Internal control

The Board of Directors at Incap Corporation is responsible for determining operating principles for internal control, as well as for monitoring internal control. Internal control is executed at different levels at Incap by the Board of Directors, management and personnel.

The objective of internal control is to assure the management that the following items are under control:

- Operations are effective, functional and in line with the strategy.
- Financial reporting and information given to the management are reliable, complete and up-to-date.
- Financial reports issued by the company give substantial and correct information on the company's financial position.
- The company operates according to specified internal operating instructions.
- The Group follows laws and regulations, as applicable.

The President and CEO, and the directors of business units and Group operations are responsible for arranging adequate control actions, as well as training related to the observance of orders in their units. Moreover, they make certain that bookkeeping and administration in their own areas of responsibility comply with the laws, Group's operating principles and the instructions and orders given by the Board of Directors at Incap Corporation.

Incap's internal control consists of operations by the Board and the management team, as well as of different financial and accounting operations. There are defined control actions for every level of organisation. Their purpose is to ensure that all applicable laws, regulations, internal operating instructions and ethical principles are observed. Control actions refer to the operating instructions and procedures that are used to ensure that the management's orders are obeyed. These actions include, for instance, approvals, authorisations, inspections, balancing, performance monitoring, protection of property and division of tasks.

Individual operations are monitored continuously with separate evaluations, such as internal audits and audits of the accounts, supplier audits made by customers, as well as external and internal quality audits.

The internal control of financial reporting is performed by the Group's financial department located in Finland. The Group's financial and controller functions monitor that the financial reporting processes and control instructions are observed. Moreover, the financial and control functions monitor the correctness of external and internal financial reporting.

Besides the Group's external and internal reporting, the financial department is responsible for financing, hedging against currency risks and transfer pricing.

Financial reporting aims to produce up-to-date and relevant information for decision-making. The company's reporting is based on IFRS standards. The interpretation and application of accounting standards is centralised in the Group's finance and administration function. The standards were used as the basis when creating Group-wide recognition principles, as well as reporting and accounting standards. The controlling function, which is part of the financial department, provides the whole organisation with instructions on the general principles for monthly reporting. In addition, it is responsible for special reporting instructions related to budgeting and forecasting. The Group's financial department distributes internal instructions on the processes and practices related to financial reporting. The finance and administration function also provides other organisations with focused training related to practices and changes in financial reporting.

Another task of the Group's financial department is to take care of accounting and reporting for the Finnish parent company. External accounting and reporting of the Estonian subsidiary are managed by the local financial department, but internal accounting is managed by the Group's financial department. Internal and external accounting tasks at the Indian subsidiary are managed by the local financial department. The subsidiaries report actual figures on a monthly basis to the Group's reporting system. Consolidated financial statements are compiled with a tool chosen for consolidation and reporting. The Group's financial department draws up actual reports and forecasts that are part of the Board of Directors' documents used at monthly meetings.

The Group has no specific organisation for internal auditing due to the scope of its business. The company has arranged internal auditing so that the audit service is acquired from an external, independent, professional and adequately resourced auditing service provider selected by the Group's Board of Directors. The service provider usually is an authorised public accounting firm. The action plan for internal auditing is taken into account in the annual plan for auditing the accounts. The internal auditing function reports directly to the Board of Directors and top management. The Board of Directors is responsible for the appropriateness and independency of internal auditing. The CFO acts as the coordinator for internal auditing.

Internal auditing follows the operating instructions and plan accepted by the Board of Directors at Incap Group. The audit is planned using an annual action plan with definitions for audit objects and auditing resources.

Internal auditing monitors the operations of all units and functions at Incap Group. The audit is primarily focused on activities that are essential to the reliability of the company's operations.

The company's internal auditing function reviews and evaluates Incap Group's internal control systems, the legality and appropriateness of risk management activities, the efficient and economical use of resources, as well as the reliability of the information used in management tasks and decision-making.

Internal audit by an external auditing service provider was carried out during spring 2011 in India according to the plan for internal auditing.