Management of financial reporting risks in the year under review
Kendrion has adopted a structured approach to the management of financial reporting risks. The company perceives the structured management of financial reporting risks as one of the regular duties of the Controllers. In principle, the control measures are integrated in the various company processes. The local Controllers supervise compliance. Kendrion has implemented guidelines for the Controllers that specify the monthly close procedures and the minimum controls to be performed. Kendrion has developed a special internal audit programme (KiC: Kendrion-in-Control) for an independent assessment of the effectiveness of the companies’ control framework. Kendrion has to date opted for an audit programme with a scope of the companies that jointly account for approximately 80% of the value of the relevant reporting cycles. The reporting cycles Kendrion has implemented for its operating companies are revenue and accounts receivable, purchase and accounts payable, inventories, fixed assets, and human resources. The current audit programme set-up safeguards the independence of the internal auditors, since Controllers do not audit their own operating companies. The KiC testing also serves as a platform for management development and provides for the sharing of best practices between the various operating companies. Audits are conducted by Kendrion N.V. and/or external audit firm staff, depending on the available capacity.

Results from and shortcomings revealed by the audit programme
In 2011, Kendrion audited companies to assess the quality of their financial reporting risk management systems. These internal audits covered over 80% of the value of the relevant reporting cycles. The overall results from the audits carried out in 2011 were satisfactory, in view of the outcome of the internal audits conducted by Kendrion and the limited number of audit findings of the external local auditors communicated in the management letters and identified during the final audits. In 2010, shortcomings in the segregation of duties were identified in the ICT system at Kendrion Magneta, a company that was acquired earlier in 2010. These shortcomings have since been rectified or the risks have been mitigated by the implementation of compensating controls, as was established during an internal audit.

In view of the above, the Executive Board is of the opinion that the design of the internal risk management and control systems provide a reasonable assurance that the financial reporting does not contain any errors of material importance and that, with due regard for the aforementioned shortcomings, the risk management and control systems performed adequately in the year under review.