Siemens 2015 Annual Report Download - page 35

Combined Management Report 
competitive cost structure complements the competitive ad-
vantage of being innovative. We believe that further improve-
ments in our cost position can strengthen our global competi-
tive position and secure our market presence against emerging
and incumbent competitors. For example, we expect to create
sustainable value from productivity measures in connection
with our “Vision ” concept. Moreover, establishing a strin-
gent claim management process can help materialize opportu-
nities by enforcing our claims towards our contract partners
even stronger.
Excellent project execution: By expanding project manage-
ment efforts as well as learning from our mistakes in project
execution through a formalized lessons learned approach, we
see an opportunity to continuously reduce non-conformance
costs and ensure on-time delivery of our projects and solutions.
Furthermore, stringent project risk and opportunity manage-
ment, time schedule management, performance bonuses and
highly professional management of consortium partners and
suppliers help us to avoid liquidated damages and ultimately
improve our profit position. In addition, improvements of our
claim management processes enable us to reduce costs in-
curred as a result of customer claims by finding a consensus
with customers while also improving customer relationship
management. At the same time, we reduce quality problems by
proactively addressing supplier issues up front.
Localizing value chain activities: Localizing certain value
chain activities, such as procurement, manufacturing, mainte-
nance and service in emerging markets, could enable us to re-
duce costs and strengthen our global competitive position, in
particular compared to competitors based in countries with a
more favorable cost structure. Moreover, our local footprint in
many countries might help us to take advantage of a possible
recovery of markets and leverage a shift in markets, resulting in
increased market penetration and market share.
Even though the assessment of individual opportunities have
changed during fiscal year  due to developments in the
external environment as well as the effects of our endeavors to
harvest them, the overall opportunity situation did not change
significantly as compared to the prior year.
A.8.5 Significant characteristics of
the accounting-related internal control
and risk management system
The following discussion describes information required pursu-
ant to Section  () and Section  () no.  of the German
Commercial Code (Handelsgesetzbuch) and explanatory report.
The overarching objective of our accounting-related internal
control and risk management system is to ensure that financial
reporting is conducted in a proper manner, such that the Con-
solidated Financial Statements and the Combined Management
Report of Siemens group as well as the Annual Financial State-
ments of Siemens AG as the parent company are prepared in
accordance with all relevant regulations.
Our ERM approach is based on COSO’s “Enterprise Risk Manage-
ment – Integrated Framework”. As one of the objectives of this
framework is reliability of a company’s financial reporting, it
includes an accounting-related perspective. Our accounting-
related internal control system (control system) is based on
the internationally recognized “Internal Control – Integrated
Framework” also developed by COSO. The two systems are com-
plementary.
At the end of each fiscal year, our management performs an
evaluation of the effectiveness of the implemented control sys-
tem, both in design and operating effectiveness. We have a
standardized procedure under which necessary controls are
defined, documented in accordance with uniform standards,
and tested regularly on their effectiveness. Nevertheless, there
are inherent limitations on the effectiveness of any control sys-
tem, and no system, including one determined to be effective,
may prevent or detect all misstatements.
Our Consolidated Financial Statements are prepared on the ba-
sis of a centrally issued conceptual framework which primarily
consists of uniform Financial Reporting Guidelines and a chart
of accounts. For Siemens AG and other companies within the
Siemens group required to prepare financial statements in ac-
cordance with German Commercial Code, this conceptual
framework is complemented by mandatory regulations specific
to the German Commercial Code. The need for adjustments in
the conceptual framework due to regulatory changes is ana-
lyzed on an ongoing basis. Accounting departments are in-
formed quarterly about current topics and deadlines from an
accounting and closing process perspective.
The base data used in preparing our financial statements
consists of the closing data reported by the operations of
Siemens AG and its subsidiaries. The preparation of the closing
data of most of our entities is supported by an internal shared
services organization. Furthermore, other accounting activi-
ties, such as governance and monitoring related activities, are
usually bundled on regional level. In particular cases, such as
valuations relating to post-employment benefits, external
experts are used. The reported closing data is used to prepare
the financial statements in the consolidation system. The steps
necessary to prepare the financial statements are subject to
both manual and automated controls.