Internal control and risk management systems with regard to the process of preparing financial statements of mBank

The internal control system encompasses the following:

• control function whose task is to ensure observance of control mechanisms concerning in particular risk management at the bank and which covers positions, groups of people and organisational units responsible for performance of tasks assigned to the function;
• compliance unit (Compliance Department), whose task is to identify, asses, control and monitor the risk of non-compliance of the bank’s activities with the law, internal regulations and market standards and report in this respect;
• independent internal audit unit (Internal Audit Department), whose task is to examine and assess, impartially and objectively, the adequacy and effectiveness of the risk management system and the internal control system, excluding the internal audit unit.

The control function is a part of the internal control system comprised of all control mechanisms in processes running in the bank, independent monitoring of the application of such control mechanisms and reporting on the issue.

The control function is based on the following principles:

• guaranteeing access to important, real, up-to-date and complete information by decision makers;
• organising and maintaining adequate IT systems that ensure proper storage and processing of data, facilitate the evaluation and monitoring of different risk categories and generation of information useful in decision-making process;
• determining the information circulation rules in order to ensure that relevant information is submitted to competent persons.

The process of preparing financial data for reporting is automated and based on the accounting data of the bank. Preparation of data in source systems is subject to formalised operational and acceptance procedures. Creating a collection of accounting balances on the basis of the system of general ledgers of the bank takes place within a process covering respective internal mechanisms and controls. The mechanisms consist, among others, in verification and reconciliation of reporting data with books of accounts, sub-ledger accounts, and other documents on the basis of which financial statements are drawn up, as well as with the applicable legal provisions pertaining to accounting principles and the preparation of financial statements. Manual adjustments are subject to special controls. We continuously monitor changes in the law and external regulations related to the preparation of financial statements, update internal regulations on an ongoing basis and adjust our IT systems where necessary.

We have implemented mechanisms which effectively ensure the security of IT systems in the process of monitoring the operational risk which occurs in the preparation of financial statements in the bank. We have in place a business continuity plan which covers also the IT systems used in the process of preparing financial statements.

Financial statements of mBank and the Group are prepared by the Financial Reporting Department. We draw up consolidated financial statements based on data submitted by Group subsidiaries. The Financial Reporting Department monitors the reporting packages prepared by the subsidiaries in terms of their correctness, completeness and coherence of data.

The Accounting Department controls the coherence and completeness of the bank’s books of accounts and manages the model chart of accounts. Both Departments report to the Vice-President of the Management Board, Chief Financial Officer.

Financial statements are submitted to the Management Board of mBank for verification. The Audit Committee of the Supervisory Board receives quarterly financial statements before they are published. After consultations with the bank’s external auditor and the Members of the Management Board of the bank, the Audit Committee recommends whether the Supervisory Board should approve or reject annual financial statements.

The annual and semi-annual financial statements of mBank are respectively subject to an independent audit or review by a statutory auditor. The selection of the statutory auditor of the bank requires a resolution of the General Meeting. The Audit Committee of the Supervisory Board issues an opinion on the selection of the statutory auditor. In the subsidiaries, supervisory boards decide on the selection of the statutory auditor.

The procedures of co-operation of mBank and the external auditor ensure that all the important issues related to the recognition of economic events in the books and financial statements are being consulted on an on-going basis.

The aspiration to ensure the highest standards of financial statements is reflected in the high quality of reporting. In “The Best Annual Report 2018” contest organised by the Institute of Accountancy and Taxes (IRiP), the results of which were announced in October 2019, we won the title “The Best of the Best” for the best annual report in the category of financial institutions for the seventh time in a row. Moreover, we also won a distinction for the best statement on application of corporate governance principles, which was awarded for the first time in 2019.

We abide by the principle regarding the rotation of statutory auditors. On April 12, 2018, the 31st Annual General Meeting of mBank selected Ernst & Young Audyt Polska spółka z ograniczoną odpowiedzialnością spółka komandytowa as the auditor to review the financial statements of mBank S.A. and the consolidated financial statements of mBank S.A. Group for the years 2018-2019. Entity authorized to audit financial statements for 2016 and 2017 with which mBank S.A. concluded a contract, was PricewaterhauseCoopers Sp. z o.o.

The agreement on auditing the financial statements of mBank S.A. and the consolidated financial statements of mBank S.A. Group was concluded on June 19, 2018.

The total gross amount of remuneration paid to Ernst & Young Audyt Polska spółka z ograniczoną odpowiedzialnością spółka komandytowa related to the audit and review of stand-alone financial statements and consolidated financial statements of mBank S.A. was PLN 2,785 thousand in 2019.

The total amount of remaining gross remuneration paid to Ernst & Young Audyt Polska spółka z ograniczoną odpowiedzialnością spółka komandytowa in respect of other services for mBank S.A. was PLN 754 thousand in 2019.

The list of services other than the audit of yearly financial statements, rendered to mBank S.A. Group by Ernst & Young Audyt Polska spółka z ograniczoną odpowiedzialnością sp. k. in 2019, is presented below.

1. Review of the standalone interim financial statements of mBank S.A. and the consolidated interim financial statements of mBank S.A. Group as at and for the 6-month period ended June 30, 2019.
2. Review of the consolidation package of mBank S.A. for Commerzbank AG as at and for the 3-month period ended March 31, 2019, 6-month period ended June 30, 2019 and 9-month period ended September 30, 2019.
3. Audit of the consolidation package of mBank S.A. for Commerzbank AG as at and for the year ended December 31, 2019.
4. Verification of the disclosure document regarding the capital adequacy and variable components of renumeration of mBank S.A. Group as at June 30, 2019 and December 31, 2019.
5. Assessment of compliance with the requirements for safekeeping assets of mBank S.A. clients for 2019.
6. Services related to the verification of the prospectus for mBank S.A.
7. Services related to the verification of the prospectus for mBank Hipoteczny S.A.
8. Review of the interim financial statements of 2 subsidiaries as at and for the 6-month period ended June 30, 2019.
9. Audit of the consolidation package of 1 subsidiary for mBank S.A. as at and for the year ended December 31, 2019.
10. Specific scope audit of the consolidation package of 1 subsidiary and review of consolidation packages of 2 subsidiaries for mBank S.A. as at and for the year ended December 31, 2019.
11. Review of the consolidation packages of 3 subsidiaries for mBank S.A. as at and for the 6-month period ended June 30, 2019.
12. Specific scope audit of the consolidation package of 1 subsidiary and review of consolidation packages of 2 subsidiaries for Commerzbank AG as at and for the year ended December 31, 2019.