Risk management and control

Description of the main features of the internal control and risk management systems in relation to the financial reporting process

Objective of the financial reporting process is to produce timely financial information and to ensure that the decision making is based on reliable information. The aim is to ensure that the Financial Statements and Interim Reports are prepared according to all laws, generally accepted accounting principles and other requirements concerning listed companies.

Financial reporting process produces eQ group’s monthly and quarterly reports. eQ group’s result and financial performance is reviewed monthly in the Management Team of the group. Group’s management presents result and financial position of the group quarterly to the Board of Directors. Board of Directors ensures that the financial reporting process produces high quality financial information.

Result of group’s subsidiaries is reported monthly to the parent company of the group. Bookkeeping of the subsidiaries is primarily done in the financial administration of the group. At group level this ensures that financial reporting of the subsidiaries is reliable. The group's annual and interim Financial Statements are prepared in accordance with IFRS. Financial administration of the group monitors changes taking place in IFRS.

Based on risk assessments company has developed control measures related financial reporting. Various reconciliations, confirmation and analytical procedures are used in the group. Financial administration of the group prepares monthly analysis on profit and loss and balance sheet both on company and segment level. Tasks related to risk exposed work combinations are separated and there are appropriate approval procedures and internal guidelines in place. Reliability of the financial reporting is also supported by various system controls in the reporting systems. Other basic principles are clear line of accountability, precise roles and regular reporting routines.

Internal audit

The Group does not have a separate internal audit organisation. The CEO is responsible for the tasks of the internal audit function. The risk management and compliance functions of the Asset Management segment are responsible for the risk management related to the business and the compliance of the operations to rules and regulations.  The risk management and compliance functions also carry out sample checks of the operations. The CEO may assign external evaluators to carry out audits on areas that the CEO deems necessary. The CEO reports the observations to the Board of Directors.

Risk management and risks

The purpose of the Group’s risk management is to make sure that the risks associated with the company’s operations are identified, assessed and that measures are taken regarding them. eQ Plc’s Board supervises that the CEO takes care of eQ Plc’s day-to-day administration according to the instructions and orders issued by the Board. The Board also supervises that risk management and control are organised in a proper manner. The executive management is responsible for the practical implementation of the risk management process and control.

eQ Group comprises a fully owned subsidiary of eQ Plc, eQ Asset Management Ltd, which is an investment firm. A permanent risk management function is responsible for risk management at eQ Asset Management Ltd. The risk management function which is independent of the other operations consists of risk experts and is led by the Chief Risk Officer. eQ Asset Management has a risk management committee, which the Chief Risk Officer convenes regularly. The risk management committee reviews the follow-up reports of risk management-related operations and decides on corrective measures, for instance. It also approves new products, changes made in products and counterparties.

Most significant individual risk of the group is dependency of the operating income from the changes in the market environment. The result of the Asset Management segment depends on the development of the assets under management, which is dependent of the development of the private equity market. On the other hand, the management fees of private equity funds are based on long-term agreements that produce a stable cash flow. Success fees, which depend on the number of mergers and acquisitions and real estate transactions, have a considerable impact on the result of the Corporate Finance segment. These vary considerably within one year and are dependent on economic trends.

The risks associated with group's investment operations are the market risk, currency risk and liquidity risk. Among these, the market risk has the greatest impact on investments. eQ’s investments are well diversified, which means that the impact of one investment in a company, made by one individual fund, on the yield of the investments is often small. eQ has diversified investment risk by investing in private equity funds that invest in different geographical regions and industries. Company has invested mainly in euro currency so exposure to currency risk is not significant. The company makes new investments only in funds managed by eQ.

The group’s liquidity is monitored continuously, and good liquidity is maintained by only investing the surplus liquidity in objects with a low risk, which can be turned into cash rapidly and at a clear market price. The capital calls and exits of private equity funds from the target companies have an essential impact on liquidity. Credit limit is available for the group to ensure financing if necessary.

Updated November 4 2019