10 months ago

Annual report and accounts 2016

196 Spanish corporate

196 Spanish corporate governance report continued Minor breaches of the Codes of Conduct are investigated by line managers, and disciplinary action is in accordance with the employment policies and standards applicable to the individual. Major breaches are investigated by the responsible business area within each operating company. Under the IAG ICFR policy the IAG Chief Executive delegates responsibility for ICFR to the IAG Chief Financial Officer with a requirement that the chief financial officers of material subsidiaries fully support the IAG Chief Financial Officer. Chief financial officers are expected to delegate responsibility for ICFR for defined processes to named senior managers within their own organisations. The Group Accounting Manual provides guidance on financial reporting. The Company established a Spanish Criminal Code Framework Steering Group in 2015 to ensure each significant Spanish legal entity has in place an effective Criminal Risk Prevention Model, in response to the reform of the Organic Law 10/1995. Several key activities were completed as part of the implementation of the Criminal Risk Prevention Model including the identification and risk assessment of activities, processes, sub-processes and controls, gap analysis and the creation or adjustment of manuals, procedures and controls. The Iberia, Iberia Express and Vueling Criminal Risk Prevention Models were approved by their respective boards in 2016, and each entity has in place a Compliance Committee responsible for the implementation, oversight, monitoring and verification of the six elements of the Criminal Risk Prevention Model. There are whistle-blowing channels provided by Safecall and Ethicspoint available throughout the Group, where concerns can be raised on a confidential basis. The IAG Audit and Compliance Committee reviews the effectiveness of whistle-blowing channels on an annual basis. This annual review considers the volume of reports by category; timeliness of follow-up; responsibility for follow-up; and, any issues raised of significance to the financial statements. The annual review is coordinated by the Head of Group Audit. All IAG staff have an individual development plan which identifies their technical and/or professional skills training requirements. Achievement of this training plan is monitored twice a year. Basic finance training is delivered through eLearning modules or classroom based, depending on the Operating Company. Specific training on airline finance basics and interpreting the Company accounts is available. IAG and British Airways offer study leave, financial support and appropriate work experience to staff studying for accounting qualifications, including the Institute of Chartered Accountants, in England and Wales, the Chartered Institute of Management Accountants, and the Association of Chartered Certified Accountants. Company finance staff received an average of two days training in 2016. Members of the IAG Internal Audit team have received on average one day of ICFR training. F.2 Risk assessment in financial reporting Report at least: F.2.1 The main characteristics of the risk identification process, including risks of error or fraud, stating whether: • The process exists and is documented. • The process covers all financial reporting objectives (existence and occurrence; completeness; valuation; presentation, disclosure and comparability; and rights and obligations), is updated and with what frequency. • A specific process is in place to define the scope of consolidation, with reference to the possible existence of complex corporate structures, special purpose vehicles, holding companies. • The process addresses other types of risk (operational, technological, financial, legal, tax, reputational, environmental, etc.) insofar as they may affect the financial statements. • Which of the company’s governing bodies is responsible for overseeing the process. The Group’s Enterprise Risk Management (ERM) process assesses and identifies key risks and controls. The key risks are categorised into strategic, business and operational, financial, compliance and regulatory, and tax. Therefore, part of the ERM process is the identification of financial risks. In compiling these risks and mitigating actions, a close relationship is established between the ERM team and the finance functions. This involves the finance function feeding into the ERM process, and reviewing the output of the process to ensure that the impact of emerging risks is properly captured within the Financial Statements. The process for addressing all risks covered by the ERM system is explained in detail in section E. The process addresses other types of risk that may affect the reporting information. INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

197 The financial risk assessment is the responsibility of the IAG Finance Committee and is updated and documented annually. The assessment provides management with a mechanism for the identification of risks and associated controls relevant to the preparation of the financial report. The risk assessment has two main elements, both of which are reviewed annually by the IAG Finance Committee: a. A high level assessment of key risks to the financial statements focusing on judgemental areas and those susceptible to error; and b. Identification of the key underlying business processes through a quantitative and qualitative risk assessment of the financial statements of material subsidiaries. The results of this process are set out in section E.3 and include all financial reporting objectives. The Internal Control team, which reports to IAG Group Head of Financial Integration, reviews financial process and control documentation across the Group, and supports process owners to ensure they have designed effective controls. The risk assessment process identifies the key underlying business processes, and covers financial reporting objectives. The risk assessment process is updated and documented on an annual basis. The Group Instructions include an Anti-Fraud Policy which is cascaded to the operating companies. Fraud risk at the Company level is most significant in individual projects, generally acquisitions and disposals. This fraud risk is managed through the individual projects which are staffed with senior professionals from appropriate departments, including finance, and third party advisors from leading law firms. As the Company, is a holding company with no commercial transactions outside individual projects, the risk of a significant fraud in the day to day transactions of the Company is reduced. A consolidation system is used at the Company and changes are determined based on developments in the corporate structure during the year. The Company, Aer Lingus, Avios, British Airways, Iberia and Vueling maintain consolidation hierarchies in their respective consolidation systems. These hierarchies are subject to access and change controls to ensure their continued integrity. Transactions or Group developments that require new Group companies to be formed or acquired are considered at the IAG Finance Committee, so that the hierarchies can be updated. The scope of the consolidation is addressed in two ways. Firstly the establishment of any Special Purpose Vehicles (SPVs) will be approved by the IAG Audit and Compliance Committee. This committee will confirm the requirement for the SPV, its governance and how it will be accounted for. Secondly, the determination of which entities will be consolidated is considered at the Company, Aer Lingus, British Airways, Iberia group levels. The consolidation hierarchy is reviewed when changes in ownership structure arise, and new entities are incorporated/acquired. Any changes to the consolidation scope are presented and discussed at the Finance Committee and Audit and Compliance Committee meetings. The Board of Directors has ultimate responsibility for risk management and internal control, including determination of the nature and extent of the principal risks it is willing to take to achieve its strategic objectives. Strategic Report Corporate Governance Financial Statements Additional Information F.3 Control activities Indicate the existence of at least the following components, and specify their main characteristics: F.3.1 Procedures for reviewing and authorising the financial information and description of ICFR to be disclosed to the markets, stating who is responsible in each case and documentation and flow charts of activities and controls (including those addressing the risk of fraud) for each type of transaction that may materially affect the financial statements, including procedures for the closing of accounts and for the separate review of critical judgements, estimates, evaluations and projections. The IAG Management Committee reviews the financial performance of the Group on a monthly basis. This review examines the previous month’s performance, the forecast for the following quarter and the forecast for the full year against the finance plan and the prior year. Movements in key performance indicators such as unit revenue and unit cost statistics are analysed together with the impact of foreign exchange and fuel commodity costs. The analysis is carried out on the Group’s main operating companies, Aer Lingus, Avios, British Airways, Iberia, and Vueling. Consistency of these management accounts with the published quarterly Group accounts leads to a high degree of confidence in the integrity of the published accounts. The quarterly consolidation process is managed to a pre-agreed timetable and includes reviews and sign offs at key stages in the process. Within each operating company, the finance and accounting departments consolidate, review and approve the financial information. The consolidated financial information is reviewed by the Chief Financial Officer of each operating company, prior to submission to IAG. These reviews will ensure that all material business risks have been properly recorded in the financial statements, confirm the accounting treatment of judgemental areas and ensure the proper application of new accounting standards and guidance notes.

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