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Supplementary information on Lundbeck's internal controls in the financial reporting process is available in this section.
The Board of Directors has a supervisory duty and the Executive Management the overall responsibility for Lundbeck’s risk management and internal controls in relation to the financial reporting process, including compliance with relevant legislation and additional disclosure requirements pertaining to financial reporting.
The purpose of the risk management process and the internal controls is effectively to identify, manage and mitigate the risk of errors in the financial reporting process and to provide reasonable assurance that material misstatement and errors in relation to the financial reporting process are avoided. Furthermore, the purpose is also to support a complex commercial business, focusing on quality, effectiveness and strong ethics in every day transactions and decisions.
The Board of Directors has set up an Audit Committee, which has an advisory role relative to the Board of Directors, including on matters such as internal controls in the financial reporting procedures, special financial and accounting issues, evaluation of financial reporting and other financial information and risk management. The Audit Committee gathers independent advice and insights from the external auditors, who are present at the meetings. External audit presents their audit strategies and findings to the Audit Committee.
The Board of Directors approves the overall risk management policies presented by the Executive Management, including the treasury policy. These policies are incorporated in the internal control and risk management system, which comprises a clearly defined organizational structure, including roles and responsibilities. Based on this structure, Lundbeck has drawn up manuals describing the principal business procedures, internal controls, requirements on segregation of functions and duties, reconciliations, approval and authorization as well as accounting policies. Compliance with the guidelines is verified in an ongoing process.
Lundbeck has set up a central controlling function to check the financial reporting from all group companies, including compliance with the accounting policies. Each business area has been allocated a business controlling function which reviews the validity of reported earnings and underlying activities of each business area.
The Executive Management regularly assesses the risks that Lundbeck is exposed to, including risks related to financial reporting. In case of actual or expected changes that could affect the risks that Lundbeck is exposed to, the Executive Management will review such changes and consider appropriate mitigating actions together with the Board of Directors. At least once a year, the Audit Committee assesses whether the internal controls related to the financial reporting process are effective in relation to the risks identified.
Once a year, and as needed, the Audit Committee reviews the accounting policies and any changes thereto as well as critical estimates and judgments related to financial reporting. As part of the review, the committee discusses changes in accounting policies and the impact of critical estimates and judgments with the Executive Management. The Audit Committee reports the findings of these assessments to the Board of Directors, which approves the financial reporting process and the findings of the assessment.
Control activities are based on the risk assessment. The objective of the control activities is to ensure compliance with strategies, policies, manuals, procedures etc. established by the Board of Directors and the Executive Management and each business area, respectively, and Lundbeck aims to prevent, detect and correct any misstatement, discrepancies and errors, etc.
A formal reporting process has been established for the Group’s business areas. The process builds on a budget and estimate process as well as a monthly follow-up on realized figures, budget deviations and key figures, etc.
Requirements have been defined in respect of analyses of monthly financial data, etc. in the reporting packages that form the basis of internal and external financial statements. The business areas have established reporting procedures that are consistent with Lundbeck’s reporting process and the special operational issues of each business area. Supplementary information is gathered on an ongoing basis for use in ensuring compliance with any requirements regarding notes, other disclosure requirements and operational analyses.
Based on the risk assessment, minimum requirements have been established in respect of controls, reconciliations and analyses of financial data for the Group’s principal units and accounting items.
Lundbeck has established a Corporate Risk and Compliance department within Group Finance and financial compliance reviews are conducted throughout the organization based on a defined review strategy, risk assessment and plan approved by Corporate Management and the Audit Committee annually.
Information and communication
Lundbeck has established information and communication systems which, among other things, set out the general financial reporting requirements and external financial reporting requirements in accordance with current legislation and applicable regulations, including International Financial Reporting Standards as adopted by the EU.
As a result of ongoing work with business procedures, internal controls and changing financial reporting regulation, Lundbeck regularly updates the contents of the systems and manuals in respect of business procedures, internal controls, and requirements on segregation of functions and duties, reconciliations, approval and authorization and accounting policies. The manuals are accessible on Lundbeck’s intranet.
The risk assessment and control activities are monitored in an ongoing process. The monitoring comprises formal and informal procedures. These are used by the management and the persons who have ownership of processes, risks and control procedures. The process includes a review of the financial results, which are compared to budgets and estimates. An analytical control and ongoing assessments are performed of key figures. Major weaknesses and non-compliance with internal guidelines are reported to the Executive Management, who follows up on any issues.
As part of their audit of the financial statements, the auditors elected at the annual general meeting report on any major weaknesses in Lundbeck’s internal control and risk management system in the long-form audit report to the Board of Directors, whilst less significant weaknesses are addressed in a management letter to the Executive Management. The Board of Directors ensures that the Executive Management follows up on any outstanding issues, and the Executive Management ensures that the subsidiaries follow up on any weaknesses. Once a year, subsidiary managers and financial controllers declare that the reporting is consistent with Lundbeck’s guidelines. In connection with the financial reporting process, the Executive Management makes a separate statement that the consolidated reporting is consistent with Lundbeck’s guidelines and policies.
Corporate governance report
Lundbeck's Board of Directors position on the corporate governance recommendations made by NASDAQ Copenhagen A/S