Internal Control

Below are extracts from the Corporate Governance section of the Annual Report of Rotork plc 2010:

Board members recognise their responsibilities to ensure that the statutory requirements to deliver balanced and understandable assessments of the Company's position are achieved. The Board is satisfied that these are responsibilities are met by using the financial systems and applying the procedures described below, supported by our system of internal control.

This was achieved by:

• using an appropriate system of accounting records, capable of operating with reasonable accuracy and in compliance with local and international financial and legal reporting requirements. The basis used to prepare our Group financial statements is International Financial Reporting Standards (‘IFRS') as adopted by the European Union. The Company financial statements and Directors' Remuneration Report are prepared in accordance with applicable law and United Kingdom Generally Accepted Accounting Standards;
• using IFRSs to ensure a true and fair view of the state of affairs of the Group is given, including our profit or loss for the period;
• deploying appropriate accounting policies within the framework of IFRS and ensuring these are consistently applied;
• making judgements and preparing estimates that are reasonable and prudent;
• operating within the guidelines of all the disclosure advice provided by UK and international statute;
• considering whether adoption of the going concern basis is appropriate;
• maintaining robust assurance processes and controls over our financial reporting procedures;
• extending these principles to half-yearly reports and other reports in the public domain.

The Board reviews the effectiveness of the system of internal control and risk management annually. The review covers financial, operational, compliance and risk management controls. The role of management is to implement and maintain the internal control and risk management systems. The system of internal control is designed to reduce but cannot eliminate the risks of failure to meet business objectives. Internal control therefore can only provide reasonable but not absolute assurance in meeting such business objectives or against material misstatement or loss. The processes that are used by the Board to review the effectiveness of this system of internal control include the following:

During the year the Audit Committee:

• Monitored and reviewed the effectiveness of internal audit activities;
• Reviewed and monitored external auditor independence and objectivity and the effectiveness of the audit process;
• Considered reports from management, internal and external audit on the system of internal financial control and any material control weaknesses;
• Received reports on health & safety;
• Discussed with management the range of actions taken on problem areas for the business identified by Board members or in the internal and external audit reports.

Additionally:

• The Board receives copies of the minutes of all Audit Committee meetings and a briefing on all Audit Committee meetings by the Committee Chairman;
• The Board reviews the role of insurances in managing risk across the Group;
• The Board regularly receives written and oral reports from management on all aspects of production, operations, financial and risk management matters. Prior to the year end the full Board, following detailed consideration by the Audit Committee, formally reviews the effectiveness of the Group’s system of internal control.