Overall Statement on the Risk Position of the Group
Evaluation of the risk position by management
The major risk for the future development of the global economy is constituted by a potential escalation of the debt crisis in the eurozone. Based on the premise that this crisis of confidence and sovereign debt can be overcome, we view the financial year 2012 with cautious optimism. At the same time, the planning security achievable, also in respect of short- and medium-term developments, has not reattained the pre-crisis level. We nonetheless consider ourselves well equipped in the current situation to master the considerably greater challenges placed on opportunity and risk management during this phase. Our business policy, which takes due account of risks and is geared towards sustainability, and our sound strategic alignment form the basis for this assessment.
The independent auditor has examined the early warning system installed at Salzgitter AG in accordance with the German Stock Corporation Act (AktG). This audit verified that the early warning system fulfils its functions and fully satisfies all requirements under company law.
As an independent authority, Salzgitter AG’s Internal Audit Department examines the systems used throughout the Group in terms of their adequacy, security and efficiency and provides impetus for their further development when and as required.
Our own rating assessment, which was performed taking account of the customary quantitative requirements, has delivered results that are virtually identical to the ratings ascertained internally by our banks. We can therefore assume that an external valuation, that also takes account of the significant level of pension obligations, would continue to place us firmly in the investment-grade category.
Description of the main features of the accounting-related internal control system and the risk management system with respect to the (Group) accounting process (Sections 289 para. 5 and 315 para. 2 item 5 of the German Commercial Code [HGB])
The accounting-related internal control system is operated in cooperation with the controlling, legal, internal audit, accounting and treasury departments where the functions are clearly segregated and to which clearly delineated areas of responsibility have been assigned.
The aim is to use control mechanisms implemented to sufficiently ensure that, despite potential risks, the consolidated financial statements are drawn up in accordance with rules and regulations.
To ensure the effectiveness, efficiency and regularity of accounting and compliance with pertinent statutory provisions the control system encompasses all the necessary principles, procedures and measures.
The Executive Board is responsible for the implementation of and compliance with statutory provisions. It reports to the Audit Committee (Supervisory Board) regularly on the financial position of Salzgitter AG. The Audit Committee is also tasked with monitoring the effectiveness of the internal control system. An agreement has been made with the external auditor that the Chairman of the Supervisory Board will be informed without delay about all material findings and events connected with the auditing of the annual financial statements which are relevant to the tasks of the Supervisory Board.
The Salzgitter Group is decentralized, which means that responsibility for compliance with legal standards rests with the executive bodies of the various companies. Supervision is carried out by the holding departments.
Group Audit examines the operations and transactions relevant to the accounting of Salzgitter AG and its subsidiaries and holdings independently and on behalf of the Executive Board in observance of regulatory requirements. The planning and carrying out of the audit by Internal Audit takes account of the risks in the (consolidated) financial statements and the accounting process. These tasks are carried out by members of staff specially qualified in accounting. The basis of activities is the annual audit plan that is determined in accordance with statutory requirements. Group Audit informs the Executive Board of Salzgitter AG and the Group’s external auditor of the outcome of audits by way of audit reports. Group Audit follows up on the implementation of measures and recommendations agreed in the audit reports.
Salzgitter AG’s Group Accounting Department draws up the consolidated annual financial statements. Independent auditors issue an audit opinion on the financial statements of the companies included. To ensure that statutory requirements are complied with, Group guidelines are formulated on an annual basis and disseminated to the companies. These guidelines form the basis of a uniform, due and proper ongoing accounting process, both with respect to accounting as defined under the German Commercial Code (HGB), as well under the International Financial Reporting Standards (IFRS). Along with general accounting principles and methods, rules and regulations on the balance sheet, income statement, notes to the financial statements, management report, cash flow statement and segment report are first and foremost defined, taking into account the legal position prevailing within the European Union. Accounting regulations also lay down specific formal requirements relating to the consolidated financial statements. In addition to determining the group of consolidated companies, the components of the reporting packages which Group companies must prepare is similarly defined in detail. A standardized and comprehensive set of forms is used for this purpose. The Group guidelines also include explicit instructions for the presentation and processing of offsetting procedures within the Group, with the respective process for reconciling balances and the calculation of the fair value of holdings. The heads of accounting in the companies are informed about changes under the law at annual events organized by the Group.
The financial statements of the consolidated companies are recorded with the aid of a uniform IT-based workflow used throughout the Group. This workflow comprises a permissions concept, along with checking routines and check digits. These control and surveillance mechanisms have been devised for process integration as well for functioning independently of processes. A major part of this is, for instance, made up of manual process controls in application, among other things, of the principle of dual control, alongside automated IT-based processes controls. Moreover, the Group has an integrated accounting and consolidation system.
At Group level, the individual control activities ensuring the regularity and reliability of Group accounting include the analysis and, if appropriate, the correction of the individual financial statements submitted by the Group companies, including the reports submitted by the auditors and the respective discussions on the financial statements. Control mechanisms and plausibility controls already built into the consolidation software allow financial statements forms containing errors to be corrected before the consolidation process takes place.
The application of uniform, standardized measurement criteria to impairment tests is ensured by way of centralized processing for the – from the Group’s perspective – individual cash generating units.
The valuation of pensions and other reserves, among other items, is also subject to uniform regulations by centrally determining the parameters applicable throughout the Group.