Annual Report 2006 - Munters

for implementing the guidelines to maintain satisfactoryinternal controls.Risk assessment and control activities – Munters’management annually presents its view of significant risks forthe Board of Directors’ Audit Committee. The Company’smost important risks relating to accounting and reporting arerevenue recognition, valuation of accounts receivable and guaranteecommitments, plus the Group’s many small subsidiaries,which lack critical mass with respect to accounting personnel.To effectively manage significant risks, Munters has establishedcontrol structures that in part consist of an organization,which, from an international perspective, permits appropriatedelegation of responsibility from the standpoint of controlactivities in the work performed on compiling the financialreports. During 2006, the company reviewed its internalcontrol policy and introduced a formalized process wherebyall Group business units implement a self-assessment of theircompliance with the rules stipulated in the internal controlpolicy. This self assessment is then reviewed by representativesof Group management according to a rolling schedule, and bythe company’s external auditors. In the event of discrepancies,improvement plans and activities are prepared.Information and communications – Munters’ policiesfor internal control are primarily communicated through theMunters Management Manual and the Munters FinancialManual. These manuals are updated continuously and are easilyaccessible to all concerned personnel via Lotus Notes internaldatabases. The Munters Management Manual includesthe Munters Information Policy, which provides guidelinesfor how external communication shall take place. The objectiveof the policy is to ensure that all information obligationsare fulfilled in a correct and comprehensive manner.Follow-up – The Board of Directors evaluates businessperformance and results each month using an appropriatelystructured reporting package containing outcomes, forecastsand analyses of important key parameters. The Board of Directorsreceives regular reports from the meetings held betweenthe Audit Committee and senior management and the auditors.The Audit Committee’s work also includes regularly followingup the effectiveness of internal controls. The Committee’s workalso includes evaluation and discussion of key technical issuesrelating to accounting and reporting techniques. Furthermore,the Audit Committee has initiated an annual process to ensurethat appropriate measures are taken to address and implementrecommended measures in regard to deficiencies that arise inpart from internal follow-ups as described above and in partthrough the external auditors’ examinations.Articles of AssociationThe Company’s Articles of Association regulate such mattersas the objective of the Company’s operations, the number ofBoard members and auditors, how notification of the AnnualGeneral Meeting shall take place, matters to be addressed bythe Annual General Meeting and where the Meeting shallbe held. The Articles of Association currently in effect andadopted on 26 April 2006 are available on the Company’s website at www.munters.com, under investor relations/corporategovernance.Policy documentsIn addition to the budget and strategic plan, which are requiredand approved by the Board of Directors, Munters has twoprimary control systems that specify authority and responsibilitiesfor the leaders of Munters’ many business units, MuntersManagement Manual and Munters Financial Manual.Firstly, there is Munters Management Manual, which, inaddition to a number of general policies for the Group’s businessand its employees, contains detailed descriptions of authorizationand responsibility in business management. The followingpolicies are included in Munters Management Manual.Corporate Social ResponsibilityThe Group’s policy was formulated with the objective of documentingthe Group’s basic view on ethical issues both within theorganization and externally towards customers and suppliers.Information policyThe Group’s information policy is a document that describes theGroup’s general principles for the dissemination of information.Insider policyThe Group’s insider policy regulates the handling of insiderissues and responsibility for these issues and contains instructionsfor insiders and others within the organization regardinghow to act in insider-related matters.Visual GuidelinesThe Group’s Visual Guidelines describe the manner in whichMunters shall be visible in its marketing and business operations.Environment policyThe Group’s environment policy provides guidelines for environmentalwork within the Group.Secondly, there is Munters Financial Manual. The FinancialManual describes the rules and guidelines that apply fordecisions on financial matters, how financial reporting isorganized and what is reported. The accounting instructionsin Munters Financial Manual comply with IFRS standards.In addition to accounting instructions, the manual containsthe following policies.Financial policyThe Group’s Finance function works according to the instructionsestablished by the Board of Directors, which provide aframework for how the Group’s operations shall be financed andhow currency and interest risks, for example, must be managed.Internal control policyThe internal control policy provides instructions for maintainingorder and control within the business units.General policies are reviewed and approved by the Boardof Directors.The Company’s application of the CodeThe Code is built on the “follow or explain” principle. Thismeans that companies applying the Code may deviate fromindividual rules but must provide explanations and reasonsfor each reported deviation.Munters has not deviated from the rules of the Code.ReviewThis Corporate Governance Report, including the section oninternal controls pertaining to financial reporting, has notbeen reviewed by the Company’s auditors.M U N T E R S A N N U A L R E P O R T 2 0 0 6 37