Volvo 2015 Annual Report Download - page 188

The Board is responsible for the internal controls according to the Swedish
Companies Act and the Code. The purpose of this report is to provide
shareholders and other interested parties with an understanding of how
internal control is organized at Volvo with regard to financial reporting. The
description has been designed in accordance with the Swedish Annual
Accounts Act and is thus limited to internal control over financial reporting.
Introduction
Volvo has a function for internal control with the objective to provide sup-
port for management, allow ing them to continuously provide solid and
improved internal controls relating to financial reporting. Work that is con-
ducted through this function is primarily based to ensure compliance with
directives and policies, and to create effective conditions for specific con-
trol activities in key processes related to financial reporting. The Audit
Committee is continuously informed of the results of the work performed
by the Internal Control function within Volvo with regard to risks, control
activities and follow-up on the financial reporting.
Volvo also has a Corporate Audit function with the primary task of inde-
pendently monitoring that companies in the Group follow the principles
and rules that are stated in the Group’s directives, policies and instruc-
tions for financial reporting. The head of the Corporate Audit function
reports directly to the CEO, to the Group’s General Counsel and the
Board’s Audit Committee.
Control environment
Fundamental to Volvo’s control environment is the business culture that is
established within the Group and in which managers and employees oper-
ate. Volvo works actively on communications and training regarding the com-
pany’s basic values as described in The Volvo Way, an internal document
concerning Volvo’s business culture, and the Group’s Code of Conduct, to
ensure that good morals, ethics and integrity permeate the organization.
The foundation of the internal control process relating to the financial
reporting is based on the Group’s directives, policies and instructions,
aswell as the organization’s responsibility and authority structure. The
principles for internal controls and directives and policies for the financial
reporting are contained in the Volvo Group Management System, a group
wide management system comprising, among other things, instructions,
rules and principles.
Risk assessment
Risks relating to financial reporting are evaluated and monitored by the
Board through the Audit Committee inter alia through identifying risks
that could be considered as material, and through the mitigating control
objectives. The risk assessment is based on a number of criteria, such as
the complexity of the accounting principles, revaluation principles of
assets or liabilities, complex and/or changing business circumstances,
etc. The risks together with mitigating control objectives are collected in
a framework for internal control over financial reporting, Volvo Internal
Control Standard (VICS).
Control activities
In addition to the Board of AB Volvo and its Audit Committee, the
management groups and other decision-making bodies in the Group
constitute overall supervisory bodies. Business processes are designed
to ensure that potential errors or deviations in the financial reporting are
prevented, discovered and corrected by implementing control activities
that correspond to the control objectives defined in the VICS framework.
Control activities range from review of outcome results in management
group meetings to specific reconciliation of accounts and analyses of the
ongoing processes for financial reporting.
Information and communication
Policies and instructions relating to the financial reporting are updated
and communicated on a regular basis from management to all affected
employees. The Group’s financial reporting function has direct operating
responsibility for the daily financial reporting and works to ensure a uni-
form application of the Group’s policies, principles and instructions for the
financial reporting and to identify and communicate shortcomings and
areas of improvement in the processes for financial reporting.
Volvo Group Internal Control Programme
Yearly evaluation of the effectiveness of internal control over
financial reporting (ICFR) within the Volvo Group.
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Internal control over financial reporting
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CORPORATE GOVERNANCE CORPORATE GOVERNANCE REPORT 2015