Signiﬁcant features of the internal control and risk management system with regard to the Group ﬁnancial reporting processs
- Conducted in accordance with standardized Group guidelines
- Segregation of duties, four-eyes principle, and clearly regulated access rights
- Annual evaluation of control environment and relevant processes at signiﬁcant companies
The Consolidated Financial Statements are prepared by a unit in the Finance division. BASF Group’s accounting process is based on a standardized 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, or the “four-eyes principle.” Complex actuarial reports and evaluations are produced by specialized service providers or specially qualiﬁed employees.
An internal control system for ﬁnancial reporting continuously monitors these principles. To this end, methods are provided to ensure that evaluation of the internal control system in financial reporting is structured and uniform across the BASF Group.
The signiﬁcant risks for the BASF Group regarding a reliable control environment for proper ﬁnancial reporting are reviewed and updated on an annual basis. Risks are compiled into a central risk catalog.
Moreover, a centralized selection process identiﬁes companies 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, one person is given the responsibility of monitoring the execution of the annual evaluation process.
In these companies, the process comprises the following steps:
– Evaluation of the control environment
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 and evidenced by sample taking.
– Identification and documentation of control activities
In order to mitigate the risks to the ﬁnancial reporting processes listed in our central risk catalog, critical processes and control activities are documented.
– Assessment of control activities
After documentation, a review is performed to verify whether the described controls are capable of adequately covering the risks. In the subsequent test phase, samples are taken to test whether, in practice, the controls were executed as described and 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 ﬁnancial reporting. Only after material control weaknesses have been resolved does the company’s managing director conﬁrm the effective internal control system.
– Internal conﬁrmation of the internal control system
All managing directors and chief ﬁnancial ofﬁcers of each consolidated Group company must conﬁrm to the Board of Executive Directors of BASF SE every half-year and at the end of the annual cycle, in writing, that the internal control system is effective with regard to accounting and reporting.