the Shared Service
Center is additionally applied. They ensure that accounting complies with IFRS accounting
standards and with the Merck Group accounting guidelines.
Group Accounting and Controlling provides support to the local contacts throughout the entire
reporting process. In case of important innovations in the reporting process and IT applications,
the function trains employees involved and thus ensures a consistently high quality of reporting.
The reporting process, either via the individual company or the Shared Service Center directly
to Group Financial Reporting, ensures fast reporting cycles. The reported financial figures of
the subsidiaries are validated via a three-step process between the local finance organization,
divisional controlling and Group-wide controlling. Financial figures are checked for their plau-
sibility and content by comparing them with the figures of the previous year and the budget.
The accounting process is designed at all levels to ensure a clearly defined segregation of
duties and assignment of responsibilities to the units involved in the accounting process at all
times within the scope of continuous dual control.
For the assessment of balance sheet items, the Group Accounting and Controlling function
closely cooperates with Merck Group Risk Management in order to correctly reflect potential
balance sheet risks. For special issues, such as the evaluation of intangible assets and pension
obligations, external experts are additionally involved where necessary.
For the Group accounting process, Merck globally uses a standard SAP software tool. Via a
detailed authorization concept to limit user rights on a need-to-have basis, the system contains
both single entity reporting and the consolidated financial statements. The financial data are
transmitted in encrypted form. Routine system backups are performed in order to prevent a
potential loss of data.
The local management of the individual companies is responsible for implementation. The
effectiveness of Merck’s internal control system with regard to accounting and the compliance
of financial reporting is confirmed by the local managing director and the head of finance by
signing the single entity reporting.
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