Annual Report on Corporate Governance (February ... - FIAT Industrial

24
ANNUAL REPORT
ON CORPORATE
GOVERNANCE
SECTION III
SYSTEM OF RISK MANAGEMENT AND INTERNAL CONTROL OVER
THE FINANCIAL REPORTING
Fiat Industrial has put in place a system of risk management and internal control over financial reporting based on
the model provided in the COSO <strong>Report</strong>, according to which the internal control system is defined as a set of rules,
procedures and tools designed to provide reasonable assurance of the achievement of corporate objectives. In relation to
financial reporting, the reliability, accuracy, completeness and timeliness of the information itself contributes to ensuring
those corporate objectives are achieved. Risk management constitutes an integral part of the internal control system. The
periodic evaluation of the system of internal control over financial reporting is designed to ensure the overall effectiveness
of the components of the COSO Framework model (control environment, risk assessment, control activities, information
and communication, monitoring) in achieving those objectives.
Fiat Industrial – whose subsidiary CNH Global N.V. is listed on the NYSE and, consequently, is subject to Section 404 of
the United States Sarbanes-Oxley Act – has administrative and accounting procedures in place that ensure a high degree
of reliability in the system of internal control over financial reporting. That system functions at two levels.
The first consists of a set of rules, procedures and guidelines through which the Parent Company ensures an efficient flow
of information between itself and its subsidiaries and carries out the necessary activities of coordination. Substantially, they
are of two principal types: rules for application of the accounting standards (consisting essentially of the Group Accounting
Manual) and procedures for preparation of the annual consolidated financial statements and periodic financial reports
(e.g., operating manuals for the consolidation process and the chart of accounts, accounting procedures for intra-group
transactions, etc.). The Parent Company is responsible for communicating those rules and procedures to subsidiaries for
immediate application.
The second level consists of operating policies and procedures established at subsidiary level based on guidelines issued
by the Parent Company.
The approach adopted by Fiat Industrial for the evaluation, monitoring and continuous updating of the system of Internal
Control over Financial <strong>Report</strong>ing follows a ‘top-down, risk-based’ approach consistent with the COSO Framework. This
enables a focus on areas of higher risk and/or materiality, that is, where there is risk of significant errors, including those
attributable to fraud, in the component parts of the financial statements and related documents. The key components
of the process are:
– identification and evaluation of the source and probability of occurrence of significant errors in elements of financial
reporting;
– assessment of the adequacy of key controls in enabling ex ante or ex post identification of potential misstatements in
elements of financial reporting;
– verification of the operating effectiveness of controls based on assessment of the risk of misstatement in financial reporting,
with testing focused on areas of higher risk.
Identification and evaluation of areas where misstatement could have a material effect on financial reporting is carried
out through a risk assessment process that uses a top-down approach to identify the organizational entities, processes
and related accounting items, in addition to specific activities which could potentially generate significant errors. Under
the methodology adopted by Fiat Industrial, risks and related controls are associated with the accounting and business
processes upon which accounting information is based.