GE 2006 Annual Report Download - page 48

Management’s Discussion of Financial Responsibility
We believe that great companies are built on a foundation of reliable
financial information and compliance with the spirit and letter of the
law. For GE, that foundation includes rigorous management oversight
of, and an unyielding dedication to, controllership. The fi nancial disclo-
sures in this report are one product of our commitment to high quality
financial reporting. In addition, we make every effort to adopt appro-
priate accounting policies, we devote our full resources to ensuring
that those policies are applied properly and consistently and we do our
best to fairly present our financial results in a manner that is complete
and understandable. We also recognize that we operate in an environ-
ment that requires us to apply complex accounting guidance to a
broad range of transactions and events. Regulators, standard setters
and other financial reporting stakeholders have acknowledged that
accounting and financial reporting complexity is a major challenge
facing companies, auditors and investors alike. This complexity gives
rise to the possibility that knowledgeable individuals will reach different,
well-reasoned judgments based on the same underlying facts. How to
respond to this challenge is a matter of continuing debate.
Rigorous Management Oversight
Members of our corporate leadership team review each of our busi-
nesses routinely on matters that range from overall strategy and
financial performance to staffing and compliance. Our business lead-
ers monitor financial and operating systems, enabling us to identify
potential opportunities and concerns at an early stage and positioning
us to respond rapidly. Our Board of Directors oversees management’s
business conduct, and our Audit Committee, which consists entirely
of independent directors, oversees our internal control over fi nancial
reporting. We continually examine our governance practices in an
effort to enhance investor trust and improve the Board’s overall effec-
tiveness. The Board and its committees annually conduct a performance
self-evaluation and recommend improvements. Our Presiding Director
led three meetings of non-management directors this year, helping
us sharpen our full Board meetings to better cover signifi cant topics.
Compensation policies for our executives are aligned with the long-
term interests of GE investors.
Dedication to Controllership
We maintain a dynamic system of internal controls and procedures —
including internal control over fi nancial reporting — designed to ensure
reliable financial record-keeping, transparent fi nancial reporting
and disclosure, and protection of physical and intellectual property.
We recruit, develop and retain a world-class financial team. Our internal
audit function, including members of our Corporate Audit Staff, conducts
thousands of financial, compliance and process improvement audits
each year. Our Audit Committee oversees the scope and evaluates
the overall results of these audits, and its Chairman regularly attends
GE Capital Services Board of Directors, Corporate Audit Staff and
Controllership Council meetings. Our global integrity policies —
“The Spirit & The Letter” — require compliance with law and policy,
and pertain to such vital issues as upholding financial integrity and
avoiding conflicts of interest. These integrity policies are available in
31 languages, and are provided to all of our employees, holding each
of them accountable for compliance. Our strong compliance culture
reinforces these efforts by requiring employees to raise any compliance
concerns and by prohibiting retribution for doing so. To facilitate open
and candid communication, we have designated ombudspersons
throughout the Company to act as independent resources for reporting
integrity or compliance concerns. We hold our directors, consultants,
agents and independent contractors to the same integrity standards.
Our internal controls proved inadequate to prevent a restatement
of our financial reports. We concluded that the restatement resulted
from a material weakness in our internal controls related to interest
rate swaps designated as hedges of commercial paper, and we
reported that weakness. We eliminated this program in 2007 pending
satisfactory clarification of the related accounting requirements.
Informative Disclosure and Visibility to Investors
We are keenly aware of the importance of full and open presentation
of our financial position and operating results and rely for this pur-
pose on our disclosure controls and procedures, including our
Disclosure Committee, which comprises senior executives with
detailed knowledge of our businesses and the related needs of our
investors. We ask this committee to review our compliance with
accounting and disclosure requirements, to evaluate the fairness of
our financial and non-financial disclosures, and to report their fi ndings
to us. We further ensure strong disclosure by holding more than 350
analyst and investor meetings annually.
Conclusion
We welcome the strong oversight of our fi nancial reporting activities
by our independent registered public accounting firm, KPMG LLP,
engaged by and reporting directly to the Audit Committee. U.S. legis-
lation requires management to report on internal control over fi nan-
cial reporting and for auditors to render an opinion on such controls.
Our report follows and the KPMG LLP report for 2006 appears on the
following page.
We present our financial information proudly, with the expecta-
tion that those who use it will understand our Company, recognize
our commitment to performance with integrity, and share our confi -
dence in GE’s future.
Management’s Annual Report on Internal Control
Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. With our
participation, an evaluation of the effectiveness of our internal control
over financial reporting was conducted as of December 31, 2006,
based on the framework and criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We identified the following material weakness in our internal con-
trol over financial reporting — we did not have adequately designed
procedures to designate each hedged commercial paper transaction
with the specificity required by Statement of Financial Accounting
Standards 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. This material weakness resulted in restate-
ment, in January 2007, of our previously issued fi nancial statements
as of and for each of the interim periods ended March 31, 2006, June
30, 2006 and September 30, 2006. Accordingly, we concluded that
our internal control over financial reporting was not effective as of
December 31, 2006.
Our independent registered public accounting firm has issued an
audit report on our management’s assessment of our internal control
over financial reporting. Their report appears on the following page.
JEFFREY R. IMMELT
Chairman of the Board and
Chief Executive Officer
February 9, 2007
KEITH S. SHERIN
Senior Vice President, Finance
and Chief Financial Offi cer
46 ge 2006 annual report