operation and, collectively, for the Group as a whole. The management group held six minuted meetings during 2008. In addition to minuted meetings of the management group, quarterly reviews of operations are held with the heads of divisions and geographical regions. These deal with the business situation, earnings, earnings projections for the forthcoming 12 months and specific questions for the various components of operations.
Remuneration, pensions and severance pay/termination of employment
The principles of remuneration to the President and other members of senior management are decided by the AGM. For additional information regarding Group management’s fixed and variable remuneration, pensions and severance pay, see pages 87 and 88.
GOVERNANCE AND CONTROL
Financial reporting
The Board oversees financial reporting through instructions to the President. The Audit Committee prepares all the financial reports issued by the company, while the Board as a whole addresses the company’s quarterly reports and year-end report. The Audit Committee also handles quarterly risk reporting and information about risk assessments, legal disputes and any irregularities that may occur.
Policy documents
As governance instruments, the Board has decided on a number of policy documents, which are to be used in daily work within the company. Examples of such documents include the Board’s procedural rules, the President’s instructions, reporting instructions, business principles, investment policy, financial policy and communications policy. The Board annually checks that these instructions and policies remain relevant and up to date.
Internal controls
The Board is responsible for the company’s internal controls, the overall purpose of which is to protect shareholders’ investments and the company’s assets. The Board as a whole received reports from the company’s external auditors at three Board meetings during 2008. In addition, the Board’s Audit Committee received reports from the company’s external auditors on four occasions. On one occasion, the Board received a report from the company’s external auditors without the President or any other representative of executive management being present.
The internal audit team took part in all meetings with the Audit Committee
For further information about internal controls, see the Board’s report on internal controls provided in the Corporate Governance Report (see page 117). It describes the control environment, risk assessment, control activities, information and communication, and the supervision of the internal control system.
Internal audit
The internal audit consists of two auditors supplemented by internal specialist company resources and auditors from the KPMG organization for internal auditing.
During 2008, 19 internal audits were carried out. The audits encompassed a broad spectrum of functions and areas of inquiry. The scope was determined by the Board and involved examining, for example:
  • efficiency within the current units
  • the processes that ensure that the principles
    for best practice are applied and that the controls that have been systematically built in are relevant
  • the existence of systems to ensure that
    financial transactions are implemented, archived and reported in an accurate and lawful manner
  • the systems and processes established by
    the management group to ensure that business operations are conducted in accordance with the policies and procedures that management has established.
Opportunities to improve management control, the company’s profitability and the organization’s image may be identified during audits.
The internal audit team reports to the Audit Committee on the results of the audits performed. On these occasions, the planning parameters for the next six to eight months are also established.
The internal audit team also distributes reports from individual audits to the Group Management members concerned. To ensure that specific effects result from the internal audits, a procedure for continuous follow-up of agreed measures has been established.
Risk management
Alfa Laval’s risk management processes are explained in the Risk management section on pages 78-83 of the Annual Report.
Audits and auditors
The AGM decided to reelect Authorized public accountant Kerstin Mouchard and to appoint Authorized Public Accountant Staffan Landén as the company’s auditor. The AGM also decided to reelect the Authorized Public Accountants Håkan Olsson and Thomas Swensson as the company’s deputy auditors. All are Authorized Public Accountants with Ernst & Young AB.
Kerstin Mouchard, born in 1952, has been an auditor for Alfa Laval since 2004. Staffan Landén, born in 1963, has been an auditor for Alfa Laval since 2008. Håkan Olsson, born in 1961, has been a deputy auditor for Alfa Laval since 2000. Thomas Swensson, born in 1957, has been a deputy auditor for Alfa Laval since 2004.
In Alfa Laval’s judgment, none of these auditors has any relationship to Alfa Laval, or a company close to Alfa Laval, that could affect their independent status in relation to the company. All of the auditors also possess the requisite competence to be able to execute their assignment as auditors for Alfa Laval.
Remuneration of auditors (see Note 4 on page 88)
An audit assignment involves examining the Annual Report, evaluating the accounting principles employed, making significant judgments concerning corporate management, evaluating the general presentation in the Annual Report and conducting an overall review of the interim report for the third quarter. It also involves a review on which to base a decision on discharging the Board from liability. Any other tasks performed are defined as other assignments.
As an extension of our auditing assignment, which has now been completed as a result of our Audit Report dated March 2, 2009, we have reviewed the Corporate Governance Report (pages 112-116) for Alfa Laval AB for 2008. Based on our review, nothing has come to our attention that causes us to believe that the Corporate Governance Report does not comply with the guidelines contained in the Swedish Code of Corporate Governance.
Lund, March 2, 2009
Kerstin Mouchard
Authorized Public Accountant
Staffan Landén
Authorized Public Accountant
Board of Directors’ report on internal control for fiscal year 2008
The Board’s description of the internal control.
Control environment
Effective work by the Board forms the foundation for good internal control. The Board has established clearly defined processes and priorities for its work and the Board’s committees. An important part of the Board’s work is to formulate and approve fundamental rules and guidelines. These include finance policy, business principles, rules for investment decisions, financial reporting requirements and communications policy. These rules and guidelines are intended to create the foundation for good internal control. They are revised and updated continuously as the need arises. The Board has also ensured that the organizational structure is logical and transparent, with clearly defined roles, responsibilities and processes that facilitate effective management of operational risks and enable the company to fulfill its goals. The responsibility structure includes evaluations by the Board of business performance and results through a purpose-adapted package of reports that contains results, forecasts and analyses of important key factors. The Audit Committee has meetings with the internal audit team, the external auditors and various specialists in senior management and support functions. The Board receives reports on these meetings. The Audit Committee’s work also includes continually monitoring the effectiveness of internal controls. The Audit Committee’s duties also involve evaluation and discussion of significant issues within the areas of accounting and financial reporting. Group Management maintains and manages the system of internal controls needed to manage significant risks in ongoing business operations.
This work includes ensuring that there are appropriate rules and guidelines for such areas as HR matters, staffing and skills development.
Management’s responsibility also includes a commitment to active efforts to ensure that all employees understand the requirement for, and the individual’s role in, maintaining effective internal control.
Risk assessment
The framework for ongoing business operations and follow-up includes procedures for risk assessment and thus also for ensuring the production of accurate financial reporting. These procedures include, for example, the following areas:
  • Risk assessments related to strategic
    planning, forecasts and acquisition activities that are intended to identify events in the market or in business operations that could, for example, lead to changes in valuations of assets and currency exchange-rate effects on earnings.
  • Processes to track changes in accounting
    regulations that ensure that these changes are implemented correctly in the financial reporting.
Control structures
The control structures have been designed to manage risks that the Board and management consider to be significant for business operations, internal control and financial reporting.
The control structures consist, firstly, of an organization with clearly defined roles that support an effective, and from an internal control perspective, appropriate division of responsibility, and secondly, specific control activities that are intended to discover or prevent the risk of errors in the reports.
Examples of control activities include clearly defined decision-making processes and priorities for important decisions (investments, agreements, acquisitions, divestments, etc.) earnings analyses and other forms of analytical follow-up, reconciliations, inventory-taking and automatic controls in the key IT systems related to financial reporting.
Information and communication
The company’s main control documents in terms of regulations, guidelines and manuals, to the extent they are related to financial reporting, are updated continuously and communicated via the intranet, memorandums, internal meetings, etc. The effectiveness of this communication is monitored continuously to ensure reception of the information.
There are also formal and informal information channels that enable employees to communicate important information to relevant recipients and ultimately, if necessary, to the Board of Directors.
A clearly defined policy has been formulated for communication with external interests, including guidelines for modes of communication. The policy is intended to ensure accurate and complete compliance by all persons responsible for the dissemination of information.
Follow-up
The internal control process is monitored mainly by three entities outside the line organization: the Audit Committee, External Audit and Internal Audit.
The Audit Committee established the principles that apply for the company with respect to accounting and financial reporting, and monitors compliance with these regulations.
The Audit Committee meets with the external auditors regularly to secure information about the focus and scope of the audit and to discuss results and coordination of the external and internal audits.
The Audit Committee also establishes the direction, extent and time schedules for the internal audit team’s work. The internal audit team reports the results of its audits to the Audit Committee at the latter’s meetings. Results of the audit reviews are also reported continuously to Group Management so that any necessary measures may be taken.
The extent of the internal audit includes operational efficiency, compliance with regulations and guidelines and the quality of financial reporting from the subsidiaries.
This report comprises only a description of how internal control is organized without expressing an opinion on how well it functions.
Lund, March 2009
Board of Directors