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Value added by internal control

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Contents

Introduction & Executive Summary

Introduction and Executive Summary

1

About RSM International

2

Necessity and use of an Internal Control System (ICS)

3

Survey highlights

4

Results in detail

5

Recommendations for action

16

Methodology 17

Background

Executive Summary

Poor risk management, lack of regulation, and financial crime and corruption within large corporate organisations have recently been the focus of much media attention and intense public debate. The global economic climate has made it more difficult for firms to allocate significant resources and funds to addressing these issues.

The results of the empirical study show that whilst a number of companies have not yet fully recognised the importance of an ICS as a management tool, most companies do consider an ICS a control and monitoring tool and use it to prevent errors in everyday business. The study also suggests that, in practice, an ICS is given too little attention, particularly in corporate transactions.

As a consequence the value of internal control will come under greater scrutiny as managers look to streamline processes. These efficiency drives will inevitably result in the removal of controls from operations and lead to the potential for greater exposure to errors or fraud.

Objective RSM Europe conducted this survey in order to establish the “value” of internal control. The “value” is based on the perceived monetary value assigned to an Internal Control System (ICS) from both the buyer’s and seller’s perspectives. In order to identify whether a functional ICS really adds value to a transaction or company sale for the company and the investors, and whether this value can be quantified, we have carried out the study by bringing together transaction services and risk management viewpoints. At the beginning of 2011, RSM Europe surveyed 457 European venture capital companies based across Germany, Spain, Poland, Hungary, Greece and Israel.

Despite the perceived limited functionality of an ICS, the survey results show that companies do recognise the potential value add offered to businesses through an ICS. In many cases companies are willing to invest a significant percentage of the transaction value in the development of a functioning ICS. Moreover, the payment of a surcharge price for an effective and documented ICS is considered a realistic option by many companies. The study also clarifies that many companies believe that a functioning ICS can generate additional value. Both investors and sellers of enterprises show their readiness to invest financial resources, or charge surplus prices ranging between 1-15% of the transaction value, to implement an ICS or for an established ICS. The realisation of the value added of an ICS may take a variety of forms; the value added, or additional benefit, cannot merely be expressed in figures and monetary terms.

October 2011 | Value Added Internal Control | 1


About RSM International

Relevance of the subject

About us

Necessity and use of an Internal Control System (ICS)

RSM International is a worldwide network of independently owned and managed professional service firms, providing audit, tax, consulting and specialist advisory services. High standards, common work ethic and clear focus make our member firms valuable partners for a varied client base worldwide.

The European legislator has obligated market-oriented companies, in accordance with Article 46a Abs. 1 c) of the amending directives of the European Union, to describe the principal characteristics of an ICS with regard to the financial reporting process. The configuration and implementation of an ICS is therefore of increasing importance for European companies. A functional ICS minimises and prevents risks, allowing companies to achieve their strategic objectives via its monitoring and risk control function. An ICS can prove a significant contribution to a company’s future success.

Global Representation RSM International spans the globe, with more than 700 member and correspondent firm offices in 90 countries worldwide and more than 32,500 people on hand to serve clients. We have member firms in North and South America, across Europe, Africa and the Middle East and throughout the Asia Pacific region.

An exceptional network in Europe RSM Europe comprises the 33 member & correspondent firms of RSM International across the European Union. In today’s rapidly evolving European financial landscape, clients need advisers who are as fast and flexible as they are. Clients of RSM firms can receive the full scope of professional services across Europe and the rest of the world.

Facts • O ne of the top ten largest networks of independent accounting and consulting firms in the world

In addition, an ICS helps companies to comply with regulations. Due to the lack of explicit legal regulations for non-listed companies, an inadequate risk culture and the lack of financial and human resources, many of these companies do not have a formalised ICS.

Internal Control System (ICS) The Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines internal control broadly as a process, affected by an entity’s board of directors, management and other personnel. It is designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1. Effectiveness and efficiency of operations 2. Reliability of financial reporting

• Member and correspondent firms in 33 countries in Europe • 225 offices across Europe

3. Compliance with applicable laws

Value added In this survey “value added“ means the quantified value of an investment created by the willingness of investors to pay an extra amount for an existing and functioning ICS. This should lead to the fact that a formalised and documented ICS has a positive impact on the negotiations and pricing. The value added that can be generated for companies from an established functional ICS is difficult to quantify. Besides the avoidance of cases of loss, as well as the seizing of opportunities, interactions with other management tools should also be considered. Beyond attempting to quantify the monetary value of an ICS, this report gives further insight into its practical relevance through outlining current opinion regarding its functionality and non-monetary value.

• 7 ,789 staff including 719 partners in Europe and 32,500 staff globally

2 | Value Added Internal Control | October 2011

October 2011 | Value Added Internal Control | 3


Survey highlights

Results in detail

Highlights of the survey, balancing buyers’ and sellers’ responses, related to a reliable and functioning Internal Control System (ICS) can be summarised as the following:

• 49% of companies are willing to accept risks in performing transactions, with 44% considering an ICS a high or very high priority

• 78% of companies agree that an ICS adds sustainable value, with “fewer negative

surprises” and “higher transparency” quoted as the most important value drivers

• 9 0% of companies see an ICS primarily as a control and monitoring tool with

“active involvement of the Top-Management” named as the key success factor

• 66% of companies agree that a price surcharge, in some cases of up to 15% of the transaction value, is justified for an ICS

• 73% of companies agree that an evaluation or ICS-Due Diligence should be carried out, with 88% of companies willing to invest sums ranging between 1-20% of the total due diligence value

• Companies prefer to use professional software solutions to support an ICS and rate the following as the best ways to demonstrate the existence of a functioning ICS:

– Documentation according to COSO – Integration of the ICS into a risk management system – ISO certification

• 76% of companies agree that extra investment into an ICS might be necessary after the transaction and are willing to spend sums of up to 15% of the total transaction value

4 | Value Added Internal Control | October 2011

October 2011 | Value Added Internal Control | 5


Half of the companies are willing to accept risks when carrying out transactions

An ICS is an important consideration during a transaction Buyers

Ø-rating: 1.74 | 1.71 | 2.00 | 2.47 | 2.85 | 3.18

|

2.94 | 3.00 | 3.18 | 2.85 | 2.60

100%

4

9

15

12

20

80% 60%

Very risk-averse

28

29

47

36

Rather risk-averse

40%

Rather willing to accept risks

20%

Very willing to accept risks Buyers

0%

Neither risk-averse nor risk-willing

Sellers

How would you characterise your company’s risk appetite policy while performing transactions?

company shares as rather (29%) or very willing (15%) to accept risks. Only 9% regard their actions while performing transactions as very risk-averse.

The results of the study indicate that companies performing transactions are not generally risk-averse. 44% of the surveyed companies estimate their own willingness to take risks when buying companies or

From the sellers’ perspective, 56% of the companies see their company’s risk appetite as rather (36%), or very willing (20%), to accept risks. Only 12% of the inquired sellers classify their actions regarding transactions as very risk-averse.

l ) e e ts S) ent tem tibility tion tur ntia cas (ICS CM fec Sys a ote nagem l struc tic ef it func stem m( ess t p e n n t i t mp bus Marke ng ma tiona nergis al aud trol Sy nt Sys ageme ral co e a e n n tiv tu isti nis ern e sy Ma rac l Co Cul gem f ex rga lisabl ng int Att rna Mana d Risk y o ood o e i a t t t i e l s n e R ce G Exi ning I ent Qua lian tio Comp Implem c n g Fu nin ctio n u F

Sellers

Ø-rating: 1.52 | 1.28 | 2.20 | 2.44 | 2.04 | 3.04 | 2.60 | 3.04 | 2.68 | 2.72

er

Oth

|

5.00

100% 80% 60% 40%

Majority of companies believe that sustainable value is created by a functioning ICS

20% 0%

6

9

20

32

I totally agree

4

I rather agree

8

I rather disagree

53

Buyers

To what extent do you agree that a functioning Internal Control System (ICS) creates value for a company? The results of the study show that - despite relatively little consideration of ICS in transactions – companies are convinced that the establishment of a functioning ICS creates sustainable value.

6 | Value Added Internal Control | October 2011

Which aspects are considered during a transaction? *

20

I totally disagree I neither agree or disagree

48

l ) e e ts S) ent tem tibility tion tur ntia cas (ICS CM fec Sys ote nagem l struc tic ef it func stem m( ess t pa p e n n t i t us ud Sys geme al com l Sy rke ng ma tiona nergis eb r Ma al a ontro ment a v a i i y u t n s n t t s i r s C e xi te Ma le an rac Cul isk of e d org alisab ting in ternal Manag Att dR e lity s n e e i oo I a R t c x G u g E n en Q nin plia plem ctio Com Im g Fun nin ctio Fun

Sellers

A total of 85% of the interviewed buyer companies totally (32%) or rather (53%) agree with this point of view as well as 68% of the seller companies (48% totally agree and 20% rather agree). Only 4% of the sellers totally disagree. 9% of the buyers and 20% of the sellers neither agree nor disagree with the statement that a functioning ICS creates value for a company.

Buyers rate “market potential” with an average of 1.71 as a main priority factor in considerations concerning transactions. This corresponds to a rating of 82% with high or very high priority. Moreover, great importance is attached to the factor “attractive business case” with an Ø–rating of 1.74. 38% of all buyers’ ratings for “functioning Internal Control System (ICS)” account for a high or very high priority in considerations regarding corporate transactions. The corresponding Ø-rating is 2.94.

er

Oth

The priority distribution from the sellers’ perspective is not very different from the buyers’ perspective. They also consider “market potential” as the most important aspect with an Ø-rating of 1.28. This corresponds to a rating of 92% with high or very high priority. Once again, the aspect “attractive business case”, plays a major role when considering the sale of a company, with an Ø-rating of 1.52. From the sellers’ perspective, a functional ICS has an Ø-rating of 2.60 - only a slightly higher priority than from the buyers’ perspective. After all, 52% of all votes cast for a functional ICS are for the highest or second highest rating possible.

* Prioritisation of the aspects by surveyed companies on a scale from 1-5, with 1 being considered very high and 5 no consideration given. Multiple answers possible. Graphic presentation: Percentage of all inquired companies that assigned priorities of 1 or 2 to the respective aspect

October 2011 | Value Added Internal Control | 7


Higher transparency in company transactions through ICS Buyers

Ø-rating: 3.53

|

2.82

|

4.35

|

3.03

|

4.85

Companies regard an ICS primarily as a control and monitoring system |

4.29

|

5.24

7.00

|

Ø-rating:

Buyers

100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

es pris sur

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Ø-rating:

3.53

|

3.24

|

3.18

|

|

4.85

4.82

|

6.80

|

0%

0%

Sellers

1.59

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3.36 | 2.56 | 4.52 | 2.25 | 4.88 | 3.56 | 5.48 | 4.00

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100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

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1.32 | 3.08 | 2.60 | 2.88 | 3.88

er

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| 5.32 | 5.32 | 5.00

0%

0%

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The results of the companies surveyed have a similar structure on the buyers and sellers side. In practice, several aspects are attributed to ICS as a value driver, since no single aspect stands out clearly in its priority from the other aspects.

Buyers of businesses or parts of companies estimate “fewer negative surprises”, with an Ø-rating of 2.82, as a key value driver for companies with an established functioning ICS. The second most important value driver is “higher transparency” (Ø-rating: 3.03), followed by “higher financial stability” (Ø-rating: 3.53). Sellers also see “higher transparency” within the company (Ø-rating: 2.25), “fewer negative surprises” (Ø-rating: 2.56) and “higher financial stability” (Ø-rating: 3.36) as the most important value drivers of an ICS. In comparison to the buyer perspective, however, “more efficient and effective processes” have a higher priority.

* Prioritisation of the aspects by surveyed companies on a scale from 1-8, with 1 being considered highest and 8 considered lowest priority. Graphic presentation: Percentage of all inquired companies that assigned priorities of 1 or 2 to the respective aspect

8 | Value Added Internal Control | October 2011

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Which aspects do you consider as the most important value drivers for buyers, if a reliable and functioning Internal Control System (ICS) is in place? *

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Which functions would you assign to an Internal Control System (ICS) as a management instrument? * The study reveals that companies primarily perceive a functioning ICS as a “control and monitoring system”. This aspect is evaluated by buyers to 85% with high or very high priority (Ø-rating: 1.59), by sellers to 96% (Ø-rating: 1.32).

Only a subordinate role is assigned to other functions. “Early warning system” is from the buyers’ point of view the second most important function (Ø-rating: 3.18), followed by “instrument for ensuring transparency” (Ø-rating: 3.24) and “process optimisation instrument” (Ø-rating: 3.53). The results for the sellers are similar. “Instrument for ensuring transparency” (Ø-rating: 2.60) is also the second placed function. All other functions were given little consideration.

* Prioritisation of the aspects by surveyed companies on a scale from 1-7, with 1 being considered highest and 7 considered lowest priority. Graphic presentation: Percentage of all inquired companies that assigned priorities of 1 or 2 to the respective aspect

October 2011 | Value Added Internal Control | 9


The majority of companies believe a documented and functioning ICS justifies a price surcharge

6

4

18

12

The majority of companies believe that a separate evaluation of an ICS facilitates better decision making

20

6

32

4 4

15 16

40

14

I totally agree

23

9

I totally agree

I rather agree

41

I rather agree

I rather disagree

44

I totally disagree Buyers

I neither agree nor disagree

Sellers

59% of buyers (18% totally agree and 41% rather agree) and 76% of sellers (32% totally agree and 44% rather agree) share this view. Only 12% of the buyers and 4% of the sellers totally disagree.

To what extent do you agree that a documented and functioning Internal Control System (ICS) justifies a price surcharge when purchasing/selling a company?

Companies are willing to pay price surcharges of up to 15% of the transaction value for a functioning and documented ICS

18

3

4

21

Buyers

To what extent do you agree that a separate evaluation of the Internal Control System (ICS) in terms of an ICS-Due Diligence enables better decision making?

16

1-5% of the transaction value

> 20% of the transaction value

How much extra would you be willing to pay/ demand for a documented and functioning Internal Control System (ICS)? The results show that companies are willing to pay surcharges of up to 15% of the transaction volume for an established ICS.

10 | Value Added Internal Control | October 2011

36

< 1% of the total Due Diligence Volume

29

15-20% of the total Due Diligence Volume > 20% of the total Due Diligence Volume

Buyers

12 16

21

10-15% of the total Due Diligence Volume

40

15-20% of the transaction value

12

5-10% of the total Due Diligence Volume

29

29

The majority of companies, in total 71% of buyers, (15% totally agree and 56% rather agree) and 76% of sellers (40% totally agree and 36% rather agree), evaluate a separate assessment as useful for better decision making. Only 6% of buyers and 4% of sellers totally disagree.

9

None

1-5% of the total Due Diligence Volume

5-10% of the transaction value

I neither agree nor disagree

Sellers

Companies are willing to invest up to 20% of the total cost of Due Diligence

12

28

< 1% of the transaction value

10-15% of the transaction value

I totally disagree

The results of the study demonstrate that companies both from the buyersâ&#x20AC;&#x2122; and sellersâ&#x20AC;&#x2122; perspective are in favour of a seperate due diligence process for evaluating their ICS.

The results of our survey show that the majority of companies believe that it is worthwhile to pay/or charge a price surcharge for an established functioning ICS.

None

I rather disagree

36

56

Sellers

29% of the buyers and 40% of the sellers consider a surcharge of 1-5% of the transaction volume as appropriate. 18% of buyers and 28% of sellers estimate a surcharge of 5-10% to be acceptable. 3% of buyers & 4% of sellers believe surcharges of 10-15% of the overall transaction value to be a suitable amount.

Which percentage of the total Due Diligence Volume for a transaction may be due to an Internal Control System (ICS)? The majority of respondents (88% of both buyers and sellers) are willing to spend financial resources on an ICS Due Diligence.

29

36

Buyers

Sellers

The survey reveals that 29% of buyers and 36% of sellers are willing to invest 1-5% on a separate assessment of an ICS. Another 29% of buyers and 36% of sellers specify that 5-10% of the total Due Diligence Volume could be invested in a separate assessment of an ICS.

October 2011 | Value Added Internal Control | 11


Companies believe that the involvement of Top-Management is a key success factor

Buyers

Ø-rating:

1.79 | 2.21 | 2.00 | 1.71 | 2.56 | 2.71 | 2.18 | 0.00

Companies prefer documentation according to COSO to demonstrate existence of an ICS

Buyers

100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

2.44 | 1.88 |

1.68 | 2.38 |

2.59 | 2.79

|

4.00

0%

nt me

ces ces ties c e our our bili c o i u g s s c l s r a e e t o n r r r o tr an fo ns al an esp con p-M nci ties atio hum of r ina oa e To f nic bili g t i e h l u n s t g i t u n m f st on stin me hed om Exi nt o esp Exi mit r sc ar c me a m ar r e e l e e o v l l C l C C C o inv ive Act ols ntr

Sellers

Ø-rating:

Ø-rating:

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ort ICS are ISO tem OSO an rep ftw sys l r o g to to C t a S o n i f g n u e in rd CS ent ann em ord al I cco itm the nag eci na acc m a p n o i i n s m m t a tio of co ing risk ge tific nta ort ted me Cer to a Usa ica rep u n n i c e u t m Do ICS ara he Com Sep of t n tio gra Inte

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O

1.48 | 1.84 | 2.08 | 1.36 | 2.40 | 2.56 | 2.12 | 3.00

Sellers

Ø-rating:

100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

1.40 | 1.64 | 1.84 |

2.44 | 2.60 |

er

Oth

2.76 |

5.00

0%

nt me

ces ces ties c e our our bili c o i u g s s c l s r a e e t o n r r r o tr an fo ns al an esp con p-M nci ties atio hum of r ina oa e To f nic bili g t i e h l u n s t g i t m f du st en on stin Exi nt o che com itm esp Exi me ar s mm ar r ear e l e e o v l l C l C C C o inv ive Act ols ntr

re ultu

es tur

Which priority would you assign to the mentioned aspects as contributing to the success of a functioning Internal Control System (ICS)? * Neither buyers nor sellers regard “personal” or “financial resources” as key success factors of a functioning ICS. Rather an “active involvement of the Top-Management” is seen as essential for its success. This shows a Ø–rating of this aspect of 1.71 by buyers and 1.36 by sellers.

r the

O

Both sides regard “clear responsibilities for controls” (Ø–rating: 1.79 by buyers and 1.48 by sellers) as the second most important factor for the success of an ICS.

How do you think a company can demonstrate the existence of a functioning Internal Control System (ICS)? *

Moreover, the factors “commitment to a control culture”, and “clear schedule of responsibilities” as well as “clear communication structures” play an important role.

Although the results of our survey show buyers and sellers as having slightly different opinions as to the most important factor, both agree to proving the “documentation according to COSO” was the second highest priority.

* Prioritisation of the aspects by surveyed companies on a scale from 1-5, with 1 being considered highest and 5 considered lowest priority. Multiple answers possible. Graphic presentation: Percentage of all inquired companies that assigned priorities of 1 or 2 to the respective aspect

12 | Value Added Internal Control | October 2011

t e ICS ISO tem OSO por war sys l re r an oft g to to C t a S o n i f g n u e in rd CS ent ann em ord al I cco itm the nag eci na acc m a p n o i i n s m m t a tio of co ing risk ge tific nta ort ted me Cer to a Usa ica rep u n n i c e u t m Do ICS ara he Com Sep of t n tio gra Inte

From the perspective of the buyers, the “integration of the ICS into a risk management system” (Ø-rating: 1.68) and the “documentation according to COSO” (Ø-rating: 1.88) provide

er

Oth

companies with the best way to demonstrate the existence of a functioning ICS, followed by “separate reporting in the annual report” (Ø-rating: 2.38) and “certification according to ISO” (Ø-rating: 2.44). Sellers, however, estimate the “certification according to ISO” (Ø-rating: 1.40) as the best possible demonstration of a functioning ICS, followed by the “documentating according to COSO” (Ø-rating: 1.64) and the “integration of an ICS into a risk management system” (Ø-rating: 1.84).

* Prioritisation of the aspects by surveyed companies on a scale from 1-5, with 1 being considered highest and 5 considered lowest priority. Multiple answers possible. Graphic presentation: Percentage of all inquired companies that assigned priorities of 1 or 2 to the respective aspect

October 2011 | Value Added Internal Control | 13


Companies prefer professional software solutions to support an ICS

Buyers

The majority of companies are set to invest in a functioning ICS

Ø-rating: 2.50 | 1.71 | 3.06 | 1.79 | 2.74 | 3.18 | 3.94 | 4.00

4

3 3

100%

12

29

20

28

80%

I totally agree 60%

I rather agree

40%

53

I rather disagree

48

I totally disagree

20%

Buyers

0%

) e el) ing tion tion tion tion war Exc olu olu olu olu put oft s s s s S nd m e e e e a o c as rd ERP war war war ud tab Wo oft oft oft ng (clo l da ds os isti S-S ally n a e i x N C o I n c p e i r lo al ut pe the Inte ion sol (es eve se ess n to lf d ice I f a f e f o b S d r O P ata Ad oft al d ros ern t Mic x E

Sellers

er

Oth

Ø-rating: 2.48 | 1.60 | 2.92 | 1.92 | 2.80 | 3.24 | 3.80 | 5.00 100%

I neither agree nor disagree

Sellers

agree). These results regarding the willingness to invest in an ICS - particularly on the buyers’ side - illustrate the potential of realising a surplus value in transactions if a functioning ICS is already in place before the transaction.

To what extent do you agree that extra investment in an Internal Control System (ICS) is necessary if the acquired/sold company does not have a functioning ICS? The study shows that 82% of buyers (29% totally agree and 53% rather agree) take an investment in a functioning ICS into consideration, if no such system is established in the acquired company. 68% of sellers take such an investment into account (20% totally agree and 48% rather

80%

Companies are willing to invest up to 15% of the total tranaction value

60% 40%

9

18

None

20%

12

4

16

< 1% of the transaction value 0% ) n n n n re el) ing utio utio utio utio twa Exc put sol sol sol sol Sof nd m e e e e a o r r r P c as rd ER wa wa wa ud tab Wo oft oft oft ng (clo l da ds os isti S-S ally n a e i x N C o I n c p e i r lo e ut nal spe Inte sol eve o th sio e (e lf d In t fes ase e ffic o b S d r a O P at Ad oft al d ros ern t Mic x E

er

Oth

38

1-5% of the transaction value 5-10% of the transaction value 10-15% of the transaction value

Regarding the implementation of a software system as support for an ICS, companies are firm believers in the benefits of a “professional ICS-Software solution”. Buyers rated this tool with an Ø-priority of 1.71 (sellers: 1.60).

Companies regard “add-on solutions” as possible alternatives. Sellers rate them on average with a priority of 1.92 (buyers: 1.79). Placed third by both buyers and sellers are “Microsoft Office” products with an Ø-rating of 2.50 by buyers and 2.48 by sellers.

36

15-20% of the transaction value > 20% of the transaction value

Which tools would you give preference to, in order to support a documented and functioning Internal Control System (ICS)? *

32

35

Buyers

What amount would you be willing to spend on the investment in an Internal Control System (ICS)? Companies are willing to invest up to 15% of the transaction volume on the implementation of an effective ICS.

Sellers

The results from buyers’ and sellers’ perspectives are similar. 35% of buyers and 32% of sellers would spend 1-5% of the transaction volume. 5-10% would be invested by 18% of buyers and 12% of sellers. 4% of the sellers would be willing to pay 10-15% of the transaction value for the development and upgrading of an ICS.

* Prioritisation of the aspects by surveyed companies on a scale from 1-5, with 1 being considered highest and 5 considered lowest priority. Multiple answers possible. Graphic presentation: Percentage of all inquired companies that assigned priorities of 1 or 2 to the respective aspect

14 | Value Added Internal Control | October 2011

October 2011 | Value Added Internal Control | 15


Recommendations for action

The results of our survey, as well as day-to-day business experience, have led us to the following conclusions and recommendations for creating value from an Internal Control System (ICS):

• Formalisation and documentation

Methodology

This survey was conducted between February and April 2011, in the form of a written questionnaire. 457 venture capital companies from six European countries were surveyed. These companies were, at the time, reported to have active business operations and be a member of selected national associations. Companies from the following countries took part in the survey:

With minimal effort, the existing controls can be formalised and transferred into a fully documented ICS.

Country

• U se a recognised framework as a basis

A recognised framework facilitates the understanding and the systematic structure of an ICS and helps to standardise controls.

• C ontrol culture is a key success factor

Germany

Hungary

Poland

Greece

Israel

Spain

Companies answered the survey from either a buyer’s or seller’s perspective:

The involvement of senior management as well as their control over the business can affect a company’s culture and can, therefore, impact upon the success of an ICS.

• Importance of an ICS-Due Diligence

Buyers’ Perspective

Sellers’ Perspective

Location of the company

Germany: 44% Spain: 12% Poland: 6% Hungary: 9% Greece: 12% Israel: 17%

Germany: 48% Spain: 8% Poland: 4% Hungary: 12% Greece: 8% Israel: 20%

Number of transactions in the last year

1 - 5: 85% 5 - 10: 15%

1 - 5: 80% 5 - 10: 20%

Average amount of each transaction

€ < 10m: 59% €10m – 100m: 38% €500m - 1b: 3%

€ < 10m: 76% €10m – 100m: 20% €100m – 500m: 4%

Total amount of all transactions in the last year

€ < 10m: 47% €10m – 100m: 47% €500m – 1b: 3% € > 1b: 3%

€ < 10m: 60% €10 – 100m: 36% € > 1b: 4%

Industry sectors related to the transaction (multiple selection possible)

Mining: 3% Building and Construction: 18% Manufacturing: 38% Energy and Water supply: 9% Agriculture and Forestry: 3% Wholesale and Retail: 33% Hotel and Restaurant: 15% Logistics, Warehousing and Communication: 6% Banking and Finance: 12% Real Estate: 12% Education: 3% Healthcare and Welfare: 21% Others: 23%

Mining: 12% Building and Construction: 12% Manufacturing: 28% Energy and Water supply: 20% Agriculture and Forestry: 4% Wholesale and Retail: 20% Hotel and Restaurant: 0% Logistics, Warehousing and Communication: 12% Banking and Finance: 16% Real Estate: 4% Education: 0% Healthcare and Welfare: 16% Others: 12%

An ICS-Due Diligence can be used as the basis for all further evaluation processes; it underpins the integrity of information held by a company and supports decision making.

• U se of an ICS as a control instrument

From an economic point of view, implementing an ICS is particularly helpful when used as a control and management tool.

• V alue adding potential of an ICS

An ICS can add value to a business either in the form of non-monetary benefits, such as the establishment of an effective management system, or in creating additional revenue as part of a corporate transaction.

16 | Value Added Internal Control | October 2011

October 2011 | Value Added Internal Control | 17


This survey was undertaken by professionals within RSM Germany. For further information please contact: RSM Germany c/o RSM Altavis GmbH Dr. Oliver Bungartz Jungfemstieg 30, D-20354 Hamburg T: +49 40 35006 300 F: +49 40 35006 333 oliver.bungartz@rsmgermany.de www.rsmgermany.de

RSM International Executive Office 11 Old Jewry London EC2R 8DU United Kingdom T: +44 (0)20 7601 1080 F: +44 (0)20 7601 1090 E: rsmcommunications@rsmi.com www.rsmi.com RSM is the brand used by a network of independent accounting and advisory firms each of which practices in its own right. The network is not itself a separate legal entity of any description in any jurisdiction. The network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered office is at 11 Old Jewry, London EC2R 8DU. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug. Š RSM International Association, 2012

Value Added by Internal Control  
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