Audit and Control
Report of management on internal control over financial reporting
The Board of Directors and management of ABB Ltd and its consolidated subsidiaries (“ABB”) are responsible for establishing and maintaining adequate internal control over financial reporting.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with ABB’s policies and procedures may deteriorate.
Management conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s financial statements will not be prevented or detected on a timely basis. ABB did not maintain adequate segregation of duties in the treasury function in its South Korean subsidiary and failed to identify certain inappropriate access levels to the local enterprise resource planning (ERP) system. In addition, ABB failed to safeguard physical access to the signature seals of the subsidiary in South Korea and prevent the Company from being bound to unauthorized financial contracts, resulting in undetected financial obligations. ABB also failed to provide adequate management oversight and review of the local treasury activities. As a result, ABB did not maintain effective controls over the safeguarding of cash and other treasury activities, including controls relating to entering into financial contracts. Management has concluded that these deficiencies in the operation of ABB’s internal controls constituted a material weakness.
Based on this evaluation, management has concluded that, as a result of the material weakness described above, ABB’s internal control over financial reporting was not effective as of December 31, 2016.
Ernst & Young AG, the independent registered public accounting firm who audited the Company’s consolidated financial statements, has issued an opinion on the effectiveness of ABB’s internal control over financial reporting as of December 31, 2016, which is included on pages 142–143 of this Annual Report.
Chief Executive Officer
Chief Financial Officer
Zurich, March 10, 2017
Report on the Audit of the Consolidated Financial Statements
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Report of the Independent Auditor on internal control over financial reporting
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