Registration Document 2005 - Total.com

5
Corporate Governance
Report of the Chairman of the Board of Directors
(Article L. 225-37 of the French Commercial Code)
Internal control procedures
The internal control guidelines adopted by TOTAL consist of
the framework developed by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Within this
framework, internal control is a process intended to provide
reasonable assurance that the following goals will be achieved: the
effectiveness and efficiency of the operations, the reliability of the
financial information, and compliance with the laws and regulations
in force. Like any internal control system, it cannot, however,
provide an absolute guarantee that every risk is completely
eliminated.
Therefore, the Group’s internal control system complies with the
framework of operations recommended by the COSO: organization
and principles of control, the risk evaluation process, control
activities properly speaking, documentation and disclosure of
control rules, and supervision of the control system.
Organization and principles of control
The Group’s control system is built around a three-level operational
structure: Group, business segments and profit centers. Each level
is directly involved in the design and implementation of the control
based on the level of centralization desired by Management.
At each of the three levels, internal control is structured into specific
organizational procedures, a delegation of responsibilities, and
employee training that reflects the general framework of the Group.
The organization of the internal control is based first on key
factors that are deeply rooted in its culture, including integrity,
ethics and the competence of the employees. The Group’s upper
management is informed on a regular basis of the content and the
importance of the conduct rules, which are formalized in a code
of conduct available on the Group’s website. Each profit center
or subsidiary operating and financial officer makes an annual
commitment to comply with the internal control rules and the fair
presentation of his financial information through a “representation
letter” sent to the Group’s Chief Financial Officer.
These control principles have been reaffirmed and formalized more
completely to reflect the corporate governance approach described
above.
Risk evaluation process
The identification and analysis of the risks that could impact the
achievement of the Group’s objectives is the responsibility of the
Executive Committee, which is assisted in this work by the Risk,
Management Control and Internal Audit Committee.
The principal risks monitored at Group-level are as follows:
sensitivity to oil environment parameters (price of oil, refining and
marketing margins and petrochemical margins), the risks related
110 TOTAL - Registration Document 2005
to the oil and gas markets in the trading business, the risks in the
financial markets (foreign exchange risk, particularly the U.S. dollar
risk, and the interest rate risk given the heavy capital component
of the Group’s businesses), legal and political risks generated
by the operational context and the contractual dimension of the
exploration and production operations, industrial and environmental
risks arising from the nature of the Group’s businesses in general.
A formal report on the principal risks and the management of those
risks is provided in the section Risk factors in this Registration
Document.
Control activities
The control activities, particularly the financial reporting systems, are
designed to take into account the specific nature of these risks and
the level of delegation granted to the business sectors and profit
centers.
The Group’s Management exercises control on the operational
level through the Group Executive Committee, which approves
investments and expenditures based on thresholds it has defined.
On the functional level, control is primarily based on a strategic
plan revised annually, an annual budget, a monthly financial report
that analyzes variances from the budget in detail, and the quarterly
account consolidations that are reconciled with the report. These
processes are supervised by the Budget-Management Control
Department and the Accounting Department, and are conducted
in compliance with standardized financial reporting methods, which
are harmonized and adapted to the accounting standards of the
published financial statements. The choice of the financial indicators
and accounting methods was dictated by the primary objective,
which was to reflect the reality of the risks and measure the return
on average capital employed (ROACE).
The Group Department of Accounting monitors changes in
accounting regulations on an ongoing basis, particularly changes in
international accounting standards. As a result, in 2004, the Group
revised its accounts to meet IFRS and adapted its control system
to the resulting changes.
The consolidated financial statements for 2005 have been prepared
in accordance with accounting and valuation principles of the
International Financial Reporting Standards (IFRS) as adopted by
the European Union. In order to facilitate a comparison with the
consolidated statements for 2004, the 2004 statements have been
restated in accordance with the same principles.
The Financing-Treasury Department monitors and manages the
risks generated by cash activities and rate and currency financial
instruments in accordance with the strict rules defined by the
Group’s Management. Cash and cash equivalents, the positions
and management of financial instruments are systematically
centralized by the Financing-Treasury Department.