Internal control and risk management
Primary attributes of internal control and risk management systems in reference to the preparation of financial statements and consolidated financial statements
For the purpose of procuring that the financial statements are true and fair and comply with the binding regulations of law and of generating high quality financial data, the Group has in place internal control and risk management systems. The Parent Company’s Management Board is responsible for the internal control system and its effectiveness in the process of preparing the financial statements and the periodic reports prepared and published in accordance with the principles of the Regulation.
Under the internal control and risk management system, in the process of preparing financial statements the Group applies a number of procedures and internal bylaws whose purpose is to procure effective and efficient control as well as identification and elimination of prospective risks. The system is implemented mostly on the basis of:
- JSW’s Articles of Association;
- Group Code,
- JSW Organizational Bylaws,
- Documentation concerning the accepted accounting principles (policies),
- Corporate Risk Management Policy and Procedures,
- Bylaws governing the operation of the JSW Internal Control System,
- Internal Audit Bylaws,
- Instructions concerning documentary workflow,
- Scopes of employee rights and duties,
- Tax procedure.
The process is also implemented through the Group companies using unified models of financial statements, audit and revision of the financial statements of the key Group companies by the same auditor, and through the process of authorizing and opining the financial statements prior to their publication. The preparation of financial statements is supervised by the Vice-President of the Management Board for Financial Matters. The Chief Accountant Department is responsible for preparing the standalone and consolidated financial statements, and the Management Boards of the consolidated companies are responsible for preparing the reporting packages for the Group’s consolidated financial statements.
In order to ensure the application of uniform accounting principles, JSW adopted the IFRS-based Documentation of Accepted Accounting Policies, which is binding on JSW and Group companies (principally with respect to the preparation of consolidation packages for the purposes of the consolidated financial statements). The Group companies prepare IFRS-compliant financial statements. Amendments to IFRS are monitored on an ongoing basis, in order to update the Documentation of Accepted Accounting Policies and the scope of disclosures in the financial statements. The Parent Company continuously employs cohesive IFRS-compliant accounting rules to present financial data in the financial statements, periodic reports and other reports conveyed to shareholders. The same rules are in force in the Group’s member companies in which JSW is the Parent Company. The scope of financial data disclosed in the financial statements results from the reporting duties contemplated in the IFRS, and the method of their presentation should ensure comprehensibility and clarity of information as well as suitability and comparability of data contained in the financial statements.
The data disclosed in the financial statements come from JSW’s accounting records and additional information transmitted by JSW’s various organizational cells. However, the Group companies transfer the required data in the form of reporting packages to prepare consolidated financial statements.
The data from the accounting ledgers ensure the accuracy of the financial statements as they contain evidence entered on the basis of the appropriate source documentation, while using the most modern IT technology. The system’s modular structure provides for a transparent split of areas and competencies, the coherence of the records of operations in the accounting ledgers and control between the ledgers. Access to data in different cross-sections and layouts is achievable through an expanded reporting system. On an ongoing basis, JSW updates its IT system to the changing rules of accounting and other legal standards, which is supported by the high degree of flexibility in the functionalities of the system’s various modules. Consolidated financial statements are prepared using specialized IT tools. The IT solutions used by the Group secure control of access to the finance and accounting system and provide for the appropriate protection and archiving of the accounting ledgers. The security of operating the IT system is afforded by the relevant structure of authorization. Control of access is exercised at every stage of preparing the financial statements, starting from entering source data, through data processing to generating output information. The Group uses the security systems on the hardware and system levels.
The Supervisory Board evaluates the standalone and consolidated financial statements and has appointed an Audit Committee, which is an advisory and opinion-giving body. The primary objective of the Audit Committee’s operation is to support the Supervisory Board in exercising financial supervision and delivering to the Supervisory Board accurate information and opinions, enabling the making of the right decisions on financial reporting, internal control and risk management, as well as to monitor independence of the audit firm auditing the financial statements. According to the binding regulations, JSW submits its financial statements to an audit (annual statements) and a review (interim semi-annual statements) by an independent statutory auditor. The JSW Supervisory Board selects the statutory auditor from among reputable audit firms based on the Audit Committee’s recommendations. Within the framework of its audit work, the statutory auditor makes an independent evaluation of the accuracy and correctness of the standalone and consolidated financial statements and confirms the effectiveness of the internal control and risk management system.
The fundamental element of risk management in the process of preparing financial statements is to audit the control mechanisms and the occurrence of risks in JSW’s operations. In performing these duties, the internal audit division assists the Audit Committee by conducting the relevant work to check the effectiveness of control and the efficiency of processes. The Internal Audit division performs audit tasks of an assurance and consulting nature and ad hoc audits.
The internal control system covers all the JSW operations contemplated in the Articles of Association and all the levels of organizational structure, and thereby all the processes in JSW, including areas having a direct or indirect impact on the correctness of preparing the financial statements. The Internal Control System (“ICS”) encompasses the system of financial and IT solutions related to control as well as relevant regulations, procedures and organizational structures. Activities of ICS serve the purpose of ensuring the organization’s effective and efficient operations, credibility of financial reporting and compliance of the operations with laws and internal regulations. The Parent Company checks the functioning of the ICS and its control mechanisms on a regular basis and indicates potential risks in the processes. This function is exercised by the Internal Audit division, which conducts analyses, makes assessments and presents recommendations to streamline existing procedures and mechanisms in the internal control system and evaluates breaches of rules and procedures. As a result of audit and control tasks conducted every year, recommendations and instructions are issued to streamline the control mechanisms and mitigate the risks.