Deutsche Telekom AG - The 2009 financial year

In order to perform its tasks more effectively, the Supervisory Board currently has six permanent committees in place: a General Committee to deal with personnel matters of the Board of Management and prepare the meetings for the Supervisory Board; a Staff Committee to advise the Board of Management on personnel questions not connected with the Board of Management; a Finance Committee to deal with complex financial issues and budgets; and an Audit Committee that performs the tasks of an audit committee in accordance with the German Corporate Governance Code as well as, within the scope of mandatory German law, the tasks of an audit committee under U.S. law, and deals with the annual financial statements before they are discussed by the entire Supervisory Board. Furthermore, the Supervisory Board has formed a Nomination Committee, which consists exclusively of shareholder representatives. The Nomination Committee is responsible for proposing to the Supervisory Board suitable candidates for recommendation to the shareholders’ meeting for election. Finally there is the Mediation Committee in accordance with §27 (3) of the Co-Determination Act. In addition, a special committee has been estab- lished as of January 1, 2010 to monitor the Company’s participation in the spectrum auction for the fourth generation of mobile communications in Germany. For details about the composition and working methods of the committees, please refer to the Supervisory Board’s report to the share- holders’ meeting on page 30–38 of the Annual Report. The committee chairpersons report to the Supervisory Board on a regular basis on the work of the committees. The chairman of the Audit Committee, Dr. h.c. Bernhard Walter, is particularly knowledgeable and experienced in the use of accounting standards and internal control procedures. He is also a financial expert within the meaning of the Sarbanes-Oxley Act. Dr. h.c. Bernhard Walter is not a former member of the Board of Management of the Company. For further details of the members of the Supervisory Board and any seats they hold on the supervisory boards of other companies, please refer to pages 220–221 of the Annual Report. Avoiding conflicts of interest. Board of Management members and Super- visory Board members are obliged to disclose immediately any conflicts of interest to the Supervisory Board. Any functions assumed by members of the Board of Management that are not covered by the Board of Manage- ment mandate are subject to approval by the General Committee of the Supervisory Board. Risk and opportunity management. The management of opportunities and risks arising in connection with the Company’s business activities is of fundamental importance to the Board of Management and the Supervisory Board for professional corporate governance. The Board of Management receives regular reports from the Risk Management department of the Company concerning current risks and their development. In turn, it reports to the Supervisory Board on the risk exposure and the risk management system. The risk management system in place at Deutsche Telekom is evaluated by the external auditors and Internal Audit, and is constantly being expanded and improved. The Audit Committee deals with risk management, including monitoring the effectiveness of the internal risk management system. In addition to financial risks, risk management also includes risks to the Company’s reputation. For more information please refer to the section entitled “Risk and opportunity management” of the Annual Report (pages 106–116). Internal controls over financial reporting. Deutsche Telekom meets the strict requirements of the U.S. capital markets, specifically Section 404 of the Sarbanes-Oxley Act (S-OX404). To this end, Deutsche Telekom imple- mented a process to systematically assess the effectiveness of its internal controls over financial reporting. Evidence of its effectiveness throughout the Group has again been provided for the 2009 financial year. The Audit Committee assumes the task of monitoring the accounting and financial reporting processes on behalf of the Supervisory Board. The system of internal controls over financial reporting is updated on an ongoing basis and monitored separately by Internal Auditing and external auditors. The Audit Committee also monitors the effectiveness of the internal control system, which goes beyond financial reporting and therefore fulfills the requirements of the German Accounting Law Modernization Act (Bilanz- rechtsmodernisierungsgesetz – BilMoG) which came into force in May 2009. For a description of the main features of the accounting-related internal control system, please refer to the “Group organization” section of the Group management report (page 61). Accounting and audit of financial statements. An agreement has been reached with the external auditors that the Chairman of the Supervisory Board/the Audit Committee shall be advised immediately of any issues uncovered during the audit that might give rise to statements of exclusion or reservation in the auditors’ report, unless these issues can be resolved forthwith. Moreover it has been agreed that the auditors shall immediately report any findings and issues which emerge during the audit and which have a direct bearing upon the tasks of the Supervisory Board. According to this agreement, the auditors undertake to inform the Supervisory Board or make a note in their report of any facts discovered during the audit which might indicate a discrepancy in the declaration of conformity with the German Corporate Governance Code submitted by the Board of Management and Supervisory Board. The Audit Committee assesses the independence of the auditors. 42