There are various aspects to WACKER’s risk management system. This groupwide system draws on existing organizational and reporting structures, supplemented by additional elements. Our risk management manual contains the system’s principles and processes. It explains reportable levels of risks and how risks are to be covered and mapped. Our risk management regulation stipulates reporting requirements, including when a specific committee must be informed. A central risk management coordinator is responsible for the risk management system and is supported by local risk coordinators. In a risk list, we record each special risk facing our divisions and other corporate sectors.
We analyze and assess each identified risk’s probability of occurrence and potential effects on earnings. Corporate Controlling compiles a monthly report to inform the Executive Board of current and future business developments. We evaluate and balance risks and opportunities at regular meetings with our divisions.
Corporate Controlling ensures that our risk management standards are implemented and that our risk management process is refined. It not only records every substantial risk groupwide, but also evaluates them systematically according to uniform criteria. Major risks and those endangering the continued existence of the company are immediately communicated via ad-hoc reporting. As the divisions are responsible for their own results, this process is closely interwoven with operational controlling. Individual divisional risks are identified and evaluated on a monthly basis. Operational risk management is thus firmly rooted in the divisions. At the same time, Corporate Finance, Raw Materials Procurement, Technical Procurement & Logistics and Legal & Insurance are integrated into risk controlling at the Group level.
Financial risks are managed at Corporate Finance, which is responsible for all measures relating to exchange-rate and interest-hedging transactions. Detailed specifications and regulations covering, for example, separation of trading and settlement functions, define WACKER’s scope of action. Corporate Accounting monitors receivables management vis-à-vis customers and suppliers.
Internal Control System (ICS) and Internal Control System for Accounting
Our internal control system (ICS) is an integral component of our risk management system.
1 Possible financial losses due to the intentional or inadvertent misconduct of our employees or third parties
The purpose of our internal control system for accounting practices is to ensure their compliance with legal stipulations, with the principles of proper accounting, with the rules in the International Financial Reporting Standards (IFRS) and with groupwide regulations. This compliance is essential for providing our stakeholders (such as banks, analysts and investors) with proper and reliable information.
In addition to the ICS principles already mentioned, we perform assessments and analyses to help identify and minimize any risks with a direct influence on financial reporting. We continually monitor changes in accounting standards and extensively and regularly train our employees accordingly. We enlist external experts to reduce the risk of accounting misstatements in complex and challenging issues, such as pensions.
Our internal accounting control system is designed to ensure that our accountants process every business transaction correctly, promptly and uniformly and that reliable data on the company’s financial situation are constantly available. It ensures compliance with legal stipulations, accounting standards and internal accounting rules that are binding for all Group companies included in our consolidated financial statements. A key accounting regulation takes the form of an accounting manual, which is valid groupwide. It is available in the WACKER intranet. Additionally, we define organizational workflows in accounting and organizational regulations, and in book-entry instructions. A groupwide calendar of deadlines guarantees the complete and timely processing of financial statements. By separating financial functions between accounting, statement analysis and strategy, we ensure that potential errors (prior to preparation of the statements) are identified and a1ccounting standards complied with. To uphold the completeness and accuracy of processes, we have implemented access rules for IT systems and pursue dual-control policies for accounting at individual entities and for consolidating figures within the Group.
Our subsidiaries ensure that existing stipulations are implemented decentrally in their regions. In doing so, they are supported and monitored by Corporate Accounting. Additionally, country-specific accounting standards exist that must be complied with.
We guarantee the effectiveness of controls not only through feedback talks with the employees responsible, but also by continually monitoring key financial indicators in our monthly management reports and in system-supported test runs. Moreover, regular external audits and reviews are carried out at year-end and for each quarter.
Corporate Auditing rounds out our risk management system. This department regularly checks all corporate entities on behalf of the Executive Board. Our auditing manual serves as the basis for these checks. The Executive Board adopts a risk-driven approach when choosing audit topics, which, if necessary, are flexibly adjusted during the year to take account of changes in underlying conditions. In 2010, WACKER focused on the following topics:
Subsidiaries’ general handling of business
IT-related aspects of security and project management
Awarding of orders and settlement of investment-related invoices
In total, Corporate Auditing conducted 37 audits in 2010 (2009: 36 audits). The proposed audit plan was essentially implemented, with some topics or items for review to be completed before the end of 2011. The audits did not reveal any major complaints. Audit recommendations to optimize processes are being implemented.
An external auditor examines our early-warning, risk-detection system when auditing our annual financial statements. The auditor then reports to the Executive and Supervisory Boards.