Annual Review 2012 - Luxottica

REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE
| 79 >
The disclosure controls and procedures are designed to ensure that the financial
information is adequately collected and communicated to the Chief Executive Officer
(CEO) and to the Chief Financial Officer (CFO), so that they may make appropriate and
timely decisions about the information to be disclosed to the market.
The internal control system that supervises the preparation of the financial statements has
the objective of ensuring the reliability of the financial information in accordance with the
relevant accounting principles.
The structure of the internal control system was defined consistently with the model
provided by the COSO report, the most widely used international model to define
and assess the internal control system, which establishes five components (control
environment, risk assessment, control activity, information systems and communication
flows and monitoring activity).
For the most important companies of the Group (so-called Material Control Units)
controls were designed and their effectiveness was assessed both at general/cross level
(entity level controls) and at the level of each operational/administrative process. For the
smaller companies, which were however still significant, especially when considered in the
aggregate (so-called Material When Aggregated), the assessment was performed on the
general effectiveness level of the control system.
Among the cross level controls, the controls to reduce the risk of fraud are particularly
important. To this end, Luxottica has developed Anti-Fraud Programs & Controls
derived from an in-depth risk assessment which, after mapping the possible ways in
which fraud could be committed, defined the necessary controls to reduce the risk of
fraud and/or allowing its identification. This “anti-fraud” system is constantly updated
and improved.
In addition to defining and testing the internal control system in compliance with SOX
requirements, Luxottica has also identified the necessary actions to ensure its optimal
functioning over time.
The entire system must be monitored at two levels: by line management, supervising the
significant processes and by the Internal Audit department, which independently and
according to an approved intervention plan must check the effectiveness of the controls
and report on these to the relevant functions and bodies.
Moreover, as a result of a comparison with other companies listed on the NYSE, the
designed control system is subject to continuous improvements. Since 2007, on the
basis of experience gained internally, of the independent evaluations by the external
auditors and the introduction of audit standard no. 5 adopted by the PCAOB (Public
Company Accounting Oversight Board), a process for the evaluation and rationalization
of the controls is in place, which allows the Company, on the one hand, to eliminate any
redundant controls that burden operations without offering a real benefit in terms of
strengthening of the internal control system and, on the other hand, to define and better
protect the key controls and the monitoring controls. This process is performed for all of
the most important companies of the Group.