Control systems in financial statements preparation process

Control mechanisms are designed and used to reduce the number of irregularities and fraud in the Bank’s activities, ensure the quality and correctness of the tasks performed, compliance of the Bank’s operations with the generally binding laws, internal regulations, as well as the fairness of accounting, reporting and management information.

Internal control and risk management

Internal control system being in force in PKO Bank Polski SA, and which is composed of the following items: control mechanisms, compliance of Bank’s operations with binding laws and internal regulations of the Bank and internal audit.

The objective of the internal control system is to support decision processes which contribute to ensuring the following: the Bank’s effectiveness and efficiency, reliability of its financial reporting and the compliance of Bank’s operations with binding laws and internal regulations. Within the system of internal control the Bank identifies risk: connected with every operation, transaction, product and process, resulting from the organisational structure of the Bank and the Group.

Control mechanisms are designed and used to reduce the number of irregularities and fraud in the Bank’s activities, ensure the quality and correctness of the tasks performed, compliance of the Bank’s operations with the generally binding laws, internal regulations, as well as the fairness of accounting, reporting and management information. All of the Bank’s employees are obliged to use the control mechanisms. The use of the control mechanisms is verified as part of the functional internal control and internal audits.

The functional internal control is a set of activities undertaken on an on-going basis, which consist of verifying the correctness of the activities performed by all of the Bank’s employees, including the use of control mechanisms, to ensure the compliance of the activities performed with the generally binding laws and the Bank’s internal regulations, as well as counteracting and responding to irregularities on a current basis.

In order to ensure the fairness and correctness of the process of preparation of the financial statements, the Bank designed and implemented a number of control mechanisms which were embedded in the functionality of the reporting systems and in the internal regulations relating to this process. These mechanisms consist of, i.a. verifying and reconciling reporting data on an on-going basis with the books of account, subsidiary ledger accounts and other documents underlying the preparation of the financial statements, and with the binding laws concerning the accounting policies and the preparation of financial statements.

The process of the preparation of the financial statements is subject to cyclical multi-level functional internal control, in particular concerning the correctness of accounting reconciliations, merit-based analysis and or fairness of information. In accordance with the internal regulations, the financial statements are accepted by the Management Board of PKO Bank Polski SA and the Supervisory Board’s Audit Committee established by the Supervisory Board of PKO Bank Polski SA in 2006.

The duties of the Audit Committee of the Supervisory Board include i.a. monitoring the financial reporting process, including the review of interim and annual standalone and consolidated financial statements, with particular emphasis on:

• information on the significant changes in the accounting and reporting policies and the way of making management estimates and judgments important for the financial reporting, as well as the financial reporting process compliance with applicable laws,
• significant adjustments resulting from the audit and the auditor's opinion on the audit of the financial statements, discussing any issues, concerns and doubts arising from the audit of financial statements and analysis of the external auditor's recommendations, addressed to the Bank’s Management Board and the response of the Bank’s Management Board in this regard.
• Description of the cooperation of the Audit Committee with the external auditor and its assessment is included in the report prepared annually on the activities of the Audit Committee constituting appendix to the report of the Supervisory Board on the activities of this body.

Entity authorised to audit financial statements
In accordance with the Resolutions of the Supervisory Board (final of 29 January 2014) on the rules for selecting an auditor, PKO Bank Polski SA applies the rule according to which it is assumed that:

• the maximum period of uninterrupted cooperation with the same audit company is 6 years. Starting from the cooperation period covering audit of the financial statements for years 2015-2017, the maximum cooperation period is 5 years,
• contracts for audit and review of the financial statements are concluded for the maximum period of 3 years,
• an audit company may perform an audit of the financial statements again after the period of at least 3 years.

Principles set up by the Supervisory Board in 2010 were applied for the choice of the entity authorised to audit financial statements for the year 2014, with the exception of certain provisions relating to the modalities for the appointment of the entity authorised to audit financial statements, including limitations to six years maximum period of uninterrupted cooperation with this entity.

Bank applied to the Polish Financial Supervision Authority to express a favourable opinion regarding the extension of the period of cooperation with the authorised entity, i.e. PricewaterhouseCoopers Sp. z o.o. for one year. On 19 December 2013, the PFSA complied with the Bank’s request, considering the extension of the Bank's cooperation with the current auditor as an exceptional deviation from the general rule.

Information concerning the agreement concluded with the entity authorised to audit financial statements:

• On 28 March 2011, the Supervisory Board of PKO Bank Polski SA selected PricewaterhouseCoopers Sp. z o.o. as the entity authorised to audit and review the Bank’s financial statements and the consolidated financial statements of the Group. PricewaterhouseCoopers Sp. z o.o. with its registered office in Warsaw, Al. Armii Ludowej 14, has been entered to the list of registered auditors maintained by the National Council of Registered Auditors with No. 144. The Bank’s Supervisory Board appointed the auditor authorised to audit and review financial statements in accordance with applicable laws and occupational standards, on the basis of par. 15 clause 1 point 3 of the Bank’s Memorandum of Association.
• On 14 April 2011, PKO Bank Polski SA concluded a contract with PricewaterhouseCoopers Sp. z o.o., an entity authorised to audit financial statements, for an audit of standalone and consolidated financial statements for the years ended 31 December 2011, 2012 and 2013 respectively and for a review of standalone and consolidated financial statements for the six-month periods ended 30 June 2011, 2012, 2013 respectively. In the past, the Bank used the services of PricewaterhouseCoopers Sp. z o.o. for the purpose of auditing and reviewing the financial statements of PKO Bank Polski SA and the Group for the years 2008-2010, and for related services.
• On 5 March 2014, the Bank’s Supervisory Board appointed PricewaterhouseCoopers Sp. z o.o. as an entity authorised to audit and review of the Bank’s financial statements and the Group’s consolidated financial statements. The choice of entity authorised to audit and review of financial statements was made by the Bank’s Supervisory Board in accordance with applicable regulations and occupational standards based on § 15 section 1 point 3 of the Bank’s Memorandum of Association. 
• On 18 June 2014, an agreement for the audit of the financial statements and consolidated financial statements for the year ended 31 December 2014 and the review of the financial statements and consolidated financial statements for the six-month period ended 30 June 2014, was concluded between PKO Bank Polski SA and PricewaterhouseCoopers Sp. z o.o. - the entity authorised to audit of the financial statements.
• Total fees payable to PricewaterhouseCoopers Sp. z o.o. under the contracts concluded by PKO Bank Polski SA amounted to PLN 6 705.0 thousand net for the financial year of 2014 compared to PLN 3 211.0 thousand net for the financial year of 2013.

Fee for the entity authorised to audit financial statements (in PLN thousand)