Registration document 2007 - Total.com

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Corporate Governance
Report of the Chairman of the Board of Directors (Article L 225-37 of the French Commercial Code)
Internal control procedures
The internal control framework adopted by TOTAL is that of the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In this framework, internal control is a
process intended to provide reasonable assurance that the
following will be achieved: effective and efficient operational
control, accurate reporting of financial information, and
compliance with applicable laws and regulations. As for any
system for internal control, there can be no guarantee that all
risks are completely eliminated.
The Group’s internal control procedures are based on the COSO
framework: design and implementation of internal controls, risk
evaluation process, internal control operation, documentation and
reporting internal controls, and supervision of the internal control
system.
Organization and principles of internal control
The Group’s internal control procedures are designed around an
operating environment with three levels: Group, business
segments and profit centers. Each level is directly involved in the
design and implementation of internal controls, as determined by
the level of centralization desired by the Group’s management.
At each of the three levels, internal control procedures are
designed to include specific organizational procedures,
delegation of authority and employee training that conform to the
Group’s overall framework.
The design of internal control procedures is based on key values
that are deeply rooted in the Group’s control environment,
including the integrity, ethical conduct and professional
competence of its employees. The Group’s senior management
receives regular training on the content and the importance of
proper conduct, which is documented in a code of conduct and
available on the Group’s website. Each year, the chief executive
and financial officers of profit centers or subsidiaries provide
internal written representations to the Chief Financial Officer that
they have complied with internal control procedures and that
their financial reporting is accurate.
These control principles have been confirmed and documented
as part of the corporate governance initiative described above.
Risk evaluation
The Executive Committee, with the assistance of the Risk
Committee, the budget management department and the internal
audit department, is responsible for identifying and analyzing the
risks that could have an impact on the Group’s performance.
The principal risks monitored at Group level are: sensitivity to the
oil market environment (oil prices and refining, marketing and
petrochemicals margins); exposure to oil and gas trading risks;
financial markets risks (foreign exchange risk, particularly related
to the dollar, and interest rate risk given the importance of long-
TOTAL – Registration Document 2006
term investments in Group’s businesses); legal and political risks
related to the operating and contractual environment of the
exploration and production activities; and industrial and
environmental risks related to the sectors in which the Group is
active.
The “Risk Factors” section of this Registration Document
contains a more extensive description of the principal risks faced
by the Group and how the Group manages these risks.
Internal control operations
Internal control procedures, particularly financial reporting
systems, are designed to take into account the specific nature of
these risks and the degree to which operational control is
delegated to the business segments and profit centers.
Management exercises operational control over the Group’s
activities through the Executive Committee’s approval of
investments and commitments, based on defined thresholds.
Non-operating control is primarily based on a strategic plan
which is reviewed annually, an annual budget, monthly
management financial reports with in-depth analysis of
differences between actual and budgeted expenditures, and a
quarterly reconciliation between published accounts and
management reports. These procedures are supervised by the
budget management department and the accounting
department, and are conducted according to accepted financial
reporting methods that conform to the accounting standards
used to publish the Group’s accounts. The financial measures
that are followed and the accounting methods chosen were
selected to accurately report risks and to measure the return on
average capital employed (ROACE).
The Group accounting department monitors changes in
accounting standards on an ongoing basis, particularly
international accounting standards. In 2004, the Group
implemented a transition to IFRS and adapted its internal control
system to reflect this change in reporting standards.
The 2006 consolidated financial statements were prepared in
accordance with IFRS as adopted by the European Union.
The treasury/financing department monitors and manages the
risks related to cash-management activities as well as to interestrate
related and foreign-exchange related financial instruments in
accordance with specific rules defined by the Group’s
management. Cash and cash equivalents, financial positions and
financial instruments are centralized by the treasury/financing
department.
Oil and gas reserves are reviewed by a committee of experts (the
Reserves Committee), approved by the senior management of
the Exploration & Production division and then confirmed by the
Group’s management.
The Disclosure Committee, whose members are the managers of
the principal non-operating departments in the Group,