Financial reporting
A review of the businesses in the Group is included in the Chief Executive’s Review. The Board uses this, together with the Chairman’s Statement and the Directors’ report on pages 46 to 47 to present a balanced and understandable assessment of the Company’s position and prospects. The directors’ responsibilities for the financial statements are described on page 48 of the Report and Financial Statements.
Internal control
The Board has established a process for identifying, evaluating and managing significant risks faced by the Group. The board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with revised guidance on internal control published in October 2005 (the Turnbull Guidance). The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. The control and risk management procedures are designed to highlight any weaknesses and/or failures in the systems to the Board at the earliest opportunity together with action taken and/or proposed. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.
Information on the Group’s significant risks, together with the relevant control and monitoring procedures, is reviewed on a monthly basis by the heads of the business units under the guidance of a nominated Executive Director. This information is presented to the Executive Directors to assess any identified risks and the overall effectiveness of the system of internal control. An update on all significant risk management issues is made to the Board at each quarterly meeting. Additionally, companies annually complete a review of specified risk areas and their local risk management processes under the supervision of the trading division finance directors, the Group Internal Auditor and the Company Secretary. The Company also has a sub-committee of the Audit Committee, the Risk Management Committee, that specifically monitors and investigates potential areas of risk raised by the trading companies and by the Group centralised administrative management in areas such as Property, Human Resources and IT.
Given the nature of the Group’s activities, the Board recognises the risks associated with its ability to attract, motivate and retain talented employees. Accordingly, a significant part of the Group’s risk management procedures are focused in this area and the Group continues to utilise employee benefits schemes shown on 40 and 41 to meet this requirement.
The Group has a number of companies including overseas businesses in Germany, the USA and the Middle East. Control of the overseas businesses is currently affected by designated senior executives reporting directly to the Board.
The Board recognises the need to ensure that established risk management procedures and standards are integrated into all acquired businesses and accordingly potential areas of non-compliance are identified during the due diligence process and addressed post-completion.
The internal audit function reports directly to the Audit Committee. A review of this function has been conducted and reported to the Board within the annual review of the system of internal controls. Recommended changes to the scope and application of internal audit procedures have been adopted and the internal audit programme for the year has been presented to and approved by the Audit Committee.
The Group has a clear, written whistleblowing policy and procedure available to all staff regarding concerns of employees about ethical behaviour and non-compliance with regulatory requirements and/or the law.
The Group has material investments in a small number of associated companies that are not managed by the Group. Accordingly, the Group can only influence, not control, their management practices and therefore the review of internal controls for these operations is less comprehensive than that for the Group’s managed operations.
