Reebok 2011 Annual Report Download - page 151

adidas Group
2011 Annual Report
GROUP MANAGEMENT REPORT – FINANCIAL REVIEW
147
2011
03.4 Risk and Opportunity Report
– Risk and opportunity monitoring and reporting: Our integrated
risk and opportunity management system aims to increase the trans-
parency of Group risks and opportunities. As both risks and opportun-
ities 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.
Regular risk reporting consists of a two-step reporting stream. Firstly,
on a quarterly basis, Risk Owners are required to report to Group Risk
Management gross risks with a possible impact on the relevant income
statement metric above the threshold of € 50 million regardless of
their likelihood of materialising and net risks with an expected value
(i.e. potential impact on the relevant metric in euros multiplied with
likelihood of materialising) of over € 1 million. Opportunities are
aggregated separately with Risk Owners reporting all opportunities
with an opportunity value of above € 1 million on the relevant metric.
Secondly, Group Risk Management aggregates the reported risks and,
also on a quarterly basis, provides the adidas AG Executive Board with
a consolidated Group-wide report based on the Risk Owners’ input.
Material changes in previously reported risks and/or newly identified
risks with a potential net impact on the relevant income statement
metric of more than € 5 million, and any issues identified which due
to their material nature require immediate reporting to the Executive
Board, are also reported outside the regular quarterly reporting
stream on an ad-hoc basis.
Description of the main features of the internal control
and risk management 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 internal control and risk management system with respect
to the financial reporting process aims at avoiding 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 internal control
and 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 internal control and 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 department
regularly reviews accounting-relevant processes. Additionally, as part
of the year-end audit, the external auditor examines selected internal
controls 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 obliga-
tions and the extent thereof are mandatory for the Group’s subsid-
iaries. 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 trans-
actions 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 authorisations 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 monitoring of virtually all IT systems, centralised management
of change processes and with support through regular data backups.