Report on corporate governance and ownership 2011 - Indesit

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<strong>Report</strong> on corporate governance and ownership at 21 March 2012 on 2011 – Annex The perimeter of relevance was identified taking the following into account: • significant accounts, in terms of materiality 10 ; • processes that generate the significant accounts; • the relevance of the aforementioned processes, identified at the level of each legal entity 11 . Subsequently, an overall analysis of risks/controls at company/group level (“entity level controls”) was carried out and risks/controls at process level (“process level controls”) were identified. For the entity level risks/controls — in line with the reference model — an assessment (using specific checklists) was made of certain key components of the ICS coming under the following five main areas: • company control culture (sensibility on the part of top management in formalizing control roles and responsibilities and a system of internal communication ensuring overall coherence with business strategies and objectives); • risk assessment process (continual process of identification and analysis of endogenous and exogenous risks capable of compromising the achievement of business objectives); • controls structure (rigorous methodologies in the design and implementation of control activities to guarantee, for the top management, proper application of instructions given); • reliable information systems and communication flows (integrity and completeness of data and information); • monitoring (on a continual basis to ensure maintenance and improvement of the internal control system). The process level risks, on the other hand, were fed into a set of matrixes with processes/subprocesses/activities (Risk and Control Matrix or RCM) and assessed in terms of potential impact on the precision of financial statements data and the probability of occurrence assuming no controls (“inherent level” evaluation), to make a distinction between “primary” controls (indispensable for ensuring coverage of the main risks) and “secondary” controls. Where likely to impact significantly on financial reporting, the risks identified, including unintentional error 12 and fraud 13 , were subjected to gap analysis with respect to the relevant best practice. A remediation plan was then defined for corrective measures to remedy shortcomings and inadequacies in specific aspects of the existing control model. 10. The selection of significant accounts serves to obtain a minimum coverage of 90% of the four classes of item in the consolidated financial statements: Revenues, Costs, Assets, Liabilities; the remaining 10% was further analyzed to make sure it was made up of items which, if considered singly, would count for less than 1% of their respective classes and the processes associated with such items would already be included in those generating the 90% of balances selected. 11. The contribution (%) of each Material Control Unit (legal entity) to the significant accounts identified was analyzed with the objective of a minimum coverage of 75% of the single balances, as required by the PCAOB, Public Company Accounting Oversight Board. 12. Error: in the ICS, this means any unintentional act or failure to act resulting in a deceptive statement in reporting. 13. Fraud: in the ICS, this means any intentional act or failure to act resulting in a deceptive statement in reporting. 38
<strong>Report</strong> on corporate governance and ownership at 21 March 2012 on 2011 – Annex 2. Description of the main characteristics of the existing risk management and internal control system in relation to the financial reporting process a) Phases of the existing risk management and internal control system in relation to the financial reporting process To ensure the long-term robustness of the financial reporting risk control system, the Group has put together various continual monitoring instruments and activities to guarantee that the administrative and accounting procedures serving the preparation of financial statements are always in place, adequate and effectively applied. Such instruments and activities, in support of the DP and the certification he or she must issue pursuant to the Investor Protection law 14 , may be summarized as follows: I. the RCMs and relative management activities, in turn organized in four distinct phases (scoping, risks and controls analysis, testing and reporting, remediation); II. updates of the Manual; III. the sub-certification system; IV. analysis and strengthening of administrative/accounting procedures or procedures relating to business processes with potential and significant impact on financial reporting. Responsibility for carrying out the aforementioned activities and co-ordinating the various subjects involved lies with a function within the Group Accounting Department (GAP) whose task is to monitor the Group’s administration processes, including those relevant for the purposes of the Investor Protection law. I. Risk and Control Matrix RCM management activities are carried out in four main phases. 1) Scoping The Group carries out an annual updating of the analysis perimeter of the administrative/accounting controls system to ensure it covers the financial reporting risks relative to the more significant account items in the consolidation perimeter. This involves measuring the impact of each legal entity in the Group on the consolidated financial statements and also takes into account the relevance that the significant accounts and relative administrative/accounting process have on the statements (quantitative analysis). These results are supplemented, if necessary, after a qualitative analysis, which may focus on specific financial statement items, Group structure, significant changes in business conditions, substantial shortcomings in terms of controls over financial reporting processes, etc. In 2011, following the annual scoping activity, the RCM relevance perimeter was extended to the newly formed legal entity in Ukraine. 14. See, in particular, section 15, Part 2 of the <strong>Report</strong>. 39
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