Significant features of the internal control and risk management system with regard to the Group financial reporting process
Internal control and risk management system with regard to the Group financial reporting process
- Uniform, Group-wide guidelines set accounting policies, processes and dates
- Strict adherence to principles of segregation of duties and dual control and regulation of access rights
- Annual evaluation of control environment at significant companies and units using a standardized questionnaire and of relevant processes using a central risk catalog
The Consolidated Financial Statements are prepared by a unit in the corporate division Finance. BASF Group’s accounting process is based on a uniform accounting guideline that sets out accounting policies and the significant processes and deadlines on a Group-wide basis. There are binding directives for the internal reconciliations and other accounting operations. Standard software is used to carry out the accounting processes for the preparation of the individual financial statements as well as for the Consolidated Financial Statements. There are clear rules for the access rights of each participant in these processes.
Employees involved in the accounting and reporting process meet the qualitative requirements and participate in training on a regular basis. There is a clear assignment of responsibilities between the specialist units, companies and regional service units involved. We strictly adhere to the principles of segregation of duties and dual control. Complex actuarial reports and evaluations are produced by specialized service providers or specially qualified employees.
Our internal control system for financial reporting continuously monitors these principles. To this end, methods are provided for the structured and Group-wide uniform evaluation of the internal control system in financial reporting.
The significant risks for the BASF Group regarding a reliable control environment and proper financial reporting are reviewed and updated on an annual basis. Risks are compiled into a standardized questionnaire and presented in a central risk catalog.
In a centralized selection process, companies and units are identified that are exposed to particular risks, that have a material impact on the Consolidated Financial Statements of the BASF Group or that provide service processes. The selection process is conducted annually. In the relevant companies and units, one person is given the responsibility of monitoring the execution of the annual evaluation process.
Annual evaluation process
- Evaluation of control environment
- Identification and documentation of control activities
- Assessment of control activities
- Monitoring of control weaknesses
- Internal confirmation of internal control system
This process consists of the following steps:
- Evaluation of the control environment
The adherence to internal and external guidelines that are relevant for the maintenance of a reliable control environment is checked by means of a standardized questionnaire. This is supported by sample taking.
- Identification and documentation of the control activities
In order to mitigate the risks to the financial reporting processes listed in our central risk catalog, corresponding control activities are conducted and documented.
- Assessment of the control activities
After documentation, a test is performed to verify whether the described controls are capable of adequately mitigating the risks. In the subsequent test phase, samples are taken to test whether, in practice, the controls were executed as described.
- Monitoring of control weaknesses
The managers responsible receive reports on any control weaknesses identified and their resolution, and an interdisciplinary committee investigates their relevance for the BASF Group. The Board of Executive Directors and the Audit Committee are informed once control weaknesses have been identified that have a considerable impact on the financial reporting.
- Internal confirmation of the internal control system
The managing director and chief financial officer responsible for each consolidated Group company confirm to the Board of Executive Directors of BASF SE at the end of the annual cycle the effectiveness of the internal control system with regard to accounting as well as the accuracy and reliability of financial reporting.