165Combined Group Management Report Consolidated Financial Statements Corporate Governance Report Supervisory Board and Board of Management Tables and Explanations E.ON AG's Financial Statements are also prepared by using SAP software. The accounting and preparation processes are divided into discrete functional steps. Automated or manual controls are integrated into each process. Defined procedures ensure that all transactions and the preparation of E.ON AG's Financial Statements are recorded, processed, assigned on an accrual basis, and documented in a complete, timely, accu- rate manner. Relevant data from E.ON AG's Financial State- ments are, if necessary, adjusted to conform with IFRS and then transferred to the consolidation software system using SAP-supported transfer technology. The following explanations about our Internal Control Sys- tem and our general IT controls apply to the Consolidated Financial Statements and E.ON AG's Financial Statements. Internal Control and Risk Management System Internal controls are an integral part of our accounting pro- cesses. Guidelines, called Internal_Controls@E.ON, define uniform financial-reporting documentation requirements and procedures for the entire E.ON Group. The guidelines include a definition of their scope, documentation and evaluation standards, a Catalog of Management Controls, a Generic Risk Catalog, a description of the test activities of our Internal Audit division, and a description of the final Sign-Off process. We believe that compliance with these rules provides suffi- cient certainty to prevent error or fraud from resulting in material misrepresentations in the Consolidated Financial Statements, the Combined Group Management Report, and the Interim Reports. COSO Model Our internal control system is based on the globally recog- nized COSO model (COSO: The Committee of Sponsoring Organizations of the Treadway Commission). The Generic Risk Catalog (which encompasses company- and industry-specific aspects) defines possible risks for accounting (financial reporting) in the functional areas of our operating entities and thus serves as check list and provides guidance for the documentation process. The Catalog of Management Controls is a key component of a functioning internal control system. It encompasses over- arching controls to address risks in a range of issue areas and processes, such as financial reporting, corporate responsi- bility, fraud, the communications process, planning and bud- geting, investment controlling and internal audit. Central Documentation System The E.ON companies to which the internal control system applies use a central documentation system to document key controls.The system defines the scope, detailed documenta- tion requirements, requirements for the assessment process and the final evaluation performed by the Sign-Off process. Scope Each year, we conduct a multi-stage process using qualitative criteria and quantitative materiality metrics to define which E.ON companies must document and evaluate their financial- disclosure processes and controls. Selection is based on pre- defined line items in the balance sheets, income statements and/or notes of each company's prior-year financial statements. Assessment After companies have documented their processes and con- trols, they conduct an annual assessment of the design and the operational effectiveness of the processes as well as the controls embedded in these processes. Tests Performed by Internal Audit The management of E.ON companies relies on the assessment performed by their staff and on testing of the internal control system performed by Internal Audit. These tests are a key part of the process. Using a risk-oriented testing plan, Internal Audit tests the E.ON Group's internal control system and identifies potential deficiencies (issues). On the basis of its own evaluation and the results of tests performed by Internal Audit, an E.ON company's management carries out the final signing-off. Following the preliminary evaluation of the processes and controls performed by an E.ON company's own staff and by Internal Audit, the market units carry out a second evaluation process to ensure quality before a final report is made to E.ON AG. This second evaluation is conducted by a committee of market unit staff or by the market unit management itself. Sign-Off Process The final step of the internal evaluation process is the sub- mission of a formal written declaration confirming the system's effectiveness.The declaration process is conducted at all levels of the Group (beginning at the business-unit level) before it is conducted by the market units and, finally, by E.ON AG. It is therefore a formal mechanism that encompasses all levels of the E.ON Group's hierarchy. The Chairman of the E.ON AG Board of Management and the Chief Financial Officer make the final Sign-Off on the effectiveness of the internal control system of E.ON AG's financial reporting.