ProSiebenSat.1 Group’s overall risk situation remains limited. We have an effective risk management system that integrates all relevant corporate units.
Risk Management System and Process Control
Risk is defined in this report as a potential future development or event that could significantly influence our business situation and result in a negative deviation from targets or forecasts. The risk indicators that we have already taken into account in our financial planning or in the Consolidated Financial Statements as of December 31, 2017, therefore do not come under this definition and are consequently not explained in this Risk Report.
ProSiebenSat.1 Group has an effective risk management system, which covers all activities, products, processes, departments, investments and subsidiaries that could have a lasting impact on our Company’s business performance. We are consistently updating the system so that it is always geared to the specific circumstances. This includes the prompt integration of new corporate units into the risk management process. The traditional risk management process comprises four interlinked steps:
1. Identification: The basis is to identify material risks by means of a target/actual comparison. The decentralized risk managers are responsible for this. For this purpose, they use early warning indicators defined for relevant circumstances and key figures. A key early warning indicator for the TV business, for instance, is the development of audience shares. Intragroup Management System
2. Assessment: The relevant risks are assessed on the basis of a matrix (Fig. 103). Firstly, the circumstances are categorized on a five-level percentage scale in terms of the probability of their occurrence. Secondly, their level of potential financial impact is estimated; the financial equivalents are likewise broken down into five levels. Using the matrix presentation, potential risks are classified as “high,” “medium,” or “low” depending on their relative significance. As well as classification, risk assessment also includes analyzing causes and interactions. Measures to counteract or minimize risks are included in the assessment (net assessment). In order to obtain the most precise view of the risk situation possible, however, opportunities are not taken into account. These are recorded by ProSiebenSat.1 in its budget planning.
3. Management: Using appropriate measures, ProSiebenSat.1 can reduce the probability of occurrence of potential losses and limit or reduce possible damage. In order to handle risks safely, it is therefore very important to take adequate countermeasures as soon as an indicator reaches a certain tolerance limit.
4. Monitoring: Risk monitoring and risk reporting round off the risk management process. The aim is to monitor changes and review the effectiveness of the management measures taken. Monitoring also includes documentation, which ensures that all hierarchy levels relevant to decision-making have adequate information on risks.
103 / Risk Management Process
The fundamental requirements for handling risks safely throughout the Group include clear decision-making structures, standardized guidelines, and a methodical approach by the responsible bodies. At the same time, processes and organizational structures must be flexible enough to allow ProSiebenSat.1 to respond appropriately to new situations at all times. For this reason, the regular classification of risks takes place on a decentralized basis and thus directly in the different corporate units (Fig. 104):
- Decentralized risk managers: The risk managers identify the risks from their respective area of responsibility according to the standard Group system described. They document their results in an IT database every quarter.
- Group Risk Officer: The Group Risk Officer reports the risks identified in the database to the Executive Board and Supervisory Board on a quarterly basis. In addition, relevant risks arising at short notice are reported immediately. In this way, the Executive Board and Supervisory Board receive all analyses and data relevant for decision making regularly and at an early stage so that they can respond appropriately.
- The Risk Office supports the various corporate units in identifying risk at an early stage. It ensures the efficacy and timeliness of the system by training the decentralized risk managers and continuously monitoring the scope of risk consolidation. Moreover, the Internal Audit unit regularly reviews the quality and compliance of the risk management system. It reports the results directly to the Group CFO.
104 / Risk Management System
1For further information, please refer to the chapter “Sustainability”.
In 2017, the audit of the risk management system generated a positive result again. The system itself did not change in the past financial year. The basis for the audit is the risk management handbook. It summarizes company-specific principles and is based on the internationally recognized frameworks for enterprise risk management and internal control systems of COSO (Committee of Sponsoring Organizations of the Treadway Commission).
Development of Risk Clusters
Risk Categories and Overall Risk Situation
The assessment of the overall risk situation is the result of an aggregate analysis of the Group’s main risk categories: “operating risks,” “finance risks,” “compliance risks,” and “other risks.” Due to their thematic diversity, ProSiebenSat.1 also subdivides operating risks into the following risk clusters: External risks, sales risks, content risks, technological risks, personnel risks, and investment risks. These are not necessarily the only risks that the Group faces. However, we are not currently aware of any additional risks that could impact our business activities, or we do not consider them relevant in the context of this report.
The risk clusters in turn comprise various different risks. To assess the overall risk situation, ProSiebenSat.1 therefore initially classifies all individual risks as part of the quarterly assessment process, aggregates them and assigns them to clusters. When assessing the overall risk situation, ProSiebenSat.1 weights the clusters according to their significance for the Group. We monitor all relevant risks as part of the risk management process; (Fig. 105) however, this Risk Report focuses on risks classified as having medium or high significance overall.
The Annual Report 2016 is published at www.prosiebensat1.com/en/, which comprises the Risk Report.
105 / Overview of the Relevant Risks
Our overall risk situation has increased slightly compared to the previous year, as the risk clusters sales, content and compliance risks have increased slightly compared to December 31, 2016. In contrast, external risks have decreased slightly; all other risk clusters – unless explicitly mentioned – are unchanged (Fig. 106). Our overall risk situation therefore remains limited.
ProSiebenSat.1 Media SE has implemented a comprehensive risk management system to systematically capture, evaluate, report and manage risks. Risks reported as part of this system are summarized into categories and clusters as below. While detailed descriptions and action plans to manage these risks exist, for the purpose of this report focus is laid on all risks which are rated overall as medium or high. Consequently, detailed descriptions of only such risks are included in this Risk Report. If any risks which are currently rated as low change to either medium or high in the future, such risks will then be described in detail as necessary. Conversely, if risks which are currently rated as medium or high diminish to a “low risk”, such risks will not be described in detail in this report except for the change itself.
106 / Risk Matrix
1For further information please refer to the Notes, Note 29 “Contingent liabilities,” page 225. 2 12 and 13 are not represented in the matrix because they cannot be evaluated.
Further information can be found in the Annual Report 2016 under Risk Report.
Operating Risks
External Risks
ProSiebenSat.1 is pursuing a digital growth strategy, thus diversifying its revenue and risk profile in all segments. The aim of this strategy is to increase independence from the economically sensitive core business of television while taking the growth opportunities provided by changing media use. External risks have slightly decreased over the course of the year on the basis of positive economic data.
General economic risks. The German economic upturn accelerated palpably over the course of 2017. In addition, indicators of business (ifo) and consumer (GfK) sentiment were at high levels at the end of the year. As a result, the leading economic research institutes revised their economic forecasts upwards significantly: For 2017, they anticipate real growth of a good 2% on average and expect the robust upward trend to continue in 2018. In this environment, ProSiebenSat.1 Group considers macroeconomic risks to be stable. We now classify high negative effects as unlikely. The risks have therefore slightly decreased year-on-year. However, we consider this category to be a medium risk due to its potentially high impact. By their nature, economic forecasts entail some uncertainties; this particularly applies to their potential implications for the advertising market. Future Business and Industry Environment
General sector risks (incl. media usage behavior). The digital transformation, and particularly the growing use of the Internet, is influencing media usage behavior. However, digitalization does not mean that television is becoming less relevant as the number one medium. Instead, people are increasingly consuming conventional media content in digital form. For example, TV content is now also watched on mobile devices such as tablets. Opportunity Report, Development of Media Consumption and Advertising Impact
In this country, new forms of use such as catch-up television have a comparatively small share. In 2016, television reached an average of 11 million viewers in Germany; the comparative figure for the usage of online videos is 1.2 million viewers per minute. 96% of TV consumption by viewers aged 14 to 49 in Germany still relates to live usage at the time of the broadcast. At the same time, the monthly net reach of television is recording a nearly stable development at a high level. This applies to all viewer groups, particularly including the younger target group of 14- to 29-year-olds.
These market data indicate that the digital transformation is taking place more slowly in Germany than in the US, for example, and is following its own patterns. Television will continue to dominate media usage in the German market in the future. Although TV usage on non-mobile devices is likely to decline slightly, it will remain in first place. At the same time, the usage of web-based free TV offers will increase. This means that more and more viewers will watch linear TV programming on PCs, laptops, or mobile devices. This form of usage is becoming increasingly popular among younger viewers in particular; it currently accounts for approximately 15% of the total TV usage of 14- to 29-year-olds.
In this context, ProSiebenSat.1 is very well positioned to use the digital trend as a growth opportunity. Television is the most important entertainment medium in Germany, and we have based our strategy on this. By inference, we still consider risks from a change in media use to be unlikely to materialize. In the event of a fundamental change, however, we cannot completely rule out a very high financial impact. We therefore continue to rate this as a medium risk overall.
Sales Risks
The development of the German TV advertising market is our most important planning assumption. In addition to general economic growth, we include sector-specific data such as the development of the reach and the market shares of our TV stations among viewers in our economic considerations. Sales risks in the TV business slightly increased in 2017. Due to the growing significance of digital media, online marketing risks are a relevant category in addition to the risks from the sale of TV advertising time. Company Outlook
Audience shares/TV ratings/TV reach. Audience shares are the key figure for evaluating our stations’ acceptance among the TV-viewing public: The market share indicates the reach of a program element as a percentage of the total TV reach at a particular point in time. In turn, a show’s market share determines the reach of the commercials during the show, which is a significant success factor for TV ad sales. The development of stations’ and their programs’ market shares over time is therefore a key indicator for early risk detection. Development of the Audience Share
ProSiebenSat.1 compiles daily, detailed analyses of the market share and the reach of all shows on the basis of data from Arbeitsgemeinschaft Fernsehforschung (AGF, Working Group of Television Research). On the basis of these extensive data, all current programs are analyzed on a permanent basis and are quickly adjusted if required. Concepts for the development of new shows and potential new station concepts are also reviewed and discussed using these data. In addition to these quantitative analyses, qualitative studies are also an important control instrument, as they give stations direct feedback from their audience. Nevertheless, individual mistakes cannot be ruled out.
The production and acquisition of appropriate programs for our TV stations is a process that depends to a significant degree on the subjective opinion of our viewers. In addition, the competition has kept getting more intense. This is due as ever to the establishment of new stations, but also to individual established stations’ market share gains and the financial strength of the public broadcasters. Against this backdrop, the risk of year-on-year declines in audience shares has increased slightly, but we continue to rate this category as a medium risk. This means that, under certain circumstances, we still consider the implications of a decline in audience shares to be high and its occurrence to be possible.
ProSiebenSat.1 is actively involved in shaping the fragmentation of the market and has launched various new stations, including successful brands such as sixx. In Germany in 2017, the Group achieved an audience market share of 4.3% in the target group of 14- to 49-year-olds with the stations sixx, ProSieben MAXX, SAT.1 Gold and kabel eins Doku. Across all of the Group’s stations, the market share was 27.0%. By comparison, the RTL Group stations marketed by IP achieved 25.4%. ProSiebenSat.1 therefore remains in the lead in the target group of 14- to 49-year-olds relevant for advertising.
Ad sales. In the vast majority of cases, ProSiebenSat.1 does not conclude advertising contracts for TV advertisement, online and Digital Out of Home directly with the advertising companies. Instead, media agencies function as intermediaries, which become direct contract partners for our sales company SevenOne Media GmbH. The market for TV advertising time is characterized by concentrated structures both on the demand and supply side. On the demand side, there are essentially seven large associations of media agencies, which usually consist in turn of many smaller agencies. These are faced on the supply side primarily by the two private broadcasting groups, ProSiebenSat.1 and RTL, and the public television stations. Because of this and the high attractiveness of television and its significance as the number one medium in the media mix, the business relationship formally concentrated on a few agencies does not give rise to any notable financial risk. Similarly, ProSiebenSat.1 has not identified any material default or liquidity risks because of the association structure described above and the short billing cycles of at most one month.
The competition on the German advertising market has become more intensive, so ad sales risks also increased over the course of the year. On the basis of the market development, we now classify the probability of occurrence of ad sales risks for ProSiebenSat.1 as possible. We consider the risk impact to be very high and the risk in general to be high. We therefore regularly analyze the competitive environment and our advertising revenues and advertising market shares. The aim is to identify budget deviations early on by comparing projections and actual figures with the corresponding prior-year values, so that countermeasures such as cost adjustments or changes in program planning and price policy can be implemented quickly.
Convergence. No other consumer electronics have spread as rapidly in recent years as mobile devices. The availability of tablets in German households has nearly doubled since 2014. 85% of people aged between 14 and 69 have their own smartphone. The growing popularity of mobile devices is changing media usage behavior, as the once strong ties between content and end devices are coming undone and the lines between different media are blurring: The same content is now used via various applications on different devices. For example, TV and radio are also being consumed via apps or media libraries, and newspapers are often read online. This development is being driven by broadband Internet connections with fast data transfer rates.
Usage patterns such as parallel consumption of TV and Internet are also commonplace. This means that entertainment devices such as smartphones and tablets are used in addition to TV sets instead of replacing television. They serve as “second screens” and perform additional functions such as online searches and communication via social media channels. For example, 36% of 14- to 69-year-olds frequently use the Internet while watching television. However, research findings are not only showing that these new forms of video usage are supplementing television. Corresponding studies have also revealed that the multimedia approach increases advertising impact. This results in great benefits for sales: Firstly, online campaigns reach new target groups, and secondly, online contacts reinforce the effectiveness of TV advertising.
Nonetheless, the high market penetration of convergent devices entails risks for ProSiebenSat.1: Convergence could also lead to a significant future reduction in TV usage. This could in turn have a negative impact on advertising customers’ willingness to invest and thus negatively affect prices for TV advertising. Although we are not currently seeing substitution, we believe it is possible that this risk may materialize. We therefore cannot rule out high impact on our revenue or earnings performance and we continue to classify potential losses from media convergence as a medium risk. For this reason, we will continue to invest in both TV and digital entertainment and use our potential by networking our TV stations with digital offers to an even greater extent. In this context, we updated our Group strategy in 2017 and will merge the Broadcasting German-speaking and Digital Entertainment segments from 2018. Strategy and Management System
Online ads (incl. Adblocker): In connection with the sale of online advertising, adblockers represent a sales risk. These programs, which are offered as browser plug-ins and now also as apps for mobile devices, prevent advertising from being displayed. In order to limit this risk, ProSiebenSat.1 Group has introduced technical means that can effectively prevent the adblockers from functioning. We are also taking legal action and have filed an application for an injunction against the most widespread adblocker in Germany (AdBlock Plus). However, further spreading of adblockers is still possible and this could have a high impact on the success of online advertising business. Overall, we rate this as a medium risk for the Group.
Targeted advertising online, on mobile apps and in HbbTV is based on tracking technology and a legal situation that could be prejudiced by a future European Union ePrivacy Regulation. The ePrivacy Regulation is currently being hotly debated, so no reliable forecast can be made about the content of the regulation or when it will come into force. However, ProSiebenSat.1 has taken early measures to minimize the risk. In particular, we are working on a cross-industry Log-in Alliance in order already to create the infrastructure for potentially expanded permissions management in accordance with a future ePrivacy Regulation for targeted advertising. Opportunity Report, Market Environment of the TV Business
Content Risks
ProSiebenSat.1 Group focuses on an individual and generally balanced mix of licensed programs as well as commissioned and in-house productions. The Group uses exclusive agreements in the form of contractual blocking periods (hold-back clauses) to protect its rights against other licensees and program licensing forms. In order to stay informed about trends and new productions at an early stage, our purchasing department is also in constant dialog with national and international licensors. Nonetheless, the competition for attractive content could intensify further as a result of growing competition from international market participants and new digital offers. In addition, individual purchases are becoming a more frequent necessity, especially for small TV stations, as their programming is very specifically targeted.
Risk regarding licensed content/negotiating position with studios and independents (incl. quality of the content). For us, the US is the most important market for licensed programs worldwide. This is why ProSiebenSat.1 has signed long-term agreements with film studios and production companies with an appropriate reputation and successful track record. However, successful formats from the US do not necessarily receive the same positive response among German viewers. Viewer interests and media usage behavior can also develop in various ways in different countries. ProSiebenSat.1 Group counters the unforeseen loss of value of licensed programs with program write-offs. Moreover, market conditions in the US can change, for example if studios merge. We follow a standard procedure to take this uncertainty into account when purchasing licenses. We have thus increased the probability of occurrence and now consider this risk to be possible (previously: very unlikely). In this event, a medium impact on the Group’s earnings performance would be conceivable. This is why we rate the risk arising from licensed content/negotiating position with studios and independents as a medium risk overall (previously: low risk).
Finance Risks
The Group is exposed to various finance risks in its operating and financing activities. These include financing risk, counterparty risk, interest rate risk, currency risk and liquidity risk; with the exception of counterparty risk, we classify finance risks as having low significance. We counter these risks with extensive measures and use derivatives for hedging purposes. Borrowings and Financing Structure
The assessment and management of finance risks is coordinated centrally. To this end, the Group Finance & Treasury department analyzes the development in the markets, derives potential opportunities and losses for ProSiebenSat.1 on this basis, and regularly assesses the risk situation. The measures required are defined in close cooperation with the Group’s Executive Board. The Finance & Treasury unit is audited annually by Internal Audit as part of risk management. The last audit again generated a positive result and confirmed the efficacy of the system again. Principles, tasks, and responsibilities are defined on a Groupwide basis and regulated via binding guidelines for all subsidiaries of ProSiebenSat.1 Group.
Counterparty risk. The Group concludes finance and treasury transactions exclusively with business partners which meet high credit rating requirements. The counterparties’ profiles are monitored systematically and continuously in this context. As well as using credit checks, ProSiebenSat.1 limits the probability of occurrence of default risks through a broad diversification of its counterparties. The conditions for concluding finance and treasury transactions are regulated in standardized Group guidelines. Lenders’ defaults could have a very high impact on our earnings performance and financial position; we continue to rate the probability of occurrence of counterparty risks as unlikely and the risk as medium overall.
Interest rate swaps and foreign currency forward transactions are recognized in hedge accounting as cash flow hedges. More information can be found in the Notes, Note 31 “Further notes on financial risk management and financial instruments in accordance with IFRS 7,” page 227. ProSiebenSat.1 Group does not deploy derivative financial instruments for trading purposes, but only to hedge existing risk positions. Financing Analysis
For more information on the hedging instruments, measurements and sensitivity analyses together with a detailed description of the risk management system for financial instruments, please refer to the Notes to the Consolidated Financial Statements: Risks from ineffectiveness, in connection with falling interest rates, are described in Note 31 “Further notes on financial risk management and financial instruments in accordance with IFRS 7,” page 227.
Compliance Risks
General compliance (incl. statutory reporting obligations, antitrust, litigation). The objective of compliance is to ensure legally sound management at all times and in all respects. Possible violations of legal statutory regulations and reporting obligations, infringements against the German Corporate Governance Code or insufficient transparency in corporate management can jeopardize conformity to the rules. It is for this reason that ProSiebenSat.1 Group has established a Code of Conduct across the whole Group as well as various guidelines to provide employees with specific rules of conduct for various professional situations. In addition, the employees are systematically given training on issues such as anti-corruption, antitrust law, media law, anti-discrimination, IT security and data protection. In order to reduce the risk of violations of the law, ProSiebenSat.1 Group has created a compliance management system (CMS) for the areas of anti-corruption, antitrust law, media law and data protection. The main objective of the CMS is to ensure that all employees always think and act with integrity and in accordance with the law and thus to prevent law- and rule-breaking from the start. Corporate Governance Report, Sustainability
In addition to the ongoing legal proceedings, we already have the EU General Data Protection Regulation, which will come into force in May 2018, in our regular risk assessments. It will tighten up the requirements for the processing of personal data and the framework of sanctions in the event of violations. In the future, fines for any data protection infringements will be based on consolidated revenues. Against this backdrop, we believe it is unlikely that compliance risks will occur, but because of the significantly enlarged framework of sanctions cannot completely rule out a high negative impact on the Group’s earnings performance. Accordingly, we classify the Group’s risk from general compliance as increased. We therefore now rate this risk category as a medium risk (previously: low risk).
Media law/broadcasting licenses (regulatory risks). Changes to the regulatory or legal environment could have an impact on individual business activities. This is especially true for stricter provisions on distribution, advertising, broadcasting licenses or lotteries. At the same time, global platform providers that are taking up monopolistic market positions by virtue of their financial strength and are not bound by the strict German or European regulations are becoming increasingly influential. A current example is the ongoing EU legislative process for the EU Satellite and Cable Online Regulation (“SatCab Regulation”). This EU Regulation, which is likely to come into force during 2018, could restrict ProSiebenSat.1 Group’s autonomy to distribute or exploit its content. In contrast, OTT providers and Internet platforms would benefit from the regulation, because we as a broadcasting company would have to pass along our content at fixed conditions. www.prosiebensat1.com/en/sustainability/publications/media-regulations-4-0
ProSiebenSat.1 Group actively monitors all relevant developments and is in constant contact with the regulators concerned, to ensure that its interests are taken into account as far as possible. Nonetheless, we classify regulatory risks as increased and consider their occurrence to be possible. We cannot completely rule out a medium negative impact on our earnings performance, and particularly on earnings in the Broadcasting German-speaking segment. We therefore rate this issue as a medium risk overall (previously: low risk).
Further information on the tax risks and the remaining Compliance risks can be found in the Notes. Notes, Note 29 – 30 “Contingent liabilities,” “Other financial obligations,” page 225–226
Other Risks
Security risks. Security risks have not changed: We consider their occurrence to be possible and rate their potential impact on the Group’s revenue and earnings performance as medium. Targeted attacks show that politically, economically or ideologically motivated groups represent a growing challenge for our society. The growing number and quality of risk factors require fast and effective emergency plans and clear responsibilities. To this end, ProSiebenSat.1 has defined instructions and established a crisis organization.
At the same time, data protection and securing corporate assets in the form of information are becoming increasingly relevant. ProSiebenSat.1 has also reacted to this by implementing an information security management system (ISMS). At the same time, employees’ awareness is raised and they are given training on security issues. In addition to these risk factors, unforeseeable events such as natural disasters or attacks could have an adverse impact on ProSiebenSat.1’s work processes and thus also on its earnings. We take account of these risks by means of construction-related and technical safeguards, among other measures; we secure productions and events with specialist staff. In view of the preventive measures taken, we classify the security risks as medium overall.
107 / Disclosures on the Internal Control and Risk Management System in Relation to the (Consolidated) Reporting Process (section 289 (5) and section 315 (2) no. 5 of the German Commercial Code) with explanatory notes
The internal control and risk management system in relation to the (consolidated) reporting process is intended to ensure that transactions are appropriately reflected in the Consolidated Financial Statements of ProSiebenSat.1 Media SE (prepared in line with the from the EU adopted International Financial Reporting Standards, IFRS) and that assets and liabilities are recognized, measured and presented appropriately. This presupposes Group compliance with legal and company regulations. The scope and focus of the implemented systems were defined by the Executive Board to meet the specific needs of ProSiebenSat.1 Group. They are regularly reviewed and updated as necessary. Nevertheless, even appropriate and properly functioning systems cannot offer any absolute assurance that all risks will be identified and controlled. The company-specific principles and procedures to ensure that the Group’s single-entity and consolidated reporting is effective and correct are described below.
GOALS OF THE RISK MANAGEMENT SYSTEM IN REGARD TO FINANCIAL REPORTING PROCESSES
The Executive Board of ProSiebenSat.1 Media SE views the internal control system with regard to the financial reporting process as an important component of the Group-wide risk management system. Controls are implemented in order to provide an adequate assurance that in spite of the identified risks inherent in recognition, measurement and presentation, the single-entity and Consolidated Financial Statements will be in full compliance with regulations. The principal goals of a risk management system in regard to single-entity and consolidated reporting processes:
- To identify risks that might jeopardize the goal of providing single-entity and Consolidated Financial Statements and a single-entity and Group Management Report that comply with regulations.
- To limit risks that are already known by identifying and implementing appropriate countermeasures.
- To analyze known risks as to their potential influence on the single-entity and Consolidated Financial Statements, and to take these risks duly into account.
In addition, our process descriptions and our risk control matrices are subject to an annual review. This ensures that the descriptions are up-to-date and thus also brings about the establishment of consistently effective control mechanisms. These updates combined with regular tests on the basis of samples were part of the PRIME project. Since then, they have been an integrated part of the internal control and risk management system in relation to the (consolidated) reporting process. On the basis of the test results there is an assessment of whether the controls are appropriate and effective. Any identified deficiencies in the controls are eliminated, taking into account their potential impact.
STRUCTURAL ORGANIZATION
- The material single-entity financial statements that are incorporated into the Consolidated Financial Statements are prepared using standardized software.
- The single-entity financial statements are then consolidated to form the Consolidated Financial Statements using stable market-based standardized software.
- The financial statements of the main individual entities are prepared in compliance with both local financial reporting standards and the Group’s accounting and reporting manual based on IFRS, which is available via the Group intranet to all employees involved in the reporting process. The individual companies included in the Consolidated Financial Statements provide their financial statements to Group Accounting in a defined format.
- The financial systems employed are protected with appropriate access authorizations and controls (authorization concepts).
- The entire Group has a standardized plan of accounting items, which must be followed in recording the various relevant transactions.
- Certain matters relevant to reporting (e.g. expert opinions with regard to pension provisions) are determined with the assistance of external experts.
- The principal functions of the reporting process — accounting and taxes, controlling, and finance and treasury — are clearly separated. Areas of responsibility are assigned without ambiguity.
- The departments and other units involved in the reporting process are provided with adequate resources in terms of both quantity and quality. Regular professional training sessions are held to ensure that financial statements are prepared at a consistent and reliable level of quality.
- An appropriate system of guidelines (e.g. accounting and reporting manual, intercompany transfer pricing guideline, purchasing guideline, travel expense guideline, etc.) has been set up and is updated as necessary.
The efficiency of the internal control system in regard to processes relevant to financial reporting is reviewed on a sample basis by the Internal Audit unit, which is independent of the process.
PROCESS ORGANIZATION
- For the planning, monitoring, and optimization of the process of compiling the Consolidated Financial Statements, the Company uses tools that include a detailed calendar and all important activities, milestones, and responsibilities. All activities and milestones are assigned specific deadlines. Compliance with reporting duties and deadlines is monitored centrally by Group Accounting.
- In all accounting-related processes, controls are implemented such as the separation of functions, the dual-control principle, approval and release procedures, and plausibility testing.
- Tasks for the preparation of the Consolidated Financial Statements are clearly assigned (e.g. reconciliation of intragroup balances, capital consolidation, monitoring of reporting deadlines and reporting quality with regard to the data of consolidated companies, etc.). Group Accounting is the central point of contact for specific technical questions and complex accounting issues.
- All material information included in the Consolidated Financial Statements is subjected to extensive systematic validation to ensure the data is complete and reliable.
- Risks that relate to the (consolidated) accounting process are recorded and monitored continuously as part of the risk management process described in the Risk Report.
