Merck 2014 Annual Report Download - page 129

124 GROUP MANAGEMENT REPORT → Report on Risks and Opportunities
Opportunities
Opportunities are assessed in their respective specific business
environment. Marketing measures for operational planning are
usually quantified in relation to sales,
EBITDA pre one-time items
and business free cash flow. Net present value, the internal rate of
return (IRR), the return on capital employed (ROCE) and the amor-
tization period of the investment are primarily used to assess
and prioritize investment opportunities. Similarly, scenarios are
frequently set up to simulate the influence of possible fluctuations
and changes in the respective factors on results. There is no over-
arching, systematic classification of the probability of occurrence
and impact of opportunities.
INTERNAL CONTROL SYSTEM FOR THE
CONSOLIDATED ACCOUNTING PROCESS
The objective of the internal control system for accounting is to
implement controls that provide assurance that the financial state-
ments are prepared in compliance with the relevant accounting
laws and standards. It covers measures designed to ensure the
complete, correct and timely conveyance and presentation of in-
formation that is relevant for the preparation of the consolidated
financial statements and the management report of the Group.
The control system is subject to continuous further develop-
ment and is an integral component of the accounting and financial
reporting processes in all relevant local units and Group func-
tions.
With respect to the accounting process, the internal control
system measures are intended to reduce the risk of material false
statements in the consolidated accounting process of the Group.
Key tools
The internal control system is geared to ensuring the accuracy of
the consolidated accounting process and the implementation of
internal controls for the preparation of compliant financial state-
ments with reasonable assurance. The Group Accounting function
centrally steers the preparation of the consolidated financial state-
ments of Merck KGaA, Darmstadt, Germany,as the parent company
of the Group. This Group function defines the reporting require-
ments that the Group’s subsidiaries must meet as a minimum re-
quirement. 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 and of the subsidiaries, which are reported
to Group Accounting; the guidelines are adapted to reflect chang-
es in the financial regulatory environment and are updated in
accordance with internal reporting requirements. Intra-group
transactions are eliminated during the consolidation process. This
gives rise to the need for a mirrored entry at the corresponding
subsidiaries that is monitored during the consolidation process.
Group Accounting also ensures the timely central manage-
ment of changes to the equity holding structure and correspond-
ingly adapts the Group’s scope of consolidation. The individual
companies have a local internal control system. Where financial
processes are handled by a Shared Service Center, the internal
control system of the Shared Service Center is additionally applied.
Both ensure that accounting complies with IFRS (International
Financial Reporting Standards) and with the Group accounting
guidelines.
Group Accounting provides support to the local contacts and
ensures a consistently high quality of reporting throughout the
entire reporting process.
The accounting process is designed at all levels to ensure a
clearly defined segregation of duties and assignment of responsi-
bilities to the units involved in the accounting process at all times
within the scope of dual control.
For the assessment of balance sheet items, Group Accounting
closely cooperates with Group Risk Management in order to cor-
rectly present potential balance sheet risks. For special issues, such
as the measurement of intangible assets within the scope of com-
pany acquisitions or pension obligations, external experts are ad-
ditionally involved where necessary. For the Group accounting
process, the company uses a standard SAP software tool in most
countries. Via a detailed authorization concept to limit user rights
on a need-to-have basis, and in line with the principles of the
separation of duties, the system contains both single-entity re-
porting and the consolidated financial statements.
The effectiveness of the Group’s internal control system with
regard to accounting and the compliance of financial reporting by
the individual companies is confirmed by both the local managing
director and the local chief financial officer when they sign the
single-entity reporting. All the structures and processes described
are subject to regular review by Group Internal Auditing based on
an annual audit plan set out by the Executive Board. The results
of these audits are dealt with by the Executive Board, the Super-
visory Board and the Finance Committee.
The internal control system at the Group makes it possible
to lower the risk of material misstatements in accounting to a
minimum. However, no internal control system – regardless of its
design – can entirely rule out a residual risk.