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lEGal BackGrOund and suBjEct Of thE rEPOrt

In line with the explanatory memorandum to the BilmoG, a report on the main features of our internal control system (ICS) and risk management system (rmS) relating to the (consolidated) accounting process is included in mTu’s risk report so that the risk report presents a unified and integrated picture. We have also taken account of the German accounting standard DrS 5, which is still valid, and the amendment DrÄS 5.

The following statements apply to all group companies included in the consolidated financial statements.

OBjEctivEs and cOmPOnEnts Of thE intErnal cOntrOl systEm and risk manaGEmEnt systEm rElatinG tO thE accOuntinG PrOcEss

The Board of management, Supervisory Board and Audit Committee of mTu attach the greatest importance to ensuring the regularity, accuracy and reliability of mTu’s financial reporting for recipients of mTu’s financial statements. The control and monitoring processes required for this purpose are tailored to the complex business model of the mTu group and are an important part of a comprehen- sive corporate governance approach that defines the basic framework for creating sustainable value for shareholders, customers, employees and the public. High-quality financial reporting to these reci- pients is regarded as imperative. The organizational, controlling and monitoring structures described below – which ensure that business data are recorded, processed and assessed correctly and in accordance with statutory and financial reporting requirements and are subsequently incorporated in individual accounting instruments – form part of a company-wide risk management system and internal monitoring system. The latter consists of a company-wide internal control system, company- wide controlling and internal auditing.

The internal control and risk management system of mTu guarantees an efficient accounting process that avoids errors as far as possible or at least uncovers them at an early stage.

The accounting-related rmS is an integral part of the group’s comprehensive company-wide risk management system. It forms the basis for the uniform and appropriate handling of risks and for communicating them within the group. The risks entailed in financial reporting at group level are a part of the corporate risks to be monitored as a whole.

The design of the accounting-related internal control system (ICS) at mTu meets the requirements of the German Accounting Law modernization Act (BilmoG) as set out in the government’s expla- natory memorandum, the definition of IDW (Institut der Wirtschaftsprüfer IDW e.V.), and the internationally recognized and established framework of the Committee of Sponsoring organiza- tions of the Treadway Commission (CoSo I). mTu understands an internal control system (ICS) to be the principles, procedures and measures introduced at the company by its management that are aimed at the organizational implementation of the decisions taken by management to

safeguard the effectiveness and economic efficiency of business operations, which also includes protecting the company’s assets,

ensure the regularity and reliability of internal and external accounting, and comply with statutory regulations relevant to the company.

mTu attaches the greatest importance to the regularity, accuracy and reliability of its financial reporting.

The ICS of the mTu group is underpinned by an internal management system based on efficient and effective processes as well as process-integrated organizational security measures incorporated into the organizational structure and the process organization of the mTu group and its group companies. Checks integrated in the processes reduce the probability of errors occurring and help bring to light those that have already occurred.

The internal auditing system, which is process-independent, plays an important role in checking the effectiveness of and improving the accounting-related ICS and rmS. The corporate audit department of mTu assesses controlling and monitoring systems and contributes to their enhancement. It is also considered to have an advisory function that aims at improving business processes and ultimately the effectiveness of the internal control system. The charter of the corporate audit department complies with national and international requirements of the Deut- sches Institut für Interne revision e.V. and the Institute of Internal Auditors. The corporate audit department is also bound by the code of professional ethics. The administrative standards of the internal auditing department are available to all employees for perusal on mTu’s intranet. The Audit Committee of the Supervisory Board deliberates on risk management and on the

findings of internal auditing. In accordance with Section 107(3) of the German Stock Corporation Act (AktG), as amended by the German Accounting Law modernization Act (BilmoG), the Audit Committee is also responsible for monitoring the effectiveness of the risk management system, the internal systems of control, the internal auditing systems, the financial reporting process and the audit of the financial statements, and, in particular, assessing their independence.

main fEaturEs Of thE intErnal cOntrOl systEm and thE risk manaGEmEnt systEm rElatinG tO thE accOuntinG PrOcEss

mTu has a clear management and corporate structure. Key functions spanning more than one business unit are managed centrally, although the individual subsidiaries have a certain degree of autonomy at the same time.

The integrity and responsibility of all employees, also in terms of finances and financial reporting, are ensured by their undertaking to observe the company’s code of conduct.

As a result of employing highly qualified staff, conducting targeted and regular advance training programs, strictly complying with the dual control principle, and consistently separating functions in financial accounting when creating and entering accounting vouchers and in controlling, it is ensured that national accounting rules and international accounting standards are observed in annual and consolidated financial statements.

The IT systems are protected against unauthorized access by appropriate installations in the IT area. As far as possible, standard software is used in the finance systems area. Within the framework of the comprehensive IT strategy and the IT architecture, the IT system’s application controls are reviewed internally and externally on a regular basis against a background of a high level of automatic controls and plausibility checks. The IT general controls are checked during internal and external IT audits.

The Audit Committee deliberates on risk management and the findings of internal auditing.

To our shareholders Corporate Governance

» risk report

Group management report Consolidated Financial Statements Additional information

All the annual financial statements of group companies included in consolidation are audited by an auditor at least once a year, who also reviews the condensed consolidated financial statements and interim group management report in the half-yearly financial report.

An adequate system of guidelines has been drawn up and is updated in line with requirements. The departments and business units involved in the accounting process are suitably equipped and

regularly trained both in quantitative and qualitative terms.

Bookkeeping data received or forwarded are continually checked to see that they are complete and correct, e.g. by random checks. programmed plausibility checks are carried out with the software used, e.g. in the course of payment cycles as well as during the consolidation process. Suitable controls are in place in all accounting-relevant processes (such as dual control, analytical

checks).

Accounting-relevant processes are also checked by the process-independent corporate audit department.

The group accounting department, which is the immediate point of contact for the managing directors of subsidiaries regarding reporting and the annual and monthly financial statements, prepares and draws up the consolidated financial statements in compliance with IFrS. As every subsidiary and joint venture is obligated to report its business figures to the group

holding company in compliance both with the local GAAp and with IFrS in a standardized reporting format, any planned/actual deviations during the year can be identified rapidly, enabling a swift and appropriate response.

In the course of its monthly reports, Group Accounting monitors all the processes relating to the consolidated financial statements, such as capital consolidation, debt consolidation, consolidation of expenditures and revenues and the elimination of unrealized results of intra-group transactions, in consultation with the group companies.

For particular issues in the group and at individual subsidiaries and joint ventures, such as special accounting issues etc., Group Accounting also acts at holding company level as a central point of contact and controlling body for reporting. Special evaluations are also carried out during the year at the request of various management levels. If a need for support arises at short notice in connection with special, complex IFrS issues or company acquisitions requiring examination, this demand is met by qualified staff or by employing the services of external auditors.

Any deviations from plan during the year are identified rapidly.