Wärtsilä has defined its objectives for internal control according to the international COSO framework. Wärtsilä defines internal control as a process implemented by Wärtsilä’s Board of Directors, the management, the Boards of Directors of Group companies, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives.
Internal control covers all the policies, processes, procedures and organisational structures within Wärtsilä that help the management, and ultimately the Board, to ensure that Wärtsilä is achieving its objectives, that the business conduct is ethical and in compliance with all applicable laws and regulations, that the company’s assets, including its brand, are safeguarded, and that its financial reporting is correct. Internal control is not a separate process or set of activities but is embedded in Wärtsilä’s operations.
The tone from Wärtsilä management and emphasis on management and employee integrity and control awareness is the starting point for the structure of the internal control framework in Wärtsilä. Entity-level controls ensure clear standards of behaviour, accountability, adequacy of corporate policies, manuals and instructions and clearly defined oversight roles.
Wärtsilä’s management performs monitoring as part of its regular supervisory activities. Business management is responsible for ensuring that all relevant laws and regulations are complied with in their respective responsibility areas. The Legal and Compliance function monitors adherence to the compliance policies of the Group
The system of internal control operates at all levels of Wärtsilä. Wärtsilä maintains and develops its internal control system with the ultimate aim of improving its business performance and, at the same time, complying with laws and regulations in the countries where it operates.
The control environment in Wärtsilä is the foundation for the internal control processes and control activities over financial and sustainability reporting. The Wärtsilä internal control environment over financial and sustainability reporting is based on the COSO framework structure:
Roles and accountabilities are structured according to the COSO framework three lines of defence:
Main components of Wärtsilä's internal control
Values and the control environment
The foundation of Wärtsilä’s internal control system lies with the company’s values: customer success, passion, and performance. Wärtsilä’s values are reflected in its day-to-day relations with its suppliers, customers, and investors, as well as in internal guidelines, policies, manuals, processes, and practices. The control environment sets the tone for internal control within Wärtsilä and influences the control awareness of its people. It provides discipline and structure for all the other components of internal control. The elements of Wärtsilä’s control environment are included in the corporate culture; in the integrity, ethical values and competence of Wärtsilä’s personnel; as well as in the attention and direction provided to the personnel by the Board of Directors.
Wärtsilä’s values and control environment provide Wärtsilä’s Board of Directors and management the basis for reasonable assurance regarding achievement of the objectives of internal control. The President & CEO and the Board of Management define Wärtsilä’s values and ethical principles, which are reflected in the Code of Conduct approved by the Board of Directors, and set an example for the corporate culture, which together create the basis for the control environment. They, together with the business management, are responsible for communicating Wärtsilä’s values to the organisation.
Management systems
The Board of Management is responsible for developing and implementing Wärtsilä’s management systems, continuously improving their performance and ensuring that they operate effectively. Wärtsilä’s management systems cover all global processes and management procedures within Wärtsilä related to fulfilling customer requirements. The proper functioning of the management systems ensures, for their part, the attainment of Wärtsilä’s internal control objectives.
Guidelines and manuals
The components of Wärtsilä’s internal control system, including for example corporate governance, management systems, the performance management process, as well as business and other processes, are described in various guidelines and manuals. The essential Group level policies and guidelines are compiled in Wärtsilä’s Corporate Manual. Wärtsilä’s Group level Accounting Manual and Sustainability Accounting Manual contain instructions and guidance on accounting and reporting to be applied in all Wärtsilä Group companies. These manuals support the achievement of objectives related to the reliability of Wärtsilä’s financial reporting. Wärtsilä’s Group level policies, and any changes to them, shall be approved by a member of the Board of Management.
In addition to the Group level guidelines and manuals, the businesses have issued related guidelines and instructions for their own, specific purposes. The business level guidelines and manuals are aligned with, and do not contradict, the Group level guidelines and manuals.
Business processes
The controls embedded in Wärtsilä’s business processes play a key role in ensuring effective internal control within the company. Controls in the business processes help ensure the achievement of all the objectives of internal control within Wärtsilä, especially those related to the efficiency of operations and safeguarding the company’s profitability and reputation.
The business management is responsible for ensuring that, within its area of responsibility, the defined Group level processes and controls are implemented and complied with. Where no Group level processes and controls exist, the business management is responsible for ensuring that efficient business level processes with adequate controls have been defined and implemented.