Electrolux 2006 Annual Report Download - page 126

Description of internal control of fi nancial reporting
The Electrolux process for internal control and risk management
related to fi nancial reporting is designed to provide reasonable
assurance regarding the reliability of fi nancial reporting and the
preparation of fi nancial statements for external purposes in accor-
dance with applicable laws and regulations, generally accepted
accounting principles, and other requirements for listed compa-
nies. The process is based on the control environment and com-
prises four main activities: Risk assessment, control activities,
information and communication, and monitoring, as defi n ed in the
framework for internal control issued by the Committee of Spon-
soring Organizations of the Treadway Commission (COSO).
Control environment
The Board has the overall responsibility for establishing an effective
system of internal control and risk management. The Board has
determined its working procedures, which include the allocation of
tasks to Board members. The Board has established an Audit
Committee, which assists the Board in overseeing relevant manu-
als, policies and important accounting principles applied by the
Group in fi nancial reporting, as well as major changes in these
principles.
Responsibility for maintaining an effective control environment
and operating the system for risk management and internal control
of fi nancial reporting is delegated to the President and CEO. Man-
agement at various levels has operational responsibility within their
respective areas.
The Group’s operations are organized in fi ve business sectors
and four Group staff units. Group Management includes the Pres-
ident and CEO, the fi ve sector heads and the four Group staff
heads. The sector heads have responsibility for results and balance
sheets in their respective sectors. The overall management of the
sectors is the responsibility of sector boards. A number of internal
boards and councils have been established within the Group for
specifi c areas such as risk management, treasury, audit, IT, taxes,
brands, products, purchasing and human resources.
The Group’s Disclosure Committee contributes to considering
the materiality of information relating to Electrolux and ensuring that
such information is properly communicated to the market on a
timely basis.
The Group has established six group processes within strategi-
cally important areas such as purchasing, people, brand, product
development, demand fl ow, and business support in order to
ensure, among other things, a systematic approach to improving
internal control. The Electrolux People Process provides support
to managers within the Group in the form of tools and checklists
to ensure effi cient recruitment processes and continuous develop-
ment of employees.
The limits of responsibilities and authorities are given in instruc-
tions for delegation of authority, manuals, policies and procedures,
and codes, including the Electrolux Code of Ethics, the Electrolux
Workplace Code of Conduct, and the Electrolux Policy on Counter-
ing Bribery and Corruption, as well as in policies for information,
fi n a nce and credit, and in the accounting manual. In addition,
minimum requirements have been set for internal control of fi nan-
cial reporting on the basis of the Group’s internal processes.
Together with laws and external regulations, these internal guide-
lines form the control environment, which is the foundation of the
internal control and risk management process. All employees,
including process, risk, and control owners, are accountable for
compliance with these guidelines.
Risk assessment
Risk assessment includes identifying, measuring and sourcing
risks. The major risks affecting internal control of fi nancial reporting
are defi ned at four levels: Group, business sector, unit, and pro-
cess. Assessment of risk includes risks related to irregularities and
undue favorable treatment of a third party at the Group’s expense,
as well as the risk of loss or misappropriation of assets. Assess-
ment of risk generates control objectives that fulfi ll the fundamen-
tal criteria for fi n ancial reporting.
Control activities
Control activities include both general and detailed controls aimed
at preventing, detecting and correcting errors and irregularities.
These activities include manual controls, application controls built
into IT systems, and controls in the underlying IT environment,
known as IT General Controls.
Control activities that fulfi ll the control objectives identifi ed in risk
assessment are implemented and documented at four levels:
Group, business sector, unit, and process. Documentation com-
prises both fl owcharts and detailed descriptions of the control
activities. The documented activities are quality-assured by the
responsible employees in terms of completeness and accuracy,
according to Group-wide procedures, at Group, business sector,
unit, and process levels.
Information and communication
Guidelines for fi nancial reporting are communicated to employees,
e.g., by ensuring that all manuals, policies and codes are published
and accessible through the Group-wide Intranet. Information is
provided periodically to relevant parties regarding monitoring of the
effectiveness of internal control of fi nancial reporting.
The Group maintains a representation process in which Group
Management signs an annual representation letter stating its opin-
ion regarding internal control of fi nancial reporting as well as dis-
closure controls and procedures, and compliance with other inter-
nal guidelines.
corporate governance
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