Volvo 2005 Annual Report Download - page 79

Volvo Group 2005 75
The organization of the internal
control over financial reporting
Volvo has since long had an internal control
organisation.
Going forward policies and procedures have
to be adjusted so that they comply with
So rban es-Ox ley Act ( SO X) r equ ire men ts due
to th e fa ct t hat V olvo ’ s s hares ar e re gist ered
with the Securities & Exchange Commission
(SEC) in the U.S. This adjustment shall ascer-
tain that the work is following well-developed
and documented processes. Policies and
instructions shall be in accordance with inter-
nationally accepted standard and best prac-
tices, which are reassessed annually.
SOX section 404 requires an SEC regis-
trant to include in its annual report a report on
the internal control over financial reporting.
The report shall include a statement regard-
ing the outcome of the company’s evaluation
of the effectiveness of the internal control over
the financial reporting as at the end of the rele-
vant financial year and shall be accompanied
by an auditor’s report. Volvo will make its first
SOX 404 reporting in the filing of its U.S.
annual report (Form 20) for the financial year
ending at December 31, 2006.
During 2005, Volvo has continued the work
initiated in 2004 on documenting relevant
processes in order to ensure that the internal
control over financial reporting is well func-
tioning. In 2006, this work will be finalised, the
relevant processes will be tested and an eval-
uation of the effectiveness of the internal con-
trol will be made.
In order to fulfil the requirements of SOX
404, an SEC registrant must implement a rec-
ognised internal control framework.
Volvo applies a framework introduced by
the Committee of Sponsoring Organisations
of the Treadway Commission (COSO). COSO
con sists of five interrelated components
where a number of objectives have to be met
in each component. The components are;
control environment, risk assessment, control
activities, information and communication
and monitoring.
Volvo has an internal audit function (intern-
revision) of which the main responsibility is to
ensure adherence to the internal control
framework that the company applies. The
internal audit function reports directly to the
Group’s CFO and has a dotted line to the Audit
Committee of the Board of Directors.
Disclosure Committee
A Disclosure Committee was established in
2004. The Committee contributes to ensuring
that Volvo fulfills its obligations according to
applicable legislation as well as to listing rules
to timely disclose to the financial market all
material information that affects the share
price.
The Committee comprises the heads of the
corporate staffs, Corporate Finance, Internal
Audit, Investor Relations, Corporate Legal and
Financial Reporting.
Principles for remuneration and
other employment terms for the
Group Executive Committee
The Board has decided to propose to the
2006 Annual General Meeting principles for
remuneration and other employment terms for
the members of Volvo’s Group Executive
Committee (“Remuneration Policy”) in accord-
ance with Section 4.2.2 of the Code. The pro-
posed principles comply with what has his-
torically been applied within Volvo. The
principles for remuneration and other employ-
ment terms can be summarized as follows.
The guiding principle is that remuneration
and other employment terms for company
management shall be competitive to ensure
that Volvo can attract and retain skilled per-
sons in the Group Executive Committee. The
fixed salary may be competitive and reflect the
individual’s area of responsibility and perform-
ance. In addition to the fixed salary a variable
salary may be paid. A variable salary may
amount to a maximum of 50% of the fixed
annual salary and be based on the Volvo
Group’s and/or the executive’s Group compa-
ny’s fulfillment of certain improvement goals.
The improvement goals are decided by the
Board of AB Volvo and may be related, for
example, to operating income or cash flow. In
addition to fixed and variable salary, normally
other customary benefits, such as company
car and company healthcare are provided. In
individual cases, housing and other benefits
are provided. In addition to pension benefits
provided by law and collective agreements,
the members of the Group Executive Com-
mittee domiciled in Sweden are offered a
defined-contribution pension whereby the
amount of the individual’s pension comprises
the premium paid and any return. In individual
cases, other pension solutions may be consid-
ered. Members of the Group Executive
Committee domiciled outside Sweden are
offered pension solutions that are competitive
in the countr y in which the person is domiciled.
With regard to notice of termination of employ-
ment for members of the Group Executive
Committee domiciled in Sweden, the notifica-
tion period is 12 months if the company termin-
ates the employment and six months if the
individual terminates employment. In addition,
the employee is entitled to a severance pay of
12 months’ salary if Volvo terminates employ-
ment. In individual cases, other principles for
notification periods and severance pay may be
considered. Those members who are domi-
ciled outside Sweden are offered terms in this
respect that are competitive in the country in
which the person is domiciled.
A more detailed account of remuneration to
the President and principles for the remuner-
ation to other senior executives is presented
in Note 34 to the consolidated financial state-
ments.
Outstanding share- and share-price-
related incentive programs
An account of outstanding share- and share-
price-related incentive program is provided in
Note 34 to the consolidated financial state-
ments.