Philips 2007 Annual Report Download - page 92

Philips Annual Report 200798
from, amongst other things, solid internal controls and high
ethical standards. Risk management is a well-established
part of Philips’ corporate governance structure.
The quality of Philips’ systems of business controls
and the ndings of internal and external audits are
reported to and discussed in the Audit Committee
of the Supervisory Board. Internal auditors monitor
the quality of the business controls through risk-based
operational audits, inspections of nancial reporting
controls and compliance audits. Audit committees at
corporate and divisional levels meet on a quarterly
basis to address weaknesses in the business control
infrastructure as reported by the auditors or revealed
by self-assessments, and to take corrective action where
necessary. These audit committees are also involved in
determining the desired company-wide internal audit
coverage as approved by the Audit Committee of the
Supervisory Board. An in-depth description of Philips’
corporate governance structure can be found in the
chapter Corporate governance that begins on page 250
of this Annual Report.
Philips Business Control Framework
The Philips Business Control Framework (BCF), derived
from the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) framework on internal
control, sets the standard for risk management and
business control in Philips. The objectives of the BCF
are to maintain integrated management control of the
company’s operations, to ensure integrity of the nancial
reporting and business processes, as well as compliance
with laws and regulations.
Philips has reviewed and further strengthened the
fundamentals of its BCF over recent years. The rst
of these developments was the drive to harmonize
enterprise resource planning systems, with SAP as
the leading standard, enabling Philips to replace time-
consuming manual controls with embedded, automated
Risk management
The following sections present an overview of Philips’
approach to risk management and business control and
a description of the nature and the extent of its exposure
to risks. Philips recognizes different risk categories, namely
Strategic risks, Market risks, Operational risks, Financial
risks, and Compliance risks. These are further described
in the section Risk categories of this Annual Report.
The risk overview highlights the main risks that may
hinder Philips in achieving the Vision 2010 objectives.
The risk overview is, however, not exhaustive. Some
risks not yet known to Philips, or currently believed
not to be material, could later turn out to have a major
impact on Philips’ businesses, objectives, revenues,
income, assets, liquidity or capital resources.
The risk factors should be considered in connection
with the forward-looking statements.
Our approach to risk management
and business control
Risk management forms an integral part of business
management. The company’s risk and control policy is
designed to provide reasonable assurance that objectives
are met by integrating management control into the daily
operations, by ensuring compliance with legal requirements
and by safeguarding the integrity of the company’s nancial
reporting and its related disclosures. It makes management
responsible for identifying the critical business risks and
for the implementation of t-for-purpose risk responses.
Philips’ risk management approach is embedded in the
areas of corporate governance, Philips Business Control
Framework and Philips General Business Principles, and
in the actual periodic business planning and review cycles.
Corporate governance
Corporate governance is the system by which a company
is directed and controlled. Philips believes that good
corporate governance is a critical factor in achieving
business success. Good corporate governance derives
8 Financial highlights 10 Message from the President 16 The Philips Group 62 The Philips sectors