Philips 2011 Annual Report Download - page 81

7 Risk management 7 - 7.1
Annual Report 2011 81
7Risk management
7.1 Our approach to
risk management
and business
control
The following section presents an overview of Philips’
approach to risk management and business controls and
a description of the nature and the extent of its exposure
to risks. Philips’ risk management focuses on the following
risk categories: Strategic, Operational, Compliance and
Financial risks. These are further described in section 7.2,
Risk categories and factors, of this Annual Report. The
risk overview highlights the main risks known to Philips,
which could hinder it in achieving its strategic and financial
business objectives. The risk overview may, however, not
include all the risks that may ultimately affect Philips. Some
risks not yet known to Philips, or currently believed not
to be material, could ultimately have a major impact on
Philips’ businesses, objectives, revenues, income, assets,
liquidity or capital resources.
All oral and written forward-looking statements made on
or after the date of this Annual Report and attributable
to Philips are expressly qualified in their entirety by the
factors described in the cautionary statement included
chapter 19, Forward-looking statements and other
information, of this Annual Report and the risk factors
described in section 7.2, Risk categories and factors, of
this Annual Report.
Our business, financial condition and results of operations
could suffer material adverse effects due to certain risks.
We have described below the main risks known to Philips
and summarized them in four categories: Strategic risks,
Operational risks, Compliance risks, and Financial risks.
Risk management forms an integral part of the business
planning and review cycle. 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 financial reporting and its related disclosures.
It makes management responsible for identifying the
critical business risks and for the implementation of fit-
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.
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
from, amongst other things, solid internal controls and
high ethical standards.
The quality of Philips’ systems of business controls and the
findings of internal and external audits are reported to and
discussed by the Audit Committee of the Supervisory
Board. Internal auditors monitor the quality of the
business controls through risk-based operational audits,
inspections of financial reporting controls and compliance
audits. Audit committees at corporate level (Group,
Finance and IT) and at sector level (Healthcare, Lighting,
Consumer Lifestyle, Group Management & Services) meet
quarterly to address weaknesses in the business controls
infrastructure as reported by internal and external
auditors or revealed by self-assessment of management,
and to take corrective action where necessary. These
audit committees are also involved in determining the
desired company-wide internal audit planning as approved
by the Audit Committee of the Supervisory Board. An
indepth description of Philips’ corporate governance
structure can be found in chapter 11, Corporate
governance, 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, in order to ensure the integrity of
the financial reporting, as well as compliance with laws and
regulations.