Report on the Key Elements of the Internal Control System (Section 243a Para. 2 of the Austrian Commercial Code)
The Lenzing Group’s internal control system is designed to safeguard the reliability of financial reporting, ensure compliance with legal regulations and corporate guidelines, and present the operative risks that affect the consolidated balance sheet (consolidated statement of financial position) and consolidated income statement. The Managing Board is responsible for establishing and implementing the Lenzing Group’s internal control system.
The Lenzing Group’s organizational structure and processes form the main basis for the control environment and consequently the internal control system within the company. In the area of organizational structure, competencies and responsibilities are clearly assigned at the Group’s various management and hierarchical levels. In addition to the Austrian sites, this includes all international subsidiaries. The Lenzing Group’s global presence and, as a consequence, its decentralized corporate and site structures are taken into consideration by centralizing key corporate functions. The respective management teams are responsible for coordinating and monitoring business operations at national level.
The company’s process organization is characterized by a highly developed and extensive set of rules. These specifications and guidelines provide the framework for the control system. The main areas in terms of approvals and competencies for the Group as a whole are regulated by the Lenzing Group Mandates. The respective management teams are responsible for monitoring compliance with regulations and controls.
The Corporate Audit department is responsible for monitoring the application of, and compliance with, controls in business operations.
Financial reporting
The central Corporate Accounting and Corporate Tax areas are responsible for financial reporting, the accounting-related internal control system, and tax issues within the Group.
The goal of the accounting-related internal control system is to uniformly implement the legal standards, the generally accepted accounting principles and financial accounting regulations of the Austrian Commercial Code (UGB) and, for the purposes of Group accounting, the financial accounting regulations of the International Financial Reporting Standards (IFRS) as well as the internal financial accounting guidelines, in particular the Group-wide financial accounting manual and schedules. The accounting-related internal control system is designed to safeguard the timely, uniform, and accurate recording of all business processes and transactions. It thereby supports the preparation of reliable data and reports on the Lenzing Group’s financial position and financial performance. The subsidiaries included in the consolidated financial statements prepare financial statements at company level in accordance with local law and IFRS in a timely manner and are responsible for ensuring that the central rules are implemented at individual company level. They are supported and monitored in these activities by the Corporate Accounting and Corporate Tax functions. The Supervisory Board’s Audit Committee receives reports on the accounting-related control system. In addition, the annual financial statements are audited by external certified public accountants, and the half-year financial statements are reviewed on a voluntary basis.
The Corporate Treasury Department, and above all the payments area for which this department is responsible, is classified as a highly sensitive area due to its direct access to the company’s assets. The accompanying increased need for security is reflected in comprehensive regulations and instructions for all relevant processes. The entire process, from procurement through to payment, is subject to stringent corporate guidelines. These guidelines are largely supported by a Group-wide IT system and require stringent functional separation, a clear authorization concept to prevent authorization conflicts as well as a stringent dual control principle for transaction settlement, in particular for payments, as well as regular reporting, among other measures.
Compliance with legal regulations and internal guidelines
The Lenzing Group’s Legal, Intellectual Property & Compliance Department is responsible for legal management. This central function is responsible for certain legal matters of the Lenzing Group: a Compliance Management System (CMS) is used in order to ensure that legal and internal company regulations are complied with throughout the Group. This department reports directly to the Lenzing Group’s Chief Financial Officer. The CMS evaluates compliance-relevant risks in the narrower sense, analyzes deviations from standards and, if necessary, takes measures to reduce them (“prevent, detect, respond”). Furthermore, compliance-relevant guidelines (such as anti-bribery and anti-corruption as well as antitrust directives) are specified, and employees are trained accordingly. Support is also provided for specialist departments responsible for compliance with other legal and internal company regulations. The Managing Board and the Supervisory Board (or the Audit Committee) receive regular reports on compliance measures.
The Lenzing Group complies with the rules defined by the Austrian Corporate Governance Code (ACGC) and prepares a Corporate Governance Report which is published as part of the Annual Report. The Corporate Governance Report requires the participation of the Supervisory Board, which delegates the responsibility for monitoring compliance with the related obligations to the Audit Committee.