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Content

Financial Statements and Corporate Governance

Internal Control and Risk Management Systems

  • Overview
  • Risk Management System
  • Internal Control Framework
  • Business Processes Covered by Internal Control Framework
  • Outlook for Evolution of EADS´ IC and RM Systems
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Overview

One of Management’s fundamental missions is to foster a positive internal control (“IC”) and risk management (“RM”) environment at EADS, in line with Corporate Governance best practices from the Netherlands, France, Germany and Spain. Recognizing that developments in the multi-jurisdictional legal and regulatory provisions relevant to EADS required a strategic approach to IC and RM, EADS launched an IC / RM project at the beginning of 2004. The project, coordinated by the EADS finance department, and supported by other headquarters functions and external consultants, is intended to:

  • ensure the Group’s compliance with current and expected future regulations;
  • identify weaknesses in the Group’s existing IC and RM procedures and propose improvements thereto; and
  • enable EADS to manage and minimize business and control risks throughout the Group.

Achievements in 2005

Building on the results of the comprehensive IC and RM review and evaluation process commenced in 2004, EADS critically assessed during 2005 the implementation status and quality of the integrated Group-wide IC and RM systems. An independent review process was launched to provide reasonable assurance regarding the effectiveness of the IC and RM systems in place. Additional quality and efficiency gains have been achieved.

In order to further enhance the quality of the IC and RM systems, a number of actions have been launched. Specific training sessions according to the “train the trainer” principle have been carried out to further train the IC coordinators who, in a second step, transferred their knowledge to the process owners in the BUs and headquarters functions. In addition, “lessons learned” process workshops took place, utilising the independent review information. These workshops provided process owners / coordinators with a platform for information on the independent review findings in other BUs as well as for the exchange of their specific experiences. The training sessions and the “lessons learned” workshop information were instruments to further coach and support the process owners and to secure the high quality standard of the yearly recurring self-assessment. The self-assessment and the independent review results were subsequently the subject of EADS’ top management’s discussions. Based on the bottom-up principle, the BU management boards reported the status quo of their IC and RM systems to the chief executive officers and the chief financial officers of the respective Divisions (Airbus, DS, MTA, Eurocopter, Space), who again reported to the EADS chief executive officers (the “CEOs”) and the EADS chief financial officer (the “CFO”).

Additionally, in order to maximize efficiency in the area of control design assessment, the “key control” principle was designed. A “key control” is a control that is critical to a specific control objective covering the related risk. Key controls can often be identified in areas such as authorization controls, exception reports, configuration controls, segregation of duties, system access, conversion controls, key performance indicators, management reviews and reconciliations.

Set out further below is a description of the integrated Group-wide IC and RM systems, comprising the developments during 2005.

Limitation

No matter how well designed, IC and RM systems have inherent limitations, such as vulnerability to circumvention or management overrides of the controls in place. Consequently, no absolute assurance can be given that EADS’ IC and RM procedures are, despite all care and effort, entirely effective.

Interaction with the EADS Management Process

The Board of Directors has overall responsibility for the Group’s IC and RM environment. EADS’ CEOs and EADS’ CFO are responsible for ensuring that IC and RM procedures are implemented throughout the Group. In addition, the Audit Committee oversees the Group-wide functioning of IC and RM procedures.

A general management principle of EADS is the delegation of entrepreneurial responsibility and powers to the operational units. Consequently, the day-to-day IC and RM functions are delegated to EADS’ Divisions and their respective BUs, whose management is responsible for operating and monitoring the IC and RM systems.

This principle of subsidiarity entails a clear separation of responsibilities between EADS headquarters and the Divisions or BUs. EADS headquarters sets the overall strategic and operational targets for EADS and assumes the ultimate responsibility for EADS’ guidance. The Divisions and BUs retain responsibility for all operational matters and activities within their scope, subject to audit.


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