Definition anD elements
The internal control system in the Dräger Group ensu- res the correctness, reliability and efficiency of the finan- cial reporting system and that business transactions are recorded completely and promptly and in compliance with International Financial Reporting Standards (IFRS). It com prises controls as well as a monitoring system. The Group Controlling and Group Accounting functions of Drägerwerk AG & Co. KGaA are responsible for the inter- nal control system.
Our internal control system provides for both process-inte- grated and process-independent measures. Process-inte- grated measures include automated and manual process controls (such as a system of checks and balances). In addition, bodies like the Compliance Committee and spe- cific Group functions like the central tax and Group legal departments ensure process-integrated monitoring. The Supervisory Board of Drägerwerk AG & Co. KGaA, par- ticularly its Audit Committee, and Internal Audit are also part of the internal monitoring system. Internal Audit regularly audits our international Group companies. Process-independent audit activities are conducted by the auditor of the Group financial statements. This auditor also audits the major financial statements of our subsidi- aries consolidated in the Group’s results.
The internal control system in the Dräger Group is supple- mented by a risk management system. It comprises oper- ational risk management and a systematic early-warning
68 The INTerNal cONTrOl aND rISk MaNageMeNT SySTeM OF The Dräger grOup | geNeral ecONOMIc cONDITIONS
system for detecting business risks. In relation to the financial reporting process, the risk management system is also aimed at preventing the use of incorrect informa- tion in the Group’s accounts and external reports.
use of it systems
At Dräger, the consolidated subsidiaries (see pages 218 et seq. in the notes) prepare individual financial state- ments which contain information relevant to their account- ing system. Consolidated subsidiaries mainly use SAP and Microsoft standard software. This ensures that each month, the single entity financial statements and addi- tional, standardized reporting information are consolidated in SAP EC-CS system. For financial reporting, data from SAP EC-CS is consolidated in the SAP Business Warehouse. To do this, we use a Group-wide, standardized chart of accounts, which also stipulates which reconciliation meth- ods are to be used for the financial statements. Local accounting methods are adjusted to comply with IFRS either in the local accounting systems or by reporting on a Group level. Once the entry has been translated into the Group currency euro, all internal business transac- tions are consolidated.
Dräger assesses the IT environment, identifies potential risks and reports them at least twice a year to the Executive Board within the scope of the risk management system. In addition, the auditors of the Group financial statements carry out an audit of the IT control system, change man- agement, IT operations, access to programs and data, and system development once a year.
essential regulatory measures anD controls
One of the activities in our internal control system is to check whether amounts reported in the balance sheet, in- come statement and the statement of comprehensive income are recognized in the correct period and fully attrib- uted, and whether the record contains reliable and trace- able information regarding the business transaction. To do this, we clearly allocate responsibilities and control mechanisms, provide transparent accounting and reporting guidelines, and use highly reliable IT accounting sys- tems in the Group companies. The monthly Group finan- cial statements are checked by Controlling and recon- ciled with the plans and the latest forecast.
The Dräger accounting policies are applied throughout the Group to ensure that all German and foreign subsidiar-
Development of Dräger value aDDeD (Dva)
Medical division Safety division Dräger Group
2012 2011 2012 2011 2012 2011
DVA € million 135.2 144.0 78.9 57.5 149.7 134.6
EBIT € million 185.1 191.8 97.1 76.1 229.6 213.8
Cost of capital € million 49.9 47.9 18.2 18.6 80.0 79.1
WACC 1 % 9.0 9.0 9.0 9.0 9.0 9.0
Capital employed 2 € million 554.2 532.0 202.4 206.8 888.5 879.4
Net current assets 2 € million 289.0 264.2 128.6 130.3 380.3 363.4
Other capital employed 2 € million 265.2 267.8 73.9 76.5 508.3 516.0 1 Wacc = Weighted average cost of capital
ies consolidated in the Group financial statements use the same standard. These apply to general accounting poli- cies, balance sheet, income statement, consolidated state- ment of comprehensive income and notes. The accounting policies are regularly updated to comply with current EU legislation.
Regular alignment meetings and institutionalized report- ing requirements within the Finance function guarantee that Group-wide restructurings or changes are recorded promptly in the Group financial statements. When a new company has been acquired or founded, Dräger trains the new employees in the Accounting department on the preparation of the financial statements according to IFRS, which is the authoritative reporting standard in the Dräger Group, including the reporting system and report- ing dates. Every year we train the managers of the Account- ing departments of all subsidiaries on the reporting pro- cesses as well as amendments of the Dräger accounting policies and all relevant IFRS and therefore ensure the quality of our financial reporting.
In our accounting systems we have separated administra- tive, executive and authorization functions by issuing different access profiles. This allows us to reduce the poten- tial for fraudulent acts against the Company by employees. Group accounting determines the scope of consolidation and the reporting packages prepared by Group compa- nies. Prior to the preparation of the financial statements, the Group companies and local auditing firms, which examine and comment on compliance with Dräger account- ing policies, are provided with additional information, schedules and deadlines. This ensures that the Group finan- cial statements can be prepared in good time and in ac- cordance with all applicable reporting standards and laws. Our subsidiaries enter their local financial statements into the SAP EC-CS consolidation system, where validation rules guarantee a high degree of data quality. Subsid-
iaries send other reporting packages in electronic form to Group Accounting in Lübeck, where the data is reviewed on the basis of internal check lists and passed on to the au- ditor of the Group financial statements for final approval.