Philips 2004 Annual Report Download - page 198

the Supervisory Board and its Audit Committee. Risk factors and
the risk management approach – including the internal risk
management and control system and the certification thereof by
the Board of Management, as well as the sensitivity of the
Company’s results to external factors and variables – are
described in more detail on pages 76 to 81 of the Annual Report.
Within Philips, risk management forms an integral part of business
management. The Company’s risk and control policy is designed to
provide reasonable assurance that strategic objectives are met by
creating focus, by integrating management control over the
Company’s operations, by ensuring compliance with legal
requirements and by safeguarding the reliability of the financial
reporting and its disclosures. The Company’s risk management
approach is embedded in the periodic business planning and
review cycle. With respect to financial reporting a structured
self-assessments and monitoring process is used company-wide to
assess, document, review and monitor compliance with internal
control over financial reporting. On the basis of risk assessments,
product division and business management determines the risks
related to the achievement of business objectives and appropriate
risk responses in relation to business processes and objectives.
The Board of Management is responsible for internal control in the
Company and has implemented a risk management and control
system that is designed to ensure that significant risks are
identified and to monitor the realization of operational and
financial objectives of the Company. Furthermore the system is
designed to ensure compliance with relevant laws and regulations.
The Company has designed its internal control system based upon
the recommendations of the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), which
recommendations are aimed at providing a reasonable level of
assurance. It should be noted that this level of assurance does not
provide certainty as to the realization of operational and financial
business objectives, nor can it prevent all inaccuracies, errors,
frauds and non-compliance with rules and regulations.
The Company has established and maintained a system of controls
over financial reporting to provide reasonable assurance regarding
the reliability of its financial reporting. The Company has
implemented a structured assessment, monitoring, reporting and
correction process to monitor control execution and correction
of deficiencies in this area.
The Company’s risk management approach is designed to
determine risks in relation to the achievement of operational and
financial business objectives and appropriate risk responses. The
most important risks identified, as well as the structure of the
Company’s risk management and internal control process, are
discussed in the risk paragraph of the Annual Report on pages 76
to 81. Significant changes and improvements in the Company’s risk
management and internal control system are disclosed in that
paragraph and have been discussed with the Supervisory Board’s
Audit Committee and the external auditor.
Internal representations received from management, regular
management reviews, reviews of the design and implementation of
the Company’s risk management approach and reviews in business
and functional audit committees are integral parts of the
Company’s risk management approach. On the basis thereof, the
Board of Management confirms that these financial statements
fairly represent the financial condition and result of operations of
the Company and provide the required disclosures. Furthermore
the Board of Management conducted its assessments in
accordance with international best practice to obtain reasonable
assurance about the reliability of the Company’s financial
information and the completeness of its disclosures.
In view of the above, the Board of Management believes that it has
implemented an adequate risk management and internal control
system that is appropriate for the Company’s business and is in
compliance with the requirements of recommendation II.1.4. of
the Dutch Corporate Governance Code.
Philips has a financial code of ethics which applies to certain senior
officers, including the Chief Executive Officer and Chief Financial
Officer and to employees performing an accounting or financial
function (the Financial Code of Ethics has been published on the
Company’s website). The Company, through the Supervisory
Board’s Audit Committee, also has appropriate procedures in
place for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal
accounting controls or auditing matters and the confidential,
anonymous submission by employees of Philips of concerns
regarding questionable accounting or auditing matters. Internal
‘whistleblowers’ have the opportunity, without jeopardizing their
position, to report on irregularities of a general, operational or
financial nature and to report complaints about members of the
Board of Management to the Chairman of the Supervisory Board.
In view of the requirements under the US Securities Exchange Act,
procedures are in place to enable the CEO and the CFO to
provide certifications with respect to the Annual Report on Form
20-F (which incorporates major parts of the Annual Report).
A Disclosure Committee is in place, which advises the various
officers and departments involved, including the CEO and the
CFO, on the timely review, publication and filing of periodic and
current (financial) reports. Apart from the certification by the
197Philips Annual Report 2004