Hornbach-Baumarkt-AG Group

68 GROUP MANAGEMENT REPORT Risk Report
Major changes to financial reporting processes due to new
laws, legislative amendments or changes in internal processes
are discussed prior to implementation at international
finance conferences for all managers with significant involvement
in the group financial reporting process. Specialist
accounting or financial reporting issues and complex matters
either involving particular risks or requiring special expertise
are monitored and processed centrally. External experts, such
as chartered surveyors, are drawn on in particular to assess
the fair values of real estate in the context of impairment
tests or to measure pension provisions.
All significant processes relevant to financial reporting are
uniformly portrayed across the Group in a common IT system
for the overall Group. This complete integration of all major
finance systems within a uniform IT system ensures the integrity
of the data on which the separate and consolidated financial
statements are based. In conjunction with the accounting
handbook valid for the whole Group, the use of uniform account
codes across the Group and central management of the
account system ensure uniform accounting treatment of
transactions of the same nature.
This also serves as a basis for group consolidation in accordance
with the relevant requirements. Consolidation measures
and the necessary agreement activities are performed
centrally by a consolidation department. The checks to be
undertaken in the consolidation processes, such as the consolidation
of liabilities, expenses or revenues, are performed
both automatically by the system and manually.
The risk of any system breakdown or loss of data is minimized
by centrally managing and monitoring all significant IT systems
involved in the financial reporting process and regularly
performing system backups. As an integral component of the
internal control system, within the framework of its activities
the Group Internal Audit Department regularly audits the
effectiveness of the internal control system in respect of the
financial reporting process on the basis of trial samples
reviewed in line with a risk-oriented audit plan. Alongside
these internal audits, the external auditor also assesses the
effectiveness of internal checks of relevance to the financial
reporting process within the framework of its audit. Having
said this, even suitable, functional systems cannot provide
absolute certainty concerning the identification and management
of risks.
Financial risks
The Group’s financial risks comprise foreign currency, interest
rate, liquidity, and credit risks. Responsibility for managing
these risks lies with the treasury department.
Foreign currency risks
In general, HORNBACH is exposed to foreign currency risks on
account of its activities in countries with currencies other
than the euro. Specifically, these involve Swiss francs, Czech
crowns, Swedish crowns, and Romanian leis. Any depreciation
in a foreign currency against the euro can lead to a reduction
in consolidated earnings when translating the separate financial
statements of foreign subsidiaries into euros, the Group’s
currency. These risks are not hedged at the Group.
Furthermore, the increasingly international business activities
of the Group result in rising foreign currency requirements
both for handling international procurement and for financing
objects of investment in foreign currencies. Any change in the
exchange rate between the respective national currency and
the procurement currencies (chiefly EUR and USD) could have
a direct negative impact on earnings. Open foreign currency
positions in USD are largely secured by hedging transactions
(forward exchange contracts and USD fixed-term deposits).
Where possible, investments are financed in the functional
currency of the respective country company (natural hedging).
Open foreign currency positions arising at the Group in
EUR, which mainly relate to intragroup deliveries and services
invoiced in EUR and intragroup EUR loans, are not
hedged.
Interest rate risks
Fixed-rate agreements or interest rate exchange agreements
(interest swaps) have been concluded to secure the interest
rates on existing non-current liabilities. The interest swaps