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Internal control and risk management systems

 

INTERNAL CONTROL FRAMEWORK

The Company’s internal control framework is within the remit of HKScan Corporation’s Board of Directors. Group management is responsible for maintaining and further developing effective internal control. Internal control aims to ensure compliance with laws and regulations as well as the Group’s values and internal policies and guidelines. The internal control system has the further objective of supporting activities in line with the Group’s strategy. The reliability of financial reporting and measures in the service of this goal are an integral component in the Company’s internal control framework.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The internal control framework contains elements originating in the COSO (The Committee of Sponsoring Organizations of the Treadway Commission) framework.

 

CONTROL ENVIRONMENT

The Group’s values and policies form the basis for the internal control environment at HKScan. Particular attention was paid in 2011 to developing internal auditing, and updating of the Group’s internal guidelines and policies was continued.

The Board of Directors and the Audit Committee in particular monitor the Company’s financial position and the quality of the financial reporting. The Board carries out its duty by means including adoption of the Group’s risk management policy and determination of the objectives and principles of internal control. The Group’s CEO and CFO are responsible for maintaining and further developing an effective control environment relating to financial reporting.

At HKScan, the internal audit is a management tool for the accomplishment of supervision In addition to this, the Company’s lawyer especially ensures that the operations are lawful. He reports directly to the CEO of the Company. At the end of 2010, an internal audit development project was started. In accordance with the decision of the Board of Directors, internal auditing was carried out in 2011 with an external partner using the so-called co-sourcing model. The aims of internal auditing are integrally linked with the Company’s management system built on a principle of ongoing improvement. The implementation of corrective and preventative measures is a key part of the function of the entire process.

 

RISK MANAGEMENT

The aim of risk management within the HKScan Group is to safeguard the conditions to achieve business objectives and enable uninterrupted business operations. The risks faced by the Group are by nature strategic (e.g. acquisitions), operative (e.g. animal diseases), financial (e.g. currency exchange rates and interest rates) and risks of damage (e.g. accidents and interruptions in production).

The Board of Directors and CEO have responsibility for the strategy and principles of risk management within the Group, and for managing risks that threaten achievement of the Group’s strategic intents. Operative risks are the responsibility of segment management and the managers of the respective business processes. The Group CFO is responsible for the management of financial risks and risks to persons and property.

The Company implemented a systematic ERM process which comprises consistent principles and systematic practices for risk management. The aim of the ERM process is to promote risk awareness in HKScan and effective risk management throughout the Group, and to ensure that management and the Board of Directors are in possession of sufficient information on risks to support their decision-making. The ERM process is an integral component of the management system and strategy process. The risk management policy is applied in all of the companies in the HKScan Group which carry out business operations.

Risk management is a key element in the Group’s financial reporting process. At the Group level, the Company strives to identify and assess, at least once a year, all significant risks inherent in material balance sheet and income statement items and to determine the key controls for risk prevention.

 

Further information about the Company’s risk management and most significant risks.

 

CONTROL MEASURES

Control measures are designed to ensure that
- the Company’s business is managed efficiently and profitably;
- the Company’s financial reporting is accurate, transparent and reliable; and
- the Company complies with laws and regulations and all internal principles.

Control measures can take the form of manual or automated system controls. Examples of controls to ensure the reliability of financial reporting include reconciliations, approvals, reviews, analyses and the elimination of high-risk combinations of duties.

The Group’s financial administration has determined, via risk assessment, the controls central to financial reporting. These cover the financial reporting process. The implementation and effectiveness of the controls is the responsibility of financial administration in the segments. The Group has in place a self-evaluation process which seeks to ensure the function and effectiveness of controls relating to financial reporting. The Group’s major subsidiaries provide the Group’s financial administration with an annual report on the effectiveness of key controls. In addition to ensuring control effectiveness, self-evaluation also seeks to locate possible gaps and areas for further development in the controls.

 

COMMUNICATION AND DISTRIBUTION OF INFORMATION

The guidelines and principles relating to financial reporting are handled by the Group’s financial administration in internal meetings, video conferences, discussions and by email. Issues relating to result and financial situation, new accounting procedures, changes in internal guidelines and processes, and other topical issues in financial administration are discussed.

The Group observes a silent period of approximately one month before the publication of interim reports and financial statements. In respect of external distribution of information, Group Communications maintains guidelines concerning the disclosure of financial information.

 

MONITORING

The Group’s earnings performance is monitored in meetings of the Board and the Group Management Team with the help of monthly reporting. The Audit Committee evaluates and the Board approves all interim reports and financial statements prior to their release to the market. In addition, the statutory auditors provide the Audit Committee with an annual report on their audit plans and a quarterly report on their audit observations and the functioning of internal control. The Audit Committee in turn conducts an annual evaluation of the performance and independence of the auditors.

In 2011, the internal control framework development work continued. It includes updating of internal guidelines, specification of the Group processes and preparation of charters for the various bodies. The outcomes of the work will be reported to the Audit Committee and the Management Team.