The Group’s activities are varied, depending on each entity’s position in the value chain, and consequently require differentiated forms of management and follow-up. Good internal management systems are essential for success, and these must be continuously developed to accommodate fluctuating conditions.
Internal control is based on daily and weekly reports that are summarised into monthly reports tailored to the individual company, and at Group level. There is an emphasis on developing uniform reporting procedures and formats to ensure correct reporting from all entities and up to an aggregate level. As Lerøy Seafood Group is an international seafood corporation with decentralised operations and a significant volume of biological production, the company is exposed to a number of risk factors.
The Board of Directors work hard to ensure that the Group implements all measures required to control risk, to limit individual risks and to keep risk as a whole within acceptable constraints.
Operating risk. Fish farming takes place in relatively open seas, which provide the best conditions for fish farming in terms of the environment and health of the fish. However, this places significant demands on both personnel and equipment. The production plants are continuously subjected to the forces of nature, representing a certain risk of damage to equipment which, in turn, may result in accidental release of fish. The company reported some minor incidents involving accidental release of fish in 2018. Keeping animals in intensive cultures will always entail a certain risk of illness. The risk of illness can be reduced by ensuring high-quality smolt, vaccinations, good conditions and the correct locations for the fish. The Group also has a focus on sustainable feed.
Review by the Board of Directors. A significant share of the work of the Board of Directors involves ensuring that the company management is familiar with and understands the Group's risk areas, and that risk is managed by means of appropriate internal control. Frequent evaluations and assessments are conducted of both the management's and Board's understanding of risk and internal control. The audit committee plays an important role in these evaluations and assessments.
Description of the main elements of risk management and internal control related to financial reports. Internal control within the Group is based on the recommendation from the "Committee of Sponsoring Organizations of the Treadway Commissions" (COSO), and covers control environment, risk assessment, control activities, information and communication, and monitoring. The content of these various elements is described in detail below.
Control environment. The core of an enterprise is the employees' individual qualities, ethical values and competence, as well as the environment in which they work.
Guidelines for financial reporting. On behalf of the CFO, the Group’s Chief Accountant provides guidelines to entities within the Group. These guidelines set out requirements for both the content of and process for financial reporting.
Organisation and responsibility. The Group’s Chief Accountant reports to the CFO and is responsible for areas such as financial reporting, budgets and internal control of financial reporting within the Group. The Directors of the reporting entities are responsible for continuous financial monitoring and reporting. The entities all have management groups and financial functions which are adapted to their organisation and business.The entity managers shall ensure implementation of appropriate and efficient internal control, and are responsible for compliance with requirements.
The audit committee shall monitor the process of financial reporting and ensure that the Group's internal control and risk management systems function efficiently. The audit committee shall also ensure that the Group has an independent and efficient external auditor. The financial statements for all companies in the Group are audited by an external auditor, within the framework established in international standards for auditing and quality control.
Risk assessment. The Group’s Chief Accountant and the CFO identify, assess and monitor the risk of errors in the Group's financial reports, together with the managers of each entity.
Control activities. Reporting entities are responsible for the implementation of adequate control actions to prevent errors in the financial reports. Processes and control measures have been established to ensure quality assurance of financial reports. These measures comprise mandates, division of work, reconciliation/documentation, IT controls, analyses, management reviews and Board representation within subsidiaries. The Group’s Chief Accountant provides guidelines for financial reporting to the different Group entities. The Group’s Chief Accountant ensures that reporting takes place in accordance with prevailing legislation, accounting standards, established accounting principles and the Board's guidelines. The Chief Accountant and the CFO continuously assess the Group's and the entities' financial reports. Analyses are carried out in relation to previous periods, between different entities and in relation to other companies within the same industry.
Review by Group management. Group management reviews the financial reports on a monthly basis, including the development in the income statement and balance sheet figures.
Reviews by the audit committee, Board and general meeting. The audit committee and Board review the Group's financial reports on a quarterly basis. During such reviews, the audit committee has discussions with the management and external auditor. At least once a year, the Board holds a meeting with the external auditor without managerial presence. The Board reviews the interim accounts per quarter and the proposal for the year-end financial statements. The financial statements are adopted by the annual general meeting.
Information and communication. The Group has a strict policy of providing correct and open information to shareholders, potential shareholders and other stakeholders. Item 13, "Information and communication", contains more detailed information.
Follow-up of reporting entities. Those persons responsible for entities which issue reports shall ensure appropriate and efficient internal control in accordance with requirements and are responsible for compliance with such requirements.
Group level. The Chief Accountant and CFO review the financial reports issued by the entities and the Group, and assess any errors, omissions and required improvements.
External auditor. The external auditor shall provide the audit committee with a description of the main elements of the audit from the previous financial year, in particular significant weak points identified during internal control related to the process of financial reporting.
The Board of Directors. The Board, represented by the audit committee, monitors the financial reporting process.
Read the complete overview of risk management in the annual report for 2018 at www.leroyseafood.com.