Volvo 2008 Annual Report Download - page 73

ness culture, and the Group’s Code of Con-
duct, to ensure that good morals, ethics and
integrity permeate the organization.
The foundation of the internal control pro-
cess relating to the fi nancial reporting is built
up around the Group’s directives, policies and
instructions, and the responsibility and author-
ity structure that has been adapted to the
Group’s organization to create and maintain a
satisfactory control environment. The princi-
ples for internal controls and directives and
policies for the fi nancial reporting are con-
tained in Volvo Financial Policies & Procedures
(FPP), an internal book comprising all import-
ant instructions, rules and principles.
Risk assessment
Risks relating to the fi nancial reporting are
evaluated and monitored by the Board through
the Audit Committee inter alia through identi-
fying what types of risks that typically could be
considered as material and where they would
typically occur. The annual evaluation of inter-
nal control activities conducted by the Internal
Control and Internal Audit functions, are based
on a risk-based model. The evaluation of the
risk that errors will appear in the fi nancial
reporting is based on a number of criteria.
Complex accounting principles can, for ex-
ample, mean that the fi nancial reporting risks
being inaccurate for those posts that are
covered by such principles. Valuation of a par-
ticular asset or liability according to various
evaluation criteria can also constitute a risk.
The same is true for complex and/or changing
business circumstances.
Control activities
In addition to the Board of AB Volvo and its
Audit Committee, the Boards and manage-
ment groups of Group companies constitute
the overall supervisory body.
Several control activities are applied in the
ongoing business processes to ensure that
potential errors or deviations in the fi nancial
reporting are prevented, discovered and cor-
rected. Control activities range from review of
outcome results in management group meet-
ings to specifi c reconciliation of accounts and
analyses of the ongoing processes for fi nan-
cial reporting. CFOs in Group companies are
ultimately responsible for ensuring that control
activities in the fi nancial processes are appro-
priate and in accordance with the Group’s
policies and instructions. They are also respon-
sible for ensuring that authority structures are
designed so that one person can’t perform an
activity and then perform the control of the
same activity. Control activities within IT secur-
ity and maintenance are a key part of Volvo’s
internal control over fi nancial reporting.
Information and communication
Policies and instructions relating to the fi nan-
cial reporting are updated and communicated
on a regular basis from management to all
affected employees. In addition, there are a
number of committees and networks within
Volvo that serve as forums for information and
discussions regarding issues relating to the
fi nancial reporting and application of internal
rules. Included in these committees and net-
works are representatives from the business
areas and the Group’s staff units who are
responsible for fi nancial reporting. Work in
these committees and networks is aimed,
among other things, at ensuring a uniform
application of the Group’s policies, principles
and instructions for the fi nancial reporting and
to identify and communicate shortcomings
and areas of improvement in the processes for
fi nancial reporting.
Follow-up
Ongoing responsibility for follow-up rests with
the business area’s management groups and
accounting and controller functions. In add-
ition, the Internal Audit and the Internal Con-
trol functions conduct follow-up and supervi-
sion in accordance with what is adopted in the
introduction of this report. The outcome of
evaluation activities shall be reported to Group
management and to the Audit Committee.
Corporate Governance 2008
69