Reebok 2010 Annual Report Download - page 164

160 Group Management Report – Financial Review Risk and Opportunity Report
Risk and opportunity monitoring and
reporting: Our integrated risk and oppor-
tunity management system aims to
increase the transparency of Group risks
and opportunities. As both risks and
opportunities are subject to constant
change, Risk Owners not only monitor
developments, but also the adequacy
and effectiveness of the current risk
handling strategy on an ongoing basis.
Risk reporting consists of two separate
regular reporting streams:
On the one hand, Risk Owners
are required to report to Group Risk
Management gross risks with a possible
impact on contribution above the
threshold of € 50 million regardless of
their likelihood of materialising and
net risks with a possible impact over
€ 1 million on contribution and the
likelihood of materialising. Material
changes in previously reported risks and/
or newly identified risks with a potential
net impact on contribution of more than
€ 5 million are reported on an ad-hoc
basis. Opportunities are aggregated
separately with Risk Owners reporting all
opportunities with a net impact of above
€ 1 million on contribution.
On the other hand, Group Risk
Management provides the adidas AG
Executive Board with a quarterly report
based on the Risk Owners’ input. Any
issues identified that, due to their
material nature, require immediate
reporting to the Executive Board are
reported outside the regular reporting
stream on an ad-hoc basis.
Description of the main features of
the internal control and risk manage-
ment system relating to the financial
reporting process pursuant to § 315
section 2 no. 5 German Commercial
Code (Handelsgesetzbuch – HGB)
We regard the internal control and
risk management system relating to
the consolidated financial reporting
process of the adidas Group as a system
which is embedded within the Group-
wide risk management system. The
risk management system with respect
to the financial reporting process
aims at minimising the risk of false
representation in our Group accounting
and in external financial reporting.
To this end, Group-wide compliance
with statutory provisions and internal
Group regulations must be ensured. We
regard the risk management system
as a process based on the principle of
segregation of duties, encompassing
various sub-processes in the areas of
Accounting, Controlling, Taxes, Treasury,
Planning, Reporting and Legal, focusing
on the identification, assessment,
treatment, monitoring and reporting of
financial reporting risks. Clearly defined
responsibilities are assigned to each
distinct sub-process in the various areas.
In a first step, the risk management
system serves to identify and assess
as well as to limit and control risks
identified in the consolidated accounting
process which might result in our
consolidated financial statements not
being in conformity with regulations.
The internal control system relating to
the financial accounting process serves
to provide reasonable assurance that
the financial statements are prepared
in compliance with regulations despite
identified financial reporting risks. To
ensure the effectiveness of the internal
control and risk management system,
the Internal Audit function regularly
reviews accounting-relevant processes.
Additionally, as part of the year-end
audit, the external auditor examines
selected aspects of the system,
including the IT systems, to assess their
effectiveness. Even with appropriate and
functional systems, however, absolute
certainty cannot be guaranteed.
adidas AG defines uniform
consolidated accounting policies and
updates these on a regular basis,
dependent on regulatory changes and
internal developments. Clear regulations
serve to limit employees’ scope of
discretion with regard to inclusion
and valuation of assets and liabilities,
thus reducing the risk of inconsistent
accounting practices within the Group.
These policies are available to all
employees involved in the financial
accounting process through the Group-
wide intranet. Material changes are
communicated to the subsidiaries Group-
wide on a quarterly basis. We aim to
ensure compliance with the financial
accounting rules through continuous
adherence to the four-eyes principle in
accounting-related processes. Certain
reporting obligations and the extent
thereof are mandatory for the Group’s
subsidiaries. Adherence to reporting
obligations and timelines is monitored
centrally by Group Accounting.
Financial accounting at subsidiaries is
conducted either locally by the respective
company or by a Shared Service Centre
that provides this service for several
subsidiaries. Most of the IT systems
used are based on SAP AFS. Some Group
companies use Navision-based ERP
software that was developed in-house.
The individual financial statements are
subsequently transferred into a central
consolidation system based on SAP
SEM-BCS. The regularity and reliability
of the financial statements prepared by
subsidiaries is reviewed at Group level
by Group Accounting and Controlling. If
necessary, the Group seeks the opinion of
independent experts to review business
transactions that occur infrequently
and cannot be processed as a matter of
routine. Controls within the consolidation
process such as those relating to
the consolidation of liabilities or of
revenues and expenses are conducted
both automatically (system-based) and
manually. Any inadequacies are remedied
and reported back to the subsidiaries.
All financial systems used are
protected against malpractice by means
of appropriate authorisation concepts
and access restrictions. Access author-
isations are reviewed on a regular basis
and updated if required. The risk of data
loss or outage of financial-accounting-
related IT systems is minimised by Group
IT through central control and moni-
toring of virtually all IT systems, central-
ised management of change processes
and with support through regular data
backups.