The internal control is intended to ensure accurate and reliable financial reporting and accounting in accordance with applicable laws and regulations, accounting standards and other requirements for listed companies.
The control environment is comprised of the values and ethics which the Board of Directors, Audit Committee, the CEO and Group management communicate and operate under. The basis of internal control for financial reporting consists of the control environment together with the organisation, decision-making, authorities and responsibilities which are documented and communicated in governing documents. One example is the division of responsibilities between the Board and the CEO and instructions regarding the delegation of authority, as well as instructions applying to the accounting and reporting. Important internal control instruments include Fagerhult’s Code of Conduct and values. The Code includes principles for the manner in which business is to be conducted. These values represent a long-term commitment and a common base connected to the business concept and strategies guiding employees in their daily activities. Fagerhult is characterised by a decentralised organisation based on goal-oriented management, where good performances are rewarded.
Financial reporting to the Board
The CEO is responsible for ensuring that the Board receives the reports required for its assessment of the Company’s and the Group’s financial position. Fagerhult’s Board receives monthly financial reports and the Group’s financial situation is discussed at each Board meeting.
Regarding financial risk assessment, the risks mainly relate to the potential for material misstatements in the reporting of the Company’s financial position and results. To minimise these risks, governing documents have been established concerning accounting, procedures for annual reporting and follow-up of reported annual accounts. Fagerhult’s Board regularly assesses reporting from a risk perspective. As a support for these assessments, income statement items and balance sheet items are compared with previous reports, budgets and forecasts. The risks identified in the financial reporting are managed by the Group’s control structure.
In addition to assessing the risks in the financial reporting, the Board and management work continuously to identify and manage significant risks affecting Fagerhult’s business from an operational and financial perspective. Read more about the risks in Annual Report.
Control activities and follow-up
Control activities involve all levels of the organisation and concern the measures selected to manage the Group’s risks. In order to ensure completeness and accuracy in the financial reporting, there are instructions and guidelines that have been communicated to the relevant personnel. The activities also limit the identified risks. The Group’s central Control Function analyses and monitors deviations from budgets, prepares forecasts, monitors significant variations between periods, and reports these to others within the organisation, which minimises the risk of errors in the reporting. Control activities also include follow-up and comparisons of earnings trends or significant individual items, account reconciliations and balances, and the approval of all proxy and attestation instructions, as well as accounting and valuation principles.
The monitoring of the effectiveness and implementation of these control activities takes place through programmed controls and through individually established procedures. The Group has a common reporting system in which all reporting is undertaken. Financial monitoring is carried out by senior management in conjunction with regular visits to the subsidiaries, and the activities of the Control Function are consistently developed.
Information and communication
Fagerhult continuously provides information about the Group’s performance and financial position to the market. The quality of external financial reporting is ensured through various activities and routines. The CEO is responsible for all of the information provided. For example, he is to ensure that financial press releases and presentation materials for various meetings with the media, shareholders and investors are accurate and of good quality. There is an information policy applying to external communication providing guidelines as to the manner in which such information is to be presented. The policy is intended to ensure that Fagerhult’s information requirements are met in an accurate and complete manner. The most important governing documents, in the form of policies and instructions, are kept up-to-date and are communicated via the appropriate channels, mainly electronically.
Internal information and communication is about creating awareness among the Group’s employees about external and internal governing instruments, including authorities and responsibilities. Fagerhult’s whistleblower policy means that every employee has the opportunity to report suspected breaches of laws or regulations without fear of reprisal.
Evaluation of a separate audit function
The Board and management have determined that a separate internal audit function will not be established in the Fagerhult Group. The Group’s Finance department continually monitors compliance with the Company’s governance model, reporting principles and policies. The Finance department conducts on-going analyses of the Company’s reporting and financial results in order to gain assurance regarding the Company’s development. Discussions with the Company’s external auditors concerning the audit approach, as well as the auditing firm’s extensive organisation are, when taken together with the controls implemented by the Group’s management and the existing control functions in the different business areas, considered to provide a satisfactory level of assurance. This means that a separate internal audit function is not considered necessary.
Activities during 2015
During the year, focus has been on integrating the recently acquired companies Lighting Innovations, I-Valo and Arlight in the Group’s internal control and on inventory valuation and inventory control linked to the shift to LED technology.
During the year, the Group’s policy for internal control of the Group companies was updated. Based on the COSO framework, a minimum level for internal control has been defined in the form of guidelines for the controls to be implemented at all Group companies – the Fagerhult Minimum Control Requirements. The follow-up of internal control pursuant to these guidelines will become an integrated part of Group governance.