The IC system is based on a variety of IC policies and procedures within EADS. It is designed to provide reasonable assurance to the BoD, the CEOs and the CFO regarding the achievement of the following objectives:

The IC system covers all three objectives with the main focus on the reliability of financial reporting to reasonably assure that it does not contain any material inaccuracies.

The management of the Divisions, BUs and HQ departments is responsible for the operating and monitoring of the IC system within their area of duty. They seek to ensure that the appropriate controls to achieve the control objectives defined by EADS HQ and listed in IC templates are in place and operate effectively on an ongoing basis.

EADS has established formalized internal control self-assessment mechanisms, to be applied by each identified process/control owner on a regular basis, who must assess the operating and design effectiveness of the internal controls in place for his process. Identified control deficiencies are evaluated and prioritised into “deficiencies”, “significant deficiencies” and “material weaknesses”. For each deficiency, a remediation action is defined and implemented. The progress is monitored by the respective Division, BU and HQ department management and reported to EADS HQ. To verify the successful implementation of the remediation actions, the remedied controls are periodically re-assessed. Each year, corporate audit provides an independent review of the status of the IC systems in selected Divisions, BU and HQ department. Generally, relevant personnel (e.g., IC coordinators, process owners) receive training in order to be informed of new/changed laws and regulations regarding IC and to be updated on relevant process steps and activities regarding the IC system.

Based on the self-assessments, management of each Division, BU and HQ department prepares formal statements as to the adequacy and effectiveness of the IC systems within their scope of responsibility.

Joint ventures, such as MBDA, operate separate IC systems. Alignment with the EADS IC system is facilitated, inter alia, through EADS’ presence on such affiliates’ supervisory and management bodies (e.g., MBDA Board of Directors, audit committees).

Monitoring of Internal Controls — Management discussions

In addition to regular monitoring activities at the Divisional, BU and HQ levels, their assessments about the adequacy and effectiveness of the IC systems are discussed in depth between EADS CEOs and CFO and the respective Division/BU CEOs and CFOs or the HQ-functions heads. These discussions serve to prioritise potential issues at EADS level, define and commit appropriate actions if needed, and draw conclusions for the overall EADS IC and RM report.

Management Sign-Off Process — Sub-representation

Once every year, identified significant deficiencies and material weaknesses are reported in sub-representation letters, providing assurance in the form of management assessment of the quality of the IC systems and of the IC risk exposure. Since the 2004 reporting cycle, a formalised sign-off process is in place whereby EADS’ CEOs and CFO confirm to the BoD, to the best of their knowledge, whether:

• the IC system is adequately structured to ensure the reliability of financial reporting within EADS;
• the control activities in place are completely and accurately described in the IC templates and/or other relevant process documentation and guidelines;
• the owner of each control activity is clearly identified; and
• the controls in place are appropriate for EADS’ business and meet the defined control objectives.

The CEOs’ and the CFO’s IC statement is mainly based on the self-assessments, independent reviews and management discussions described above, and is substantiated by sub-representation letters provided to the CEOs and CFO by all Divisional and BU management.