SCH2017_DRF_EN_Livre.indb

1 Overview of the Group’s strategy, markets and businesses Internal control and risk management

International Internal Auditing Standards The Internal Audit Department is committed to complying with the international standards published by the Institute of Internal Auditors (IIA) and other bodies.

than EUR250 million; decisions relating to strategic partnerships and major changes of course in the strategy, and decisions relating to the issuance of off-balance sheet commitments that exceed the limits prescribed by the board. Statutory and management reporting principles An integrated reporting and consolidation system applicable to all Group companies and their management units has been in place since January 1, 2006. Statutory and management reporting principles and support tools are available on the Group employee portal. The subsidiaries record their transactions in accordance with Group standards. Data are then adjusted, where necessary, to produce the local statutory and tax accounts. The reporting system includes consistency controls, a comparison of the opening and closing balance sheets and items required to analyze management results. Key Internal Controls A list of Key Internal Controls was drawn up in 2008 and is reviewed annually. They cover: E the Control Environment (including the Responsibility and Ethics program, chart of authority, segregation of duties, business continuity plan, retention of records and business agents); E operating processes (Procurement, Sales, Logistics, etc.); E accounting and financial related cycles; E Human Resources and Information Systems cycles. The Key Internal Controls are available to all units in the Group employee portal and shared depository, along with appendices with more detailed information, links to policy descriptions, an explanation of the risks covered by each Key Internal Control and a self-assessment guide. For each cycle, the Key Internal Controls cover compliance, reliability, risk prevention and management and process performance. The operating units fill out self-assessment questionnaires concerning the Key Internal Controls using a digitized tool. For new acquisitions, the entities may continue with their existing controls in transition before deploying the Key Internal Controls.

International Financial Reporting Standards (IFRS)

The consolidated financial statements for all fiscal years commencing on and after January 1, 2005 have been prepared in accordance with International Financial Reporting Standards (IFRS), in compliance with European Union regulation no.1606/2002. The Group applies IFRS standards as adopted by the European Union as of December 31, 2017. The Group’s accounting principles reflect the underlying assumptions and qualitative characteristics identified in the IFRS accounting framework: accrual accounting, business continuity, true and fair view, rule of substance over form, neutrality, completeness, comparability, relevance and intelligibility. The Group statutory and management accounting standards manual explains how IFRS principles are applied within the Group, taking into account the specific characteristics of the Group’s activities. The application of Group accounting principles and methods is mandatory for all Group units, for management reporting and statutory consolidation. The Group statutory and management accounting standards manual and the IFRS principles are available via the employee portal. Approval limits Under current management practice, the Group has set approval limits for Senior Management for certain decisions. Local management will define the local approval matrix for relevant decisions within the approval limits set by the Group. Within this framework, business segment executives, functional, operational and local management is therefore able to approve certain decisions depending on the nature and threshold. In addition, all transactions which by their size or nature could affect the Group’s fundamental interests, must be authorized in advance by the board of directors, i.e., decisions relating to the acquisition or disposal of holdings or assets for amounts greater

Risk identification and management

8.4

General risks at the Group level The Internal Audit Department conducts interviews to update the list of general risks at the Group level each year. In 2017, around 100 of the Group’s top managers were interviewed, in addition to external views such as financial analysts and board members. Since 2016 individualized risk matrices by Operation or by Business have been created.

The risks identified through these interviews are ranked by a risk score (comprising impact and likelihood of occurrence) and level of mitigation. Risk factors related to the company’s business, as well as procedures for managing and reducing those risks, are described in “Risk Factors” These procedures are an integral part of the internal control system.

2017 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC

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