Philips 2012 Annual Report Download - page 94

7 Risk management 7.6 - 7.6
94 Annual Report 2012
markets could have a material impact on cash funding
requirements and net periodic pension costs and also
affect the value of certain financial assets and liabilities of
the company.
For further details, please see note 29, Pensions and other
postretirement benefits.
Philips is exposed to a number of reporting risks.
A risk rating is assigned for each risk identified, based on
the likelihood of occurrence and the potential impact of
the risk on the financial statements and related
disclosures. In determining the probability that a risk will
result in a misstatement of a more than inconsequential
amount or material nature, the following factors are
considered to be critical: complexity of the associated
accounting activity or transaction process, history of
accounting and reporting errors, likelihood of significant
(contingent) liabilities arising from activities, exposure to
losses, existence of a related party transaction, volume of
activity and homogeneity of the individual transactions
processed and changes to the prior period in accounting
characteristics compared to the previous period.
Important critical reporting risk areas identified within
Philips following the risk assessment are:
• complex accounting for sales-related accruals, warranty
provisions, tax assets and liabilities, pension benefits,
and business combinations
• complex sales transactions relating to multi-element
deliveries (combination of goods and services)
• valuation procedures with respect to assets (including
goodwill and inventories)
• past experience of control failures relating to
segregation of duties
• significant (contingent) liabilities such as environmental
claims and other litigation
• outsourcing of high volume/homogeneous
transactional finance and IT operations to third-party
service providers