The following description regarding internal control was prepared in accordance with the Code and is limited to internal control and risk management relating to financial reporting. Internal control at PA Resources follows an established framework, the COSO framework, Internal Control – Integrated Framework launched by the Committee of Sponsoring Organisations of the Treadway Commission, that constitutes a structured foundation for evaluation and monitoring of internal control of financial reporting.
Control environment
The basis for internal control for financial reporting is constituted by the control environment including the organisation, decision-making paths, powers and responsibilities which are documented and communicated in governing documents. At the core of PA Resources’ internal control is its decentralised organisation with two regional offices, one local office, one head office and a total of 135 employees. PA Resources’ decentralised organisation with short decision-making paths is therefore designed to facilitate rapid reaction to changes in the market. Operational decisions are made at company level while decisions on strategy, focus, acquisitions and overall financial issues are made by the Board and Group management.
The management of PA Resources comprises a Group Management Team (GMT) consisting of the Group management together with the heads of the three geographic regions and which is supplemented as needed with key personnel in project management, strategy and business development. Regular GMT meetings are the Group forum for implementation of overriding control down to the respective regional company level. The regional management assume overriding responsibility for their operations and work towards clearly defined goals. At PA Resources, the most significant components of the control environment have been documented in the Board’s work plan, instructions for the President, authorisation rules, instructions for financial reporting and accounting, personnel policy and other internal policies, guidelines and manuals.
The reporting and accounting guidelines and policies of PA Resources comply with IFRS which ensures uniform and stringent financial reporting. All subsidiaries of PA Resources report according to a standardised reporting procedure to the Parent Company PA Resources AB. The reporting comprises the basis for the Group’s consolidated reporting. Personnel policy, procedures and templates for employment, training, evaluation and promotion as well as remuneration and job descriptions are defined and documented at PA Resources.
On an ongoing basis, PA Resources evaluates and updates existing policies, instructions and guidelines. The Board’s work plan is updated annually and adopted each year by the Board in conjunction with the statutory board meeting.
Risk assessment
Risk assessment is based on the financial goals of PA Resources. The overriding financial risks are defined and to a great extent are specific to the industry. PA Resources identifies the key risks that can pose threats to attainment of the business and financial goals by performing qualitative and quantitative risk analyses of the Group balance sheet and income statements. Risk analyses are preformed regularly by the Group management to identify areas for improvement and any new areas of risk. Measures for managing identified risks are produced centrally by the Group. For more information in respect of risks and risk management at PA Resources refer to the table Risks and risk management on page 24–25 and Note 30 Financial risks.
Control activities
The risks identified regarding financial reporting are managed via the company’s control activities. The objective of the control activities is to prevent, discover and correct errors and discrepancies. Control activities are carried out throughout the organisation, at all levels and in all functions. The activities include analytical follow-up on several levels and comparison of income statement and balance sheet items with the outcome and budget of previous periods, follow up of liquidity against forecasts, follow up and reconciliation of Board decisions and established policies, approval and reporting of business transactions, the structure for powers and authorities, authorized signatories, Group-wide definitions, templates and reporting tools as well as accounting and reporting policies. Furthermore, all regional offices have an independent financial and accounting organisation, which ensures inter alia that control procedures and procedures are followed, that the Group’s guidelines, manuals and policies are complied with and ensures that the financial reports are accurate, complete and delivered on time.
Information and communication
Appropriate information and communication are essential if internal control systems are to be able to function well. PA Resources has procedures and systems for providing information aimed at supplying the market with relevant, reliable, correct and up-to-date information about the Group’s development and financial position. Policies, guidelines and instructions are well-established and available for the staff concerned. The Group management and the Board receive regular financial information regarding the subsidiaries including comments in respect of financial risks. Furthermore, the Board receives regular feedback from the Audit Committee in respect of internal control. To ensure the correctness and completeness of the information provided externally, PA Resources has an established information policy that fulfils the requirements stipulated for a listed company and which specifies what should be communicated, by whom and in what manner.
Follow-up
Follow-up is performed continuously at several levels in the Group, at regional subsidiary level and at Group level. The Audit Committee regularly evaluates the information provided by the company management and auditors. Each month the Board receives the President’s operating report and the Board discusses the company’s financial position at every regular Board meeting. Furthermore, the company’s auditors report their observations from reviews and their assessment of internal control to the Audit Committee. Financial reporting pertaining to interim reports and annual accounts as well as internal control are also quality assured by reviews conducted by the company’s external auditors at both subsidiary and Group levels.
Need for internal audit
PA Resources has a decentralised organisation comprising 135 employees in the Group of which ten are employed in the Parent Company at 31 December 2010. A clear division of responsibilities and built-in controls prevails in the Group. Internal control and follow-up of performance is conducted at several levels in the Group, at subsidiary level and at Group level. In all, this means that a specific unit for internal audit is not considered motivated.
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