Annual Report 2017

Rothschild & Co | Annual Report 2017

Internal control, risk management and accounting procedures

Once data has been input into SAP FC, “blocking” controls defined by the

Group are applied in order to validate the consistency of the accounting

data, the correctness of the flows and the completeness of the analyses.

In addition to these controls, the procedure for preparing the consolidated

accounts includes:

• the reconciliation of intercompany transactions and the distribution of

shareholdings in the Group’s companies;

• checks on the application of consolidation adjustments;

• analysis and justification of shareholders’ equity;

• analysis of changes in balances and ratios on a quarterly and year-to-

date basis; and

• review at consolidated level of the provisioning policy.

5.3 Accounting control process

The accounting control process at Group level complements the control

systems implemented at each level of the Group’s organisation.

5.4 Accounting control mechanisms in

the Group

Group Finance relies on a decentralised system where the primary control

functions are assigned to the persons responsible locally for producing the

financial statements.

Local accounting data is collected using SAP FC, the Group’s consolidation

tool. The local finance departments are responsible for validating the

accounting data entered in SAP FC through three levels of control:

• a first level – of the self-control type – which is embedded in the local

accounting processes. These controls are operated daily;

• a second level, which is operated by accounting managers, for example

involving controls on securities positions and consistency controls

designed to ensure the reliability and completeness of the accounting

and financial information; and

• a third level, which involves the Statutory Auditors who certify the

accounts, carried out on an annual and half-yearly basis. Note that

not all entities are audited (but most are) and that only the large entities

and the significant balances are reviewed for the half-year accounts.

The Internal Audit department is also involved in the control process

as a third level control.

As described above, local entities’ accounting information is input on an

IFRS basis into SAP FC templates. Once data has been input, “blocking”

system controls are applied.

5.5 Accounting control mechanisms at

consolidation level

In addition to the control procedures described above, the consolidation

process is accompanied by additional checks on the integrity of the

consolidated accounting information. These checks are carried out by:

• Group Finance, which in addition to its controls on the integrity of

the accounting information, checks the consistency of the data

reported with:

–– its knowledge of the major transactions;

–– the Group management accounts and the reconciliation of

differences with the Group financial accounts;

–– a category-by-category analysis of key balances; and

–– papers produced by other relevant Committees (for example,

the Remuneration and Nomination Committee, the Group ALCO,

the Group Executive Committee, etc.).

• Rothschild & Co Gestion, as Managing Partner of Rothschild & Co,

which approves the consolidated accounts before they are sent to the

Audit Committee.

• The statutory auditors, in the context of the certification of the accounts.

Their work is carried out in accordance with professional standards.

• A final level of control takes place through the work of the Audit

Committee, which is responsible for examining the Rothschild & Co

consolidated accounts.

5.6 Control framework for regulatory reports

The Group Regulatory Reporting Division draws up the relevant Group

procedures and ensures the quality and reliability of calculations of the

solvency ratio, credit risk, market risk, operational risk and regulatory capital.

At Group level, the regulatory reports prepared for the

Autorité de contrôle

prudentiel et de résolution

are those related to:

• solvency ratio (including Capital Adequacy and Risks reports) Leveraged

Ratio and Large Exposures;

• liquidity Coverage Ratio, Additional Liquidity Monitoring Metrics and Net

Stable Funding Ratio; and

• IFRS/FINREP reports on a regulatory scope.

There are currently four main procedures related to regulatory

reporting process:

• solvency ratio procedure was first written and communicated in

May 2010;

• large exposures procedure;

• procedures have been defined for FINREP and the list of subsidiaries;

and

• counterparty master data procedure.

Furthermore, each quarter the Group regulatory reporting division circulates

quarterly regulatory reporting instructions and a quarterly Group regulatory

finance newsletter to all relevant finance staff in the Group.