Significant features of the internal control and risk management system with regard to the Group financial reporting process
- Conducted in accordance with standardized Group guidelines
- Segregation of duties, four-eyes principle and clearly regulated access rights
- Annual evaluation of the control environment and relevant processes at significant companies and divisions
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 segregation of duties and the four-eyes principle. 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.
A centralized selection process identifies companies and units 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.
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 control activities
In order to mitigate the risks to the financial reporting process 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 and whether they were effective.
– 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.