Philips 2006 Annual Report Download - page 87

Philips Annual Report 2006 87
internal control standard which is based on the generally
accepted standards control objectives for information and
related technology (COBIT) and COSO. Furthermore,
as part of BCF, Philips implemented a global internal
control standard (ICS) over fi nancial reporting. ICS
supports management in a quarterly cycle of assessment
and monitoring, enhancing transparency of its control
environment. ICS has been deployed in all main reporting
units, where business process owners perform an
extensive number of controls, document the results each
quarter, and take corrective action where necessary.
With respect to fi nancial reporting a structured
company-wide assessment and monitoring process
is in place to enable the Company’s Chief Executive
Offi cer and Chief Financial Offi cer to review and
report on the effectiveness of risk management and
business controls. Each quarter, division management
and functional management at Group level involved in
the external reporting process issue a formal certifi cation
statement to confi rm the adequacy of the design and
effectiveness of disclosure controls and internal controls
over fi nancial reporting, which is subject to review by the
Board of Management. Annually, as part of the Annual
Report process, management’s accountability for business
controls is enforced through the formal issuance of
a Statement on Business Controls and a Letter of
Representation by each business unit, resulting, via a cascade
process, in a statement by each division. The Statements
on Business Controls and Letters of Representation
are subject to review by the Board of Management.
Section 404 Sarbanes-Oxley Act
During 2006, the BCF was extended to address the
requirements of section 404 of the US Sarbanes-Oxley
Act., which amongst other things, stipulates that the
Board of Management is responsible for establishing and
maintaining a system of internal control over US GAAP
fi nancial reporting for Philips. Philips believes it maintains
an effective framework of internal control over
US GAAP fi nancial reporting. This framework and its
established accounting procedures and related controls
are designed to provide reasonable assurance that assets
are safeguarded, that the books and records properly
refl ect all transactions, that policies and procedures are
carried out by qualifi ed personnel, and that published
US GAAP fi nancial statements are properly prepared
and do not contain any material misstatements.
Management has assessed the design and operating
effectiveness of controls within the scope of section
404 of the US Sarbanes-Oxley Act. The Board of
Management’s evaluation included controls at Group
and division level, and transactional controls at signifi cant
locations across all of the Company’s divisions. The scope
also included relevant IT controls. Any design and operating
effectiveness defi ciencies noted that were not completely
remedied were formally evaluated at year-end. The Board of
Management’s report, including its conclusions, regarding
the effectiveness of its internal control over US GAAP
fi nancial reporting can be found in the chapter Group
fi nancial statements of this Annual Report.
Philips General Business Principles
The Philips General Business Principles (GBP) govern
Philips’ business decisions and actions throughout the
world, applying equally to corporate actions as well as
the behavior of individual employees when on company
business. They incorporate the fundamental principles
within Philips for doing business. The intention of the
GBP is to ensure compliance with laws and regulations,
as well as with Philips’ norms and values.
The GBP have been translated into most of the local
languages and are an integral part of the labor contracts
in virtually all countries where Philips has business activities.
Responsibility for compliance with the principles rests
principally with the management of each business. Every
country organization and each main production site has
a Compliance Offi cer. Confi rmation of compliance with
Strategic
business risks
Market/Business
environment risks
Operational risks Financial risks Compliance and
nancial reporting
risks
Corporate Governance
Philips Business Control Framework
Philips General Business Principles
54 The Philips sectors 86 Risk management 100 Report of the Supervisory Board 110 Financial Statements