proper accounting in terms of compliance of the consolidated financial statements and
management report with all relevant laws, regulations and standards.
Systems working together
The control system of the Balda Group is linked to the risk management system. The two systems complement each another. On the one hand deficiencies in the control system can be revealed by identifying new risks. Additional controls can eliminate these shortcomings. On the other hand the monitoring of the control system can result in certain risks needing to be managed more effectively.
Balda has established a standard process for monitoring the effectiveness of the control system across the Group. It defines necessary controls, sets uniform standards for this in the documentation and ensures regular testing.
Balda AG’s Board of Directors is responsible for setting up and effectively maintaining appropriate controls via financial reporting. The Supervisory Board assesses at the close of every financial year the appropriateness and effectiveness of the control system. As of 31 December 2010 the Supervisory Board of Balda AG has
conclusively assessed and established the effectiveness of the internal controls via financial reporting. Every control system is subject though to limitations with regard to its effectiveness. No control system is able to exclude or reveal every incorrect piece of information.
Structures, processes and control
The Group Finance division of Balda AG, together with the Accounting and Controlling departments, manages the Group’s accounting processes. Standard guidelines apply across the Group for accounting, bookkeeping and controlling and are laid out in the Group's Accounting Manual. The chart of accounts also acts as a basis. The Group Accounting division constantly analyses new laws, the applicable accounting standards in accordance with IFRS and other statements with regard to their relevance for and impact on the consolidated financial statements and the management report. Relevant requirements are entered into the guidelines for Group accounting. These regulations are communicated in a timely manner to the Group’s segments. They form in conjunction with the Balda AG financial statements calendar which is applicable throughout the Group the basis for the process of preparing the annual financial statements.
In addition, at Balda complementary procedural requirements, standardised reporting formats, an identical IT system throughout the Group and IT-supported reporting and consolidation processes support standard and proper accounting in the Group. Accounting data that is received or forwarded is routinely checked for completeness and accuracy, e.g. with spot checks.
The reporting in the Group is based on a standard ERP system throughout the Group. The financial information reported by Balda AG and its segments form the data basis for preparing the consolidated financial statements. It is based on the postings recorded in the Group companies. The segments supply Balda AG’s Group
controlling department with fixed reports on a monthly basis. The reports are based on a standard chart of accounts. The reports contain pre-programmed plausibility checks. Beyond that, suitable processes ensure the Group-wide and consistent implementation of reporting requirements.
Besides enquires with the persons responsible for accounting and bookkeeping in the operational units, in particular plausibility checks and analyses in the form of period and time series comparisons as well as analyses of individual items in the income statement are used. The holding company’s controlling department discusses differences with the responsible departments located in the segments. Local accounts departments are responsible for the proper bookkeeping and accounting of the operational companies. The causes of any validation message or warning are to be corrected by the supplying segments before final approval of the financial statement information.
The Group Controlling department aggregates the figures by segment and prepares them for the key decision maker, the Board of Directors. In particular, these comprise the key performance indicators of sales volume, EBIT and EBT, investments, segment assets (quarterly) and the number of employees. Aggregated Group reporting is also conducted on a quarterly basis with the income statement, balance sheet, investments and cash flow. The Board of Directors reports to the Supervisory Board on a monthly basis.
The employees who are involved in the accounting process of the Balda Group are suitable in terms of professional expertise and undergo training on a regular basis. The Group companies in the segments are
responsible for compliance with the guidelines and procedures that are applicable across the entire Group and for the proper and timely processing of their accounting processes and systems. The local companies are supported throughout the accounting process by central contact persons in the holding company.
Internal controls that have been determined in terms of risk considerations are built into the accounting process of the Balda Group. Balda’s control system includes preventive and detection control elements. They comprise a systematic separation of functions and IT-based and manual coordination. Furthermore, Balda’s ICS works in accordance with the four-eyes principle and with general IT controls. The finance systems that are deployed are protected against unauthorised access. An internal access authorisation system and constant monitoring of this system ensure that no unauthorised access can be made.
The departments involved in the accounting process are suitably equipped in terms of both quantity and quality. In the event of any shortages, qualified external consultants are used. The four-eyes principle is applied in all accounting processes.
The involvement of the Supervisory Board
In particular the Supervisory Board’s elected representative for accounting, Dino Kitzinger, is involved in the control system. First of all he monitors the accounting process, the effectiveness of the control system and the internal audit system as well as the audit of financial statements. He is also responsible for the preliminary examination of documents for Balda AG’s annual financial statements and for the consolidated financial statements. He and the rest of the Supervisory Board also discuss the annual financial statements of Balda AG, the consolidated financial statements and the consolidated management report for these financial statements with the Board of Directors and the auditor.
Internal auditing system
As a further element of the control system, the Balda Group’s legally required audit is responsible for
compliance of the guidelines, the independent examination of the effectiveness and the quality assurance of the control system. It is closely involved throughout all levels of the procedure. The planning and checking
performed by Audit includes the consideration of risks in the consolidated financial statements and in the accounting process. The Audit department possesses extensive information, examination and access rights in order to perform its duties. It carries out at least one audit every year of all of the operating companies. The audit is based on the American Sarbanes-Oxley Act. Inasmuch as local needs require, external consultants support Balda’s Audit department.
Accounting-related internal control system of Balda AG
Balda AG is involved as the parent company of the Balda Group in the Group-wide accounting-related internal control system described above. The information provided above also applies to the individual financial statements of Balda AG prepared in accordance with the German Commercial Code (HGB). However, these are extended for financial statement purposes of Balda AG in the sense that the information contained herein, such as policies, procedures and measures to ensure the regularity of the statutory accounts are specially adapted to local requirements. To this end, Balda AG regularly analyzes laws, standards and other pronouncements with regard to their impact on the statutory accounts. The employees of the accounting system will be trained at regular intervals.
For Balda AG, the conceptual framework described above is supplemented by a mandatory HGB directive applicable to financial statements and a HGB chart of accounts.
There have been no significant changes to the control system between the 2010 balance sheet date and the time when the management report was prepared.