The statutory reporting is a component of the management’s review for the financial year May 1, 2010 – April 30, 2011.

Internal controls and risk management systems

Significant internal controls and risk management systems in connection with the financial reporting process in Thrane & Thrane pursuant to section 107b of the Danish Financial Statements Act

Thrane & Thrane’s risk management and internal controls with respect to the financial reporting process is organized so as to ensure

• presentation of internal financial statements that make it possible to measure the Group’s performance and follow up on goals, plans and budgets and
• presentation of external financial statements that are in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies, and which give a true and fair view free from material misstatement.

The Group’s internal controls and risk management systems are prepared and updated on a regular basis and designed to detect and eliminate any errors and omissions in the financial statements. However, as there will always be a risk of misappropriation of assets, unforeseen losses, etc., the internal controls and risk management systems may provide reasonable, but not absolute, assurance that all significant errors and omissions are detected and corrected.

Overall control environment

The composition of the Board of Directors and the Management Board ensures the relevant competencies with respect to risk management and assessment of internal controls in relation to the financial reporting process.

A description of the Group’s overall policies is posted here.

The Management Board is responsible for maintaining effective controls and a risk management system in connection with the financial reporting process. The Management Board has designed and implemented controls that are considered necessary and effective in order to address the risks identified in relation to financial reporting.

The Board of Directors has set up an audit committee, which monitors the adequacy of the Group’s internal controls on a regular basis and assesses significant risks in connection with the financial reporting process. The Board of Directors and the Management Board receive minutes of meetings held by the audit committee.

Risk assessment

The Board of Directors and the Management Board regularly assess the risks that the Group is exposed to, including risks related to the financial reporting process.

The Management Board and the audit committee regularly assess the need for implementing new internal controls to address identified risks.

In addition, the audit committee reviews, at least once a year, certain high-risk areas, including the following

• impairment test of significant intangible assets and business entities
• material changes to the accounting policies.

The significant risks in relation to the financial reporting are described in the annual report and in the notes to the financial statements, to which we refer.

Control activities

The control activities are based on the risk assessment. The control activities comprise manual and physical controls as well as automated application controls of IT systems.

The Management Board has established a formal group reporting process comprising monthly and quarterly reporting, including variance reporting. The reporting comprises the income statement, balance sheet and cash flow statement.

The Management Board has defined a number of policies, standards and procedures which have been approved by the audit committee and, with respect to special areas, also by the Board of Directors, including a treasury policy and an IT security policy.

Procedures have been set up to ensure that Thrane & Thrane always complies with relevant legislation and other regulations in relation to the financial reporting process. The audit committee is kept informed of significant legislative and other regulatory changes on a regular basis.

IT systems

Except for Naval Electronics AB, a wholly-owned Swedish subsidiary, all Group companies have a shared, global financial IT platform with all key data related to the financial reporting, ensuring a high degree of uniformity and transparency in systems and financial data. Decisions and analyses are performed on the basis of updated and relevant data.

Monitoring

Except for the Group’s Swedish subsidiary, reporting for the subsidiaries is handled centrally by the global head office finance function. Procedures have been implemented with respect to the Swedish subsidiary to ensure that any errors or omissions in reported data are communicated and corrected.

Additional analyses and control activities are performed in connection with the preparation of the annual financial statements to ensure that the financial statements are presented in accordance with the Group’s accounting policies as described in the annual report.

Internal controls are reviewed once a year, based on a number of internal and external assessments. This review is submitted to the audit committee.

The US subsidiary, Thrane & Thrane Inc., is not subject to a statutory audit, but comprised by the Group’s internal audit which ensures, among other things, compliance with the Group’s policies. The company and its financial statements are furthermore reviewed by the Group’s external auditors.

The audit committee follows up to ensure that any weaknesses in the internal controls identified and reported by the auditors appointed by the shareholders and any errors or omissions in the financial statements are corrected, and that controls and procedures are implemented to prevent similar errors or omissions.