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Internal control reports
The Board of Directors is responsible for internal controls at Axis under the provisions of the Swedish Companies Act and the Swedish Code of Corporate Governance. The Board’s internal control report has not been reviewed by the company’s auditor.
The Board’s internal control report
The Board of Directors is responsible for internal controls at Axis under the provisions of the Swedish Companies Act and the Swedish Code of Corporate Governance. This report is drawn up in accordance with sections 3.7.2 and 3.7.3 of the Swedish Code for Corporate Governance, and has, therefore, been limited to covering only internal controls of financial reporting. This report is not a part of the legal financial statements and has not been reviewed by the company’s auditor. The company’s processes and systems for ensuring effective internal controls have been designed with the intention of managing and limiting the risks of material errors in the reporting of financial data, and, consequently, lead to both operational and strategic decisions being based on accurate financial information.
Axis’ process for the internal control of financial reporting is structured in accordance with the COSO framework (Committee of Sponsoring Organizations of the Treadway Commission), with the control environment as a base for other components and activities; risk assessment, control activities, information and communication as well as follow ups.
Control environment
The Board of Directors has overall responsibility for establishing and maintaining an effective system for risk assessment and internal control. The Board has adopted a formal work plan for its activities, in which the mutual division of work between the members of the Board is defined. The day-to-day work of maintaining an effective internal control environment and continuous risk assessment in respect of financial reporting has been delegated to the President and CEO, who in turn has delegated function-specific responsibility to managers at appropriate levels within the Group.
A detailed delegation plan has been drawn up, with well-defined attestation and decision levels. This is applied throughout the Axis Group.
A. Operational Management
Axis’ management team (Group management) consists, in addition to the President and CEO, of the managers of the various central functions within the Group, such as sales, marketing, personnel, IT, research and development, operations and finance. Within and between the various functions there are a number of control groups, committees and project groups, formed with the aim of creating short decision paths and ensuring that the operations are managed effectively towards the attainment of the Group’s defined goals.
B. Corporate Culture
Axis has a strong and firmly-established corporate culture, which fundamentally encourages all employees to think creatively and innovatively, and to show respect for each other’s diversity. Everyone is encouraged to question, take the initiative and take responsibility, and to strive at all times towards the common goals, guided by our watchwords –“act as one”, “think big” and “always open”. The corporate culture is founded on confidence, trust and personal responsibility. In the recruitment process, great weight is placed on ensuring that the applicants appointed, share the fundamental values on which the corporate culture is built. During 2007, a Group-wide project aimed at updating and embedding the corporate culture was completed.
C. Guidelines and policies
Responsibility and authority are defined in the delegation plan adopted by the Board, instructions for attestation, handbooks, other policies and codes, among other things. The Group’s most important guidelines and policies relate to financial control, communications, business ethics and environmental matters. The basis for financial control and follow up consists of the Group’s overall finance and accounting policies. The aim of Axis’ communications policy is to ensure that external and internal information provision is based on facts, is accurate and uniformly structured. Part of the communications policy deals with Investor Relations, IR, and is intended to ensure compliance with the appropriate laws and stock exchange rules, and to give a reliable and accurate picture of Axis and its operations to players in the financial market. Axis has revised the company’s Code of Conduct. The purpose of the Code is to set out the approach, values and guidelines that Axis’ personnel will apply in matters of business ethics and also the approach to human freedom and human rights. The objective of Axis’ environmental policy is to ensure that the company supplies products and solutions in an efficient and environmentally low-impact way, and that legal obligations and environmental regulations are complied with.
Risk assessment
Risk assessment involves identifying, measuring and recording the sources of risk. The significant risks which affect the internal control with respect to the financial reporting are identified at Group and company level, as well as at regional level. The process of risk assessment also includes risks of impropriety and undue favouritism to another party at the company’s expense. The risk assessment procedure results in measures that aim to strengthen the level of control and to aid in the fulfilment of the fundamental requirements of the financial reporting.
Control activities
There are both overall and more detailed control activities, aimed at preventing, discovering and correcting faults and deviations. The activities include manual controls, controls embedded in IT systems and controls in the underlying IT environment, i.e. general IT controls.
Axis does not have a separate internal audit function. The Board has decided that there are no special operational circumstances or other factors which would justify setting up such a function.
Information and communication
Important guidelines, handbooks and similar information relating to financial reporting are updated and communicated to the staff involved on a continuous basis. There are both formal and informal information channels to the company management and to the Board for important information from staff. The Board meets regularly with representatives of the various central functions in the Axis Group, partly when they attend Board meetings and partly through individual meetings. The President and CEO and the CFO keep the Board continuously informed of the Group’s financial position, performance and any areas of risk.
The company’s auditors attend at least two Board meetings per year, at which the auditors give their assessment and observations on the business processes, accounts and reports. The Chairman of the Board also maintains continuous contact with the auditors.
Financial reporting and follow up
The financial reporting and financial control is carried on in accordance with well-defined guidelines and policies. The various processes are thoroughly supported by complex, purpose-designed IT systems. The company’s financial performance is monitored continuously by the Board through comprehensive monthly report packages, and through reports by the CFO at all Board meetings. Compliance with the company’s finance policy is followed up quarterly in special reports. A high level of transparency in the report material and financial processes enables any deficiencies in internal control to be identified and rectified.
The reporting structure is based on two principal dimensions, geographical and functional. A monthly income statement is prepared for each dimension, and these are followed up with the responsible managers and controllers. At present, the geographical dimension consists of four regions and 19 sub-regions. The smallest components of the functional dimension are the cost centers which, in aggregate, add up to the three functions of Marketing and Sales, Research and Development and Administration. The total number of cost centers with individual income statements and separate follow up is around 130. The company’s geographical spread creates ideal conditions for comparative analyses between the regions. The key ratios for the regions and sub-regions constitute a central part of the follow up and analysis procedure.
Another significant Group-wide factor in internal control is the rolling forecast process. Monthly sales forecasts are prepared, with a twelve-month horizon and at product level, by the managers of the various regions. The sales forecasts are consolidated and validated by the Group’s Finance Department in connection with production of detailed forecasts for the operations. Detailed forecasts are produced three times a year, in April, August and November, and refer to the next twelve-month period. These are built up from each individual cost center in the Group’s companies, and then combined with the monthly sales forecasts, and are consolidated, analyzed and compiled by the Group’s Finance Department. The forecast drawn up in November, which relates to the next calendar year, is ratified by the Board meeting in December. In addition to twelve-month forecasts, the Group management team works continuously on overall strategic 3–5 year scenarios.
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