Annex 1

Additional information to the current Model of Annual Corporate Governance Report pursuant to Sec. 61 bis of Act 24/1988 of 28July, on the Stock Exchange (LMV, Spanish acronym) (as amended by the Fifth Final Provision of Act 2/2011 of 4 March on Sustainable Economy).

1.- Securities not traded on the Community Stock Exchange. Classes of shares and the rights and obligations inherent in each class of shares. Stake in the share capital represented by the treasury stock of the Company and its significant variations (sec. 61 bis 4.a, 3rd LMV).

The Company does not have any securities not traded in any EU-regulated market.

With regard to the treasury stock of the company and its significant variation, see section A.8.

2.- Rules and regulations applicable to the modification of the Articles of Association of the Company (sec. 61 bis 4.a, 4th LMV).

Pursuant to sections 285 et seq. of the Act on Capital Companies, approved by Real Decreto Legislativo 1/2010 of 2 July (hereinafter, the “Act on Capital Companies”), it is incumbent on the Annual General Meeting of Shareholders to resolve about any amendment to the Articles of Association.

Standards applicable to the amendments to the company’s by-laws are provided in the Articles of Association and the Regulations of the General Meeting of Shareholders. Section 21 of the Articles of Association and section 15 of the Regulations of the General Meeting of Shareholders provide a special quorum in order to call the AGM which is bound to discuss about any amendment to the by-laws.

“The General Meeting shall be validly held on first call whenever the shareholders present or represented hold, at least, fifty per cent (50%) of the subscribed voting stock. Generally, the General Meeting shall be validly held on second call, regardless of the capital attending the same. However, if the Meeting is called to discuss about the increase or reduction of capital, the issuance of bonds, the exclusion or restriction of the pre-emptive right, the reorganization of the Company, the merger originated by the creation of a new company or by means of the takeover of the Company by another entity, the total or partial split-off, the global allotment of the Company´s assets and liabilities, the transfer of the registered address abroad, the replacement of the corporate purpose, as well as any other amendment to the Articles of Association, the attendance of twenty five (25) percent of the subscribed voting stock shall be necessary on second call.”

Section 6.d) of the Regulations of the General Meeting of Shareholders expressly assigns to the AGM the power to approve any amendment to the Articles of Association.

“In accordance with the provisions of the Articles of Association, the General Meeting is authorized to pass all kinds of resolutions concerning the Company, namely, and subject to any other powers vested by the applicable regulations, it is granted with the following exclusive powers:

(a) To resolve on the individual annual accounts of the Company and, where appropriate, on the consolidated accounts of the Company and its Group, as well as on the distribution of the income or loss.

(b) To appoint and remove directors, and to confirm or revoke any provisional appointments of said directors made by the Board, and to review their management

(c) to appoint and remove the auditors.

(d) To resolve the issuance of bonds, the increase or reduction of capital, the exclusion or restriction of pre-emption rights, transformation, merger, split-off or dissolution of the Company, the global allotment of assets and liabilities, the approval of the final liquidation balance sheet, the transfer of the registered office abroad and, in general, any amendment to the Company’s Articles of Association.

(e) To authorize the Board of Directors to increase the Company’s capital, or to proceed to the issuance of bonds and other fixed yield securities.

(f) To approve the adoption of remuneration systems consisting of the granting either of shares or stock options, as well as any other remuneration system linked to the value of the shares, for the benefit of directors, and to conduct an advisory say on pay vote on the annual report on directors´ compensation.

(g) To pass these Regulations and any subsequent amendment thereof.

(h) To resolve on the matters submitted to it by a resolution of the Board of Directors.

(i) To grant the Board of Directors the powers it may deem fit to deal with unforeseen issues

(j) To approve those transactions which might entail an effective amendment of the corporate purpose and those whose effect may be equivalent to the liquidation of the Company.”

3.- Restrictions whatsoever on the transferability of securities and any restrictions on the voting rights. (sec. 61 bis 4.b LMV).

As provided under section A.10 of the Annual Corporate Governance Report, all shares in the company carry the same voting and financial rights, and there are no legal or by-law restrictions on the acquisition or transfer of shares.

With regard to the exercise of voting rights, the only restriction is that addressed under section 83 of the Act on Capital Companies whereby any shareholder incurring in default regarding any capital calls may not exercise their voting rights.

4.- Powers of the members of the Board of Directors. Possibility of issuing or repurchasing shares. (sec. 61 bis 4.c, 3rd LMV).

The Board of Directors is entrusted with the direction, administration, management and representation of the company with full powers, subject to any duties which under statute or the provisions of the Articles of Association, are reserved to the General Meeting of Shareholders.

Two members of the Board, the Chairman and C.E.O., Mr Pablo Isla Álvarez de Tejera, and the proprietary director and founder of the Company, Mr Amancio Ortega Gaona, have been delegated each and every one of the powers contained in the list included further below, and these must be exercised in the following manner and conditions: all of them individually, without distinction, with the exception of those that: a) involve the disposal of funds in excess of a certain amount, in which case it shall be necessary that the aforementioned Chairman and C.E.O. should act jointly with another person who in virtue of any legal title is also empowered with the power in question; or/and b) involve the alienation or encumbrance of real property of the company, for which a prior resolution of the Board of Directors or the Executive Committee, shall be required.

The requirement of joint action provided in the preceding paragraph shall not apply when it involves transactions, actions or contracts that, regardless of the amount involved, are carried out or awarded between companies belonging to the Inditex group of companies, understanding as such those companies, whether Spanish or foreign, in which INDITEX, whether directly or indirectly through other investee companies, is the holder of at least 50% of its share capital, in which case any of the authorized individuals may act severally on their own, in the name and on behalf of the company, independently of the amount involved in the matter in question.

Such powers are listed below:

1.-To appear and represent the Company vis-à-vis all manner of authorities, agencies, centres, departments and offices of the General State Administration, Central or Peripheral Government, autonomous communities, provinces, municipalities, the Corporate, Independent and European Administration, public registries of all types and, in general, any public or private entity or person whatsoever. To sign and file all manner of applications, petitions, unsworn statements or affidavits, pleadings and documents; make and pursue all types of claims; and, in general, exercise such powers as may be required for the management and defence of the rights of the Company.

2.-To sign, send and receive and collect from the Spanish postal and telegraphic authorities or offices ordinary or registered postal or telegraphic correspondence, declared value items and postal and telegraphic money orders. To file any claims before said authorities or offices and, where appropriate, collect the related indemnity payments.

3.-To verify consignments of all kinds of merchandise and goods by land, sea or air, and to receive those addressed to the Company. To file the relevant claims against railroad and shipping companies and against carriers in general for breakdowns, delays, losses or any other breach of the transportation agreement, and to collect the indemnity agreed with the same or set by the courts. To sign agreements and arrangements of all types with carriers, travel agencies, hotels, restaurants and other persons or entities who intervene in the transport of individuals or in the sphere of the hotel and catering industry.

4.-To claim and collect amounts owing to the Company for whatever reasons and to sign the appropriate receipts. To make payments. To render and require the rendering of accounts, and to challenge or approve the same. To provide, cancel and recover all manner of bonds and deposits, including those at/of the Spanish General Savings Deposit and its branches.

5.-To enter into all manner of loan and credit agreements. To open current, loan, savings or any other account with credit institutions and/or finance companies, both public and private; with respect to all such accounts and any other account existing in the Company’s name, to deposit or pay in cash sums, withdraw amounts or dispose of same by means of receipts, cheques and drafts, pay by transfer or order transfers, endorse or send for debiting bills of exchange, trade bills and credit notes, as well as bills or invoices payable by the Company; and to approve or challenge the balances shown in such accounts; to stand guarantee for other companies belong to the “INDITEX” group of companies and, in consequence, to sign in favour of those guarantees, bonds and other guarantee documents, as well as guarantee policies and counter-guarantee policies and, in general, to carry out all that is permitted under the legislation and banking practices.

6.-To draw, endorse, assign or transfer by any means other than endorsement, to accept, sign, require conformity, guarantee, cause the assignment of the provision for, collect, discount and pay bills of exchange, promissory notes, cheques, money orders and other commercial drafts, participate in the acceptance or payment of the same, protest such bills or drafts or make the equivalent declaration, and disclose in the protest document the reasons for not having accepted or paid the bills and drafts charged to the Company. To act as a plaintiff or defendant in connection with bills of exchange in all manner of legal matters, acts or dealings and pre-trial and procedural steps or actions due to non-acceptance or non-payment, and to bring any of the other actions provided for in the Bills of Exchange and Cheques Act or any other applicable legislation.

7.-To execute, with the aforementioned limitation in relation to real property, all manner of acts and contracts relating to movables and real property, rights, securities, participation units, shares, interests, at such prices, for such considerations, under such terms, in such periods and under such provisions, clauses and terms as are deemed appropriate. Specifically, to acquire, assign, grant and dispose of or transfer for whatever title, including that of a court-ordered sale in lieu of payment, all manner of movable or real property, rights, trademarks and other distinctive signs and industrial property rights, securities, participation units, shares and interests; take out all manner of compulsory and voluntary insurance; execution of works, services and supplies of all kinds; to rent and let, take in leasing or sublet; to create, amend, acknowledge and extinguish real property rights; including chattel mortgages and pledges without transfer of possession and all manner of encumbrances on real and movable property and rights owned by the Company; carry out groupings of, additions of, divisions of and severances of title to properties, make declarations of new construction work and divisions of real property under the condominium ownership system, establishing the bylaws which shall govern the same; and to conduct and participate in measurements, surveys and boundary marking, approving the same and executing any certificates that may be issued. Regarding all the above acts and contracts, they may act with the broadest powers in the execution and performance thereof, requiring, where appropriate, whatever is necessary for such purpose, as well as to amend, novate, cancel or terminate the same.

8.-To grant all manner of acts and contracts relating to IT, management, security and communication products, equipment and systems, as well as those referring to intellectual property arising out of or related with the same and, in general, any others referring to all manner of movables; to contract the execution of works, services and supplies of all types, at such prices, for such considerations, under such terms, in such periods and under such provisions, clauses and conditions as are deemed appropriate. Specifically, to acquire, assign, grant, encumber and dispose of or transfer for whatever title, including that of a court-ordered sale in lieu of payment, the aforementioned goods; to rent and let them, take them in leasing or subletting them; to create, amend, acknowledge and extinguish real property rights and guarantee rights on the movables belonging to the Company. Regarding all the above acts and contracts, they may act with the broadest powers in the execution and performance thereof, requiring, where appropriate, whatever is necessary for such purpose, as well as to amend, novate, cancel, terminate or discharge them.

9.-To enter all manner of agreements for business collaboration, such as franchise contracts, joint-venture contracts, accounts in participation, commercial distribution, licence and agency contracts and, in general, all those that the national and international expansion of the company can require.

10.-To appear in deeds of incorporation, alteration, merger or winding-up of all kinds of entities and companies, and attend, on behalf of the Company, assemblies, meetings or ordinary and extraordinary meetings of shareholders, intervening therein and casting their vote in the manner that they deem appropriate whatever the matter that is being debated and on which resolutions are passed, accepting positions and appointments and, in general, exercising in the name of the company any rights that may correspond to it.

11.-To attend, in the name and on behalf of the company, meetings, general meetings and assemblies of condominiums or co-owners, intervening therein and casting their vote in the way that they deem appropriate, whatever the matter that is being debated and on which resolutions are passed, accepting positions and appointments and, in general, exercising in the name of the company any rights that may correspond to it in Condominium Owner Communities, as well as in the meeting they these may hold in compliance with the current Condominium Property Law and other applicable legislation.

12.- To attend on behalf of the Company all kinds of auctions and bidding called by Central Government, autonomous communities and provincial and municipal authorities and private or public persons and entities and, to this effect, submit tender conditions, declarations, plans and estimates, make bids and provide bonds; holding, in short and without any limitation whatsoever, such powers as may be required to obtain and accept, provisionally or definitively, with such qualifications as are deemed appropriate, the relevant award and to exercise the rights and perform the obligations arising therefrom.

13.- To set up the offices, workplaces and buildings of the Company and to organize the services provided therein. To hire staff, establishing recruitment and joining terms; to freely appoint and remove the same, including executives and skilled employees; to establish their rights, duties, powers and functions, salary, bonuses and indemnity payments; to agree upon promotions and transfers; and to exercise penalization and disciplinary powers, as well as to act on behalf of the Company before the employees’ collective representation bodies and to represent it in the negotiation of agreements or pacts whatever their scope or nature.

14.- To represent the company before any manner of authorities and administrative bodies, whatever they may be, that have authority in labour and Social Security matters, bringing proceedings and claims, requesting or not the suspension of the actions being the subject of the claim, to appear and act in matters pending in which their principal has a direct or indirect interest, in all manner of cases and proceedings, proposing and examining all types of evidence; to request and obtain documents, copies, certificates and transfers; to file, prepare and draft all manner of pleadings, applications, petitions, allegations and claims; and, in general, to carry out all those acts that are necessary in the labour life of the company, to file its registration as a company before the labour authorities and the Social Security, those necessary for and arising out of the hiring of all manner of workers, including applying for and receiving payment of subsidies and allowances, the registration of workers [with the relevant authorities], etc., as well as those actions that are necessary for or are motivated by the amendment or termination of that labour relationship; those that are necessary for or arise out of the training that has to be given to the personnel of the company; statements and payments of Social Security contributions, requests for postponement and refunds, all that are necessary in the relations of the company with the employment and job-search offices; and, in general, to following the procedures through all its stages and motions, bringing the appropriate actions before the courts or not, until such time as firm decisions are obtained and fully enforced.

15.- To represent the company before all manner of authorities and administrative bodies, whatever these may be, that have authority in respect of Health and Safety at Work and Labour Risks, bringing proceedings and filing claims and, in general, carrying out all those actions that may be desirable for the principal company in those cases in which it, directly or indirectly, may have an interest. To carry out all that may be necessary to promote and maintain the safety of the workers in the workplaces, complying with the legislation on the prevention of Labour Risks and other complementary regulatory schemes; to plan and executive the policy for the prevention of risks; to act in the name of the company before the workers and their representative bodies and participating bodies as regards prevention; to draw up and introduce an occupational hazard plan; to organise the prevention service, providing it with the material and human resources that are necessary for it to develop its activity; to contract and to sign arrangements with authorised entities for the provision or acting as external prevention services; to carry out, organise and arrange the carrying out of assessments of risks, medical check-ups and other health check measures and prevention systems; to contract the performance of external labour risk prevention audits and, in general, all those acts that are related to such risks. To proceed to insure common and occupational risks of the workers, signing agreements and association documents with of the Social Security Agencies and Mutual Insurance Companies for Work Accidents and Industrial Diseases of the Social Security, or entities that should replace them in such functions and tasks, reporting or putting an end to, at the appropriate time, those that may have been signed; to accept positions and participate in those governing boards and advisory boards of such entities collaborating in the management of Social Security.

16.- As regards procedural rules, to exercise all those actions that are available to the principal and to waive those brought. To appear before the ordinary and special Courts of Law and Tribunals of all levels and jurisdictions, in all manner of trials, as well as in any kind of voluntary jurisdiction cases, administrative and economic-administrative cases. Consequently, to enter into conciliation agreements, with or without composition settlements, to mediate in pre-court proceedings, to file relevant claims and to answers summons and notifications, to sue, contest or accept, and report or lodge complaints; to file statements and ratify them, request and obtain documents; to request the practice of any proceedings whatsoever including: indictments, imprisonment and releases from prison; to hear notifications, notices, citations and summons, to assert and challenge jurisdictions; to apply for joinder of claims; challenge judges, magistrates and court officials; to propose and examine evidence and submit depositions; to attend court appearances, hearings and meetings and speak and vote, including Meetings of Creditors in all manner of collective execution proceedings, and may take part in auctions and request the adjudication of goods in partial or total payment of the debt being claimed; to reach a composition in court and outside court, to file and pursue, to the end, the litigation or case through its particular proceedings, possible incidents and appropriate appeals, until such time as firm resolutions, decisions or judgments are obtained and enforced; to take responsibility for the money or goods that are subject to the procedure being followed and, in general, exercising in the name of the company any rights that it may be entitled to.

17.- To compromise and refer to arbitrators all matters in respect of which they are empowered, either in any of the types of arbitration proceedings with the scope and under the requirements provided for in Spanish legislation on arbitration, or those types of arbitration proceedings characteristic of international commercial arbitration.

18.- To request that a Notary Public enter into record the minutes, and to serve and receive notices and notarial demands.

19.- To replace some or all of the foregoing powers by granting the relevant powers of attorney and to revoke all the powers granted, and to get copies of all kinds of records and deeds.

20.- To execute in public deeds the resolutions passed by the Shareholders in General Meeting, the Board of Directors and the Executive Committee.

With regard to the possibility of issuing or repurchasing shares, as at the date of this report, the authorization granted by the AGM held on 17 July 2012 remains in force, whereby the Board of Directors was authorized for the derivative acquisitions of treasury shares by the company or any of its controlled companies, always within the scope of the prevailing regulations in force.

5.- Agreements undersigned by the Company becoming valid, whether modified or terminated if the control of the Company changes through a hostile takeover bid.

INDITEX has not entered into any significant agreement that would become valid, be amended or terminated if the control of the company changes through a hostile takeover bid.

6.- Agreements signed between the Company and its officers and managers or employees with compensation rights in the event of resignation or unlawful dismissal or if work relationship is abruptly halted as a result of a hostile takeover bid (sec.61 bis 4.c, 5th LMV).

Except for the provisions of section B.1.13 of the Annual Corporate Governance Report, no specific compensation rights are provided in the employment agreements entered into with the employees of INDITEX on account of the expiry of the work relationship; therefore employees shall be entitled to the relevant compensation, applicable as the case may be, under the prevailing labour regulations.

With regard to the agreements addressed in section B.1.13, it was resolved by the Board of Directors after favourable report of the Nomination and Remuneration Committee, to acknowledge and to consent to employment agreements which included severance or golden parachute clauses entered into with some senior managers, including the Chairman and C.E.O.

Such agreements provided that in case of termination of the relationship on account, inter alia, of wrongful dismissal or resignation on certain grounds (among which a change in the control of the company is to be found, provided that, at the same time a significant renovation of the composition of the governing bodies takes place or a change regarding the contents and purpose of its main object) such officer shall be entitled to compensation in an amount in most cases equal to two years of his/her aggregate remuneration, on the basis of the pay of the last year of work.

7.- Main features of the internal control systems over financial reporting and risks (sec. 61 bis 4.h, LMV).

In previous years, the INDITEX Group (hereinafter, the Group) commenced a procedure to adjust its internal control on financial information organization to the requirements laid down in Act 2/2011 of 4 March on Sustainable Economy, and namely to the set of recommendations drafted by the Working Group on Internal control on financial information (hereinafter, GTCI, Spanish acronym) set up at the behest of CNMV.

Further to the guidelines of the above mentioned GTCI in the document “Internal control on financial information of listed companies”, the Group describes once again this year, the main features of its internal control system on financial information (hereinafter, SCIIF, Spanish acronym) based upon basic indicators provided in the above referred document, addressing the following issues:

  • Control environment
  • Assessment of risks in respect of financial information
  • Control activities
  • Information and reporting
  • System Operation Supervision

7.1. Control environment

Specific mechanisms put in place by the different companies belonging to the Group to keep an internal control environment that help create full, reliable and appropriate financial information, thus preventing the potential existence of irregularities and the channels to detect and cure them.

7.1.1. Bodies and/or functions responsible for: (i) the existence and regular updating of a suitable, effective SCIIF; (ii) its implementation; and (iii) its monitoring

  • Board of Directors.

Apart for the matters reserved for the competence of the General Meeting, the Board of Directors is the highest decision-making, supervisory and controlling body of the Group, including being ultimately responsible for the existence and update of an appropriate and effective SCIIF.

The Board of Directors is entrusted with the direction, administration, management and representation of the Group, delegating in general the management of the day-to-day business of INDITEX to the executive bodies and to the management team and concentrating its efforts on the general supervisory function, which includes directing the policy of the Group, monitoring the management activity, assessing the management by the senior management, taking the most relevant decisions for the company and acting as a link with the shareholders.

Pursuant to the provisions of the Articles of Association of INDITEX, the Board of Directors has delegated to the Audit and Control Committee the function of monitoring the preparation and submission of the regulated financial information, and of controlling the effectiveness of the SCIIF.

  • Audit and Control Committee.

Among the financial and control duties incumbent on the Audit and Control Committee, it is charged with overseeing the process of preparation and release of the financial information and the effectiveness of the internal control systems of the Group. With this respect, the Committee discharges, inter alia, the following functions:

  • To oversee the effectiveness of internal control of the Group, the internal audit, and ERM system.
    • To oversee the process of preparation and release of the regulated financial information and the effectiveness of the internal control systems of the Company, and (in particular SCIIF) by checking the suitability and integrity of the same and by discussing with the external auditors of the Company the significant weaknesses of the internal control system revealed in the course of the audit.
    • To periodically review the risk control and management policy and the management systems, which shall at least contain the different types of risks, the fixing of the risk level which is considered acceptable, the measures foreseen to mitigate the impact of the identified risks, and the systems of information and financial control.
    • To review the Company’ s annual accounts and the periodic financial information that the Board must provide to the markets and the supervisory bodies, overseeing compliance with the legal requirements and with the correct application of generally accepted accounting principles.
    • To inform the Board of Directors about any significant change in the accounting criteria and about risks arising from the balance sheet or from any other source.

Most members of the Audit and Control Committee are independent directors, according to the definition provided in sec. 7 of the Board of Directors’ Regulations. The Committee meets on a quarterly basis as well as any time it is called by its Chairman.

  • Financial Division. The Dirección General de Finanzas (Financial Division) (hereinafter, DGF Spanish acronym) is responsible for the design, implementation and update of an appropriate SCIIF, as provided in the “Procedure for Enterprise Risk Management in respect of financial information”. With this respect, it sets out and circulates the policies, guidelines and procedures associated to financial information creation and is charged with ensuring the appropriate enforcement thereof within the Group.
  • Internal Audit. Internal Audit is overseen by the Audit and Control Committee to which it reports. It is charged, inter alia, with supporting the Audit and Control Committee in overseeing the internal control of financial information systems, by performing specific audits about SCIIF, requesting action plans to correct or reduce any weaknesses revealed and by following-up the implementation of the proposed recommendations.

7.1.2. Departments and/or mechanisms in charge of: (i) the design and review of the organizational structure; (ii) defining clear lines of responsibility and authority, with an appropriate distribution of tasks and functions; and (iii) deploying sufficient procedures for the effective circulation within the Company

The Board of Directors is responsible for designing and reviewing the organizational structure within the Group.

The Nomination and Remuneration Committee is charged with providing and reviewing the criteria to be followed in the recruitment of senior managers. Such body is composed of a majority of independent directors, according to the definition set out in sec. 7 of the Board of Directors´ Regulations.

It is incumbent on such Committee, inter alia, to report any appointment and/or resignation of senior managers of the Group proposed to the Board of Directors by the chief executive pursuant to the provisions of section 15.2.(e) of the Board of Directors’ Regulations.

Senior managers and the Human Resources Division (hereinafter DRRHH, Spanish acronym) are charged with describing duties and responsibilities of each area. Additionally, the Compensation Department, reporting to the DRRHH regularly assesses the classification, description and duties of each position. Such functions are disclosed to each of the affected areas.

For the purposes of preparing financial information, the Group has clearly defined authority and responsibility lines. The main responsibility in preparing financial information falls with the DGF.

The DGF is responsible for the existence and appropriate dissemination within the Group, of the internal control policies and procedures required to ensure the reliable drafting of the financial information. The structure, size and definition of the functions and duties of each position within the financial area are defined by the DGF, together with the DRRHH.

To carry out its activity, the DGF is organized in the following departments:

  • Administration Department.
  • Planning and Management Control Department.
  • Financial Management Department.
  • Enterprise Risks Management Department.
  • Tax Department.

Likewise, the Group relies on financial organization structures to meet local requirements in each country where it operates, headed by a Chief Financial Officer who is charged, among other things with the following:

  • Designing and setting local organizational structures fit for the performance of the financial tasks allocated;
  • Integrating into the local management the corporate financial policies defined by the Group;
  • Adapting corporate accounting and management systems to local requirements;
  • Enforcing the procedures which are part of the SCIIF of the Group;

Additionally, the IT Division manages all systems of the Group and is the main responsible for setting up internal control on financial information policies and procedures, including those supporting financial processes, and which are involved in the drafting of the financial information.

7.1.3. Existence of a code of conduct, approving body, degree of dissemination and instruction, principles and values covered, body in charge of investigating breaches and proposing corrective or disciplinary action

The Board of Directors held on 17 July 2012 approved, after favorable report of the Audit and Control Committee, the Code of Conduct and Responsible Practices of the Inditex Group’s (which replaces both the Internal Guidelines for Responsible Practices of the Inditex Group’s Personnel and the Code of Conduct) and the Code of Conduct for Manufacturers and Suppliers (which replaces the Code of Conduct for External Manufacturers and Workshops).

Therefore, as of 17 July 2012, the Group’s conduct policies are covered in the following codes:

  • The Code of Conduct and Responsible Practices.
    • The Code of Conduct for Manufacturers and Suppliers.
    • The Internal Regulations of Conduct regarding Transactions in Securities
  • The Code of Conduct and Responsible Practices.

The Code of Conduct and Responsible Practices provides the action lines which must be followed by the Group in the performance of its professional duties.

Its goal consists of exacting an ethical and responsible professional conduct from Inditex and its entire workforce in the conduct of their business anywhere in the world, as a gist of its corporate culture upon which the training and the personal and professional career of its employees is based. For such purposes, the principles and values which shall govern the relationship between Inditex and its stakeholders (employees, customers, shareholders, business partners, suppliers and the societies where its business model is implemented) are defined.

The Code of Conduct and Responsible Practices is based upon a number of general principles, inter alia, that according to which the operations of the Inditex Group shall be developed under an ethical and responsible perspective; all persons, whether natural or legal, who maintain, directly or indirectly, any kind of professional, economic, social or industrial relationships with Inditex shall be treated in a fair and honourable manner and that according to which, all the activities of Inditex shall be carried out in the manner that most respects the environment, promoting biodiversity preservation and sustainable management of natural resources.

One of the standards covered under the Code of Conduct and Responsible Practices is the obligation to record transactions, according to which:

“Any and all transactions carried out by Inditex which may have an economic impact shall be clearly and accurately shown on the appropriate records of accounts, as a true representation of the transactions carried out, and they shall be made available to the internal and external auditors.

Inditex’s employees shall enter the financial information on the company’s systems in a full, clear and accurate manner, so that they would show, as at the relevant date, their rights and obligations in accordance with the applicable regulations. Additionally, the accuracy and integrity of the financial information which, under the prevailing regulations in force shall be disclosed to the market shall be ensured.

Inditex undertakes to implement and maintain an appropriate internal control system on financial reporting, ensuring the regular supervision of the effectiveness of such system. Accounting records shall be at all times made available to the internal and external auditors. For such purposes, Inditex undertakes to provide its employees with the necessary training for them to understand and comply with the commitments undertaken by the company regarding the internal control on financial information.”

In order to ensure compliance with the Code of Conduct and Responsible Practices, there is a Committee of Ethics, composed of:

  • The General Counsel and Code Compliance Officer.
  • The Internal Audit Director.
  • The Corporate Social Responsibility Director.
  • The Human Resources Director.

The Committee of Ethics may act of its own motion or at the behest of any employee of Inditex, of any external manufacturer, workshop or their subcontractors or of any third party with sufficient interest, further to a report made in good faith.

The Committee of Ethics reports to the Board of Directors through the Audit and Control Committee and has the following duties:

  • To supervise compliance with the Code and the internal circulation thereof to Inditex’s personnel.
  • To receive any manner of written instruments with regard to the enforcement of this code and to send them, where appropriate, to the relevant body or Department which may be responsible for dealing with and settling such instrument.
  • To monitor and supervise the management and settlement of any file.
  • To solve any questions which may arise, regarding the enforcement of the Code.
  • To propose to the Board of Directors, after report from the Audit and Control Committee, any explanation or implementation rule which the enforcement of the Code may require, and at least, an annual report to review its enforcement.
  • To supervise the Whistle Blowing Channel and compliance with the Procedure.

In the performance of its duties, the Committee of Ethics shall ensure:

  • The confidentiality of all the information and background and of the acts and deeds performed, unless the disclosure of information is required by law or judicial order.
  • The thorough review of any information or document that originated its action.
  • The commencement of such proceedings that adjust to the circumstances, where it shall always act with independence and full respect of the right of the affected person to be heard as well as of the presumption of innocence.
  • The indemnity of any employee as a result of bringing complaints in good faith to the Committee.

Decisions of the Committee of Ethics shall be binding for the INDITEX Group and for employees.

The Committee of Ethics submits a report at least once a year, to the Board of Directors, reviewing its proceedings and the enforcement of the Code of Conduct and Responsible Practices.

Additionally, the Audit and Control Committee reports to the Board of Directors, on an annual basis as well as whenever this latter so requires, on the enforcement of the Code of Conduct and Responsible Practices and of the additional documents which comprise the regulatory compliance policy of the group from time to time in force.

  • The Code of Conduct for Manufacturers and Suppliers.

The Code of Conduct for Manufacturers and Suppliers defines minimum standards of ethical and responsible behaviour which must be met by the manufacturers and suppliers of the products commercialized by INDITEX in the course of its business, in line with the corporate culture of INDITEX Group, firmly based on the respect for human and labour rights.

The Code, which shall be applied to all manufacturers and suppliers that take part in the purchasing, manufacturing and finishing processes, fosters general principles that define INDITEX’s ethical behavior, i.e.: all INDITEX’s operations are developed under an ethical and responsible perspective; all persons, individuals or entities, who maintain, directly or indirectly, any kind of employment, economic, social and/or industrial relationship with Inditex, are treated fairly and with dignity; all INDITEX’s activities are carried out in a manner that most respects the environment; all manufacturers and suppliers (production centers that are not property of Inditex) fully adhere to these commitments and undertake to ensure that the standards which are set forth in the Code are met.

Manufacturers of products commercialized by Inditex are bound to enforce this Code of Conduct for Manufacturers and Suppliers and the Code of Conduct and Responsible Practices, where applicable to them. Likewise, the remaining suppliers of goods and services of the Group shall enforce both Codes where applicable to them.

  • IRC.

The Board of Directors dated 20 July 2000 resolved, in compliance with the provisions of section 78 of Act 24/1988 of 28 July on the Stock Exchange and consistent rules, the “Internal Regulations of Conduct regarding Transactions in Securities of Inditex and its corporate group”.

The IRC governs such issues as confidentiality of relevant information, conflicts of interest declarations, transactions in securities of INDITEX and its corporate group by individuals within its scope (affected or related parties), treasury stock and communication of relevant facts.

Two revised texts of the Internal Regulations of Conduct regarding Transactions in Securities were approved by the Board of Directors held on 20 March and 11 December 2003, respectively, for the purposes of adjusting them first to the new obligations introduced by the Financial Act and then to the recommendations included in the Aldama Report; as a result of such review, certain concepts were redefined and control on transactions in securities which might be eventually carried out by Affected Persons was enhanced, among others.

Finally, said revised text was amended further to a resolution of the Board of Directors dated 13 June 2006 for the purposes of adjusting its contents to the provisions of Real Decreto 1333/2005 of 11 November, whereby the Stock Exchange Act in the matter of market abuse was implemented.

Finally, there is a Code Compliance Supervisory Board which reports directly to the Audit and Control Committee of the Board of Directors. Such Supervisory Board is composed of:

  • The Chairman and C.E.O.
  • The General Counsel.
  • The Director of the Capital Markets Department, and
  • The Head of Human Resources.

Such Supervisory Board is responsible for implementing procedures and implementation standards to enforce the IRC. Likewise, there is a Code Compliance Office which reports to the Nomination and Remuneration Committee. The General Counsel of the INDITEX Group is the Code Compliance Officer. The Code Compliance Office is charged, inter alia, with enforcing the conduct policies of stock exchanges and the standards and procedures of the IRC on directors, officers, employees and any other person to which the IRC applies.

The proceedings of the companies which a part of the Group and of all people with access to such information which may be deemed to be relevant information, and namely, financial information, shall adjust to the following principles: regulatory compliance, transparency, collaboration, information, confidentiality and neutrality. Both the Code Compliance Supervisory Board and the Code Compliance Office shall ensure that the above referred principles are observed in respect of financial information.

With regard to the dissemination of the above referred regulations, it is incumbent on the Human Resources Department to circulate a copy of the of the Code of Conduct and Responsible Practices of the Inditex Group to any new employees upon their joining the organization. Likewise, such regulations are available on the web page of the Group and are subject to the appropriate measures regarding disclosure, training and awareness-raising, so that they may be understood and implemented within the whole organization.

With regard to the IRC, the Code Compliance Office keeps a general documentary register of all Affected Persons (people to whom the IRC apply) and it is bound to inform them that they are subject to the provisions of the IRC and of any breaches and penalties which would arise, where appropriate, from an inappropriate use of Reserved Information.

Likewise, the Code Compliance Office shall inform the Affected Persons that they have been included on the General Documentary Register and about any other issues addressed by Ley Orgánica 15/1999, of 13 December on the Personal Data Protection.

  • “Whistle blowing” channel, for the reporting to the audit committee of any irregularities of a financial or accounting nature. Breaches of the code of conduct and malpractice within the organization.

There is a Whistle Blowing Channel available to all employees of the Group, manufacturers, suppliers or third parties with any direct relationship and a lawful business or professional interest, regardless of their tier or geographic or functional location, so that they may report through this Whistle Blowing Channel any breach of Inditex’s conduct and regulatory compliance policies which affect the Group, and which arise from any employees, manufacturers, suppliers or third parties with whom the Group has any direct employment, business or professional relationship.

Therefore, any breach and any manner of malpractice may be reported, including those of a financial and accounting nature.

It is incumbent on the Committee of Ethics to oversee the Whistle Blowing Channel and the enforcement of the Whistle Blowing Channel Procedure.

The proceedings of such Channel are implemented in the Whistle Blowing Channel Procedure approved by the Board of Directors last 16 July 2012; such document is available on the intranet.

Reports about any breach or any queries regarding the construction or application of internal conduct and regulatory compliance policies may be sent to the Company by post, for the attention of the Committee of Ethics (to Avenida de la Diputación, Edificio Inditex, 15142 Arteixo, A Coruña); by e-mail to: (comitedeetica@inditex.com), or by fax (+34 981186211). The confidentiality of such reports is ensured.

Upon receipt of the report, the Committee of Ethics verifies first whether it falls within its remit. If so, the Committee of Ethics will refer such report to the relevant department so that it would make the appropriate enquiry. Otherwise, the Committee of Ethics will order staying of proceedings.

In light of the findings reached further to the enquiry, the relevant department or department shall, having heard first the interested party, propose any of the following measures to the Committee of Ethics which will have final say:

  • Remedy of the breach, if appropriate,
  • Proposal of penalties or relevant measures,
  • Staying of proceedings, where no breach has been detected.
  • Training and refresher courses for personnel involved in preparing and reviewing financial information or evaluating SCIIF, which address, at least, accounting rules, auditing, internal control and risk management

The Training and Development Department of the Group, which reports to the DRRHH, is charged with preparing, together with each of the areas reporting to the DGF and with internal Audit, training and refresher schemes for the different staff members involved in the preparing and overseeing the financial information of each and every company comprising the Group. Such schemes include, both general courses focusing on business expertise and knowledge of the different departments which make up the company, and specific schemes aimed at training and refreshing employees in respect of new regulatory changes in the matter of preparation and supervision of financial information.

  • General Training.

This training aims at the internal knowledge of each business unit, as well as of each department with their respective activities, functions and duties within the business.

Pursuant to such training plan, employees begin by working at the stores, getting acquainted with the whole process of running a store. Then, they spend time at the different corporate departments at headquarters to finally visit any of the subsidiaries of the Group abroad.

  • Specific training.

Group employees involved in procedures associated with the drafting of financial information receive regular training and refresher courses focusing mainly on learning about local and international standards governing financial information.

Within the financial environment, such training and refresher schemes are organized by the Training and Development Department which reports to the DRRHH:

At the beginning of each year, this Department prepares a “Training Scheme” encompassing the different courses, both external and internal, addressed to employees of the various departments comprising the DGF.

Among the courses taught by external staff during the year in course to staff at HHQQ within the financial area, the following should be noted:

  • Leadership and team building
  • Cash Management
  • Strategic perspectives of Management Control
  • Costs and management control as competitive tools
  • Enterprise Risks Management
  • Financial Models.

Training courses are provided on an annual basis for all new supervisors of financial areas in each country, in order to train them in respect of the management model of the INDITEX Group, and in the internal control system on financial information implemented by the Group.

Additionally, supplementary courses are taught by internal staff on the operation of financial software tools used in the preparation of financial information.

Likewise, some courses were taught in the different subsidiaries of the Group on the following issues, inter alia:

  • IFRS
  • Trade business accounting and taxation.
  • Enterprise evaluation.
  • Corporate tax
  • International Financial Reporting.

A specific portal of the DGF is available on the intranet to all employees with the material from the main courses taught. This portal is also used to report domestic and international news within the financial, accounting and auditing scope. The foregoing and the subscriptions to specialized financial magazines make up a technical library available to the members of the departments comprising the DGF.

7.2. Risks assessment in financial reporting

Degree of implementation and systematization of the process whereby the Group is able to identify sources and risks of any mistake or irregularity in financial reporting.

7.2.1. Main features of the risk identification process

  • -Is there any such process? If so, is it duly documented?

Within the Group, the process to identify risks has been documented in the “Procedure for Enterprise Risks Management in respect of Financial Information” prepared by the DGF and Internal Audit. This process helps identify and assess, on an annual basis, the risks which may lead to material mistakes in financial reporting.

  • The process covers the entire goals of financial information

The above referred risks management process is based upon five stages:

  • Gathering financial information
    • Identification of the operation cycles with an impact on financial information
    • Assessment or risks of the reporting of financial statements unit
    • Prioritization of accounts criticality
    • Checking risks versus operational cycles.

As a result of such process, a scoping matrix of risks regarding financial information (Scoping Matrix of SCIIF) is prepared. This Scoping Matrix allows the identification of material headings of financial statements, assertions or goals of financial information in respect of which any risks may exist, and the prioritization of operational processes which have an impact on financial information, by means of comparing financial statements with operational cycles associated with them.

The assessment process covers all the goals of financial information: (i) existence and occurrence; (ii) integrity; (iii) assessment; (iv) disclosure; (v) rights and obligations.

Further to the identification of potential risks, they are assessed on an annual basis based upon the business expertise and understanding of the management and upon materiality criteria.

Assessment criteria are established (i) from a quantitative perspective in accordance with such parameters as: turnover, size of assets and pre-tax profit and (ii) from a qualitative perspective in accordance with different issues such as transactions standardizing and processes automation, composition, changes versus the previous year, complexity of accounting, likelihood of fraud or error or degree of use of estimates in book recording.

  • Process to identify the consolidation perimeter.

The Group relies on a Corporate Master of Companies wherein all the companies which are part of the Inditex Group are included. .Such mater is managed and updated in accordance with the “Procedure for the Incorporation and Financing of Companies”.

Recorded in such master are on the one hand, general information about companies, such as company name, accounting closing date and currency and on the other, legal details such as the date of incorporation, share capital, list of shareholders, stakes, and other relevant information. Legal Assistant’s Office is responsible for updating the master as regards legal information.

The External Reporting area, which reports to the Planning and Management Control Department determines on a quarterly basis the number of the companies which make up the Consolidation Perimeter as well as the consolidation methods which apply to each of the companies included in the above referred perimeter.

  • Effects of other types of risks (operational, technological, financial, legal, reputational, environmental, etc.).

The process for the assessment of financial information risks includes in addition to the above referred quantitative and qualitative factors, the main risks identified through the general risk map of the INDITEX Group.

Potential risks identified through the Scoping Matrix of financial information are added to the Risks Map of the Group. Such Map is regularly updated with the assistance of all the involved areas of the organization. Thus, the Group may consider the impact that the remaining risks regarding Business Environment, Reputation, Regulatory risks, Human Resources, Operations, Financial, Technology and IT Systems, Environmental, Governance and Management might have on financial statements.

  • Governing body of the company charged with monitoring the process.

Finally, the whole process is overseen and approved on a yearly basis by the Audit and Control Committee.

7.3. Control activities

Main features of specific controls implemented by the Group to reduce the risks of mistake or malpractice regarding the financial information.

7.3.1. Flows of activity and control (including those regarding risk of fraud) of the different types of transactions

The Group keeps duly documented in the relevant procedures all processes which it deems to entail a risk of a material impact on the preparation of the financial information.

Such procedures include controls which allow giving an appropriate answer to risks associated to the achievement of the goals regarding reliability and integrity of the financial information so as to prevent, detect, reduce and correct the risk of any potential mistakes way in advance. Each control activity is incumbent on the relevant manager and is systematically exerted with the required frequency.

Additionally, procedures are represented in flow charts and control activities through scoping risks matrixes and controls. Each control activity is overseen by the relevant supervisor and is systematically carried out. Dissemination of procedures, flow charts and matrixes to staff members involved in the drafting of the financial information is carried out through the DGF portal of the Group available on the intranet, where they may be accessed by any member of the financial team. Such portal represents an additional work tool.

Each procedure is allocated to a manager charged with reviewing and updating it. Said updates are duly reviewed and authorizes by the head of the area prior to their dissemination via the financial portal.

The following procedures should be underscored in accordance with their relevance, considering the business nature:

  • Accounts payable
  • Cash
  • Stores sales
  • Stock management
  • Tangible fixed assets
  • The Group relies on procedures governing accounting closing, central purchases units and consolidated financial statements. This last procedure provides a section regarding “Provisions, Opinions and Estimates” which covers the main consolidated provisions, opinions and estimates, as well as the review and approval thereof by the DGF.
  • During the fiscal year and further to the annual updating process, a new procedure which governs the use, control and maintenance of software tools implemented by users has been documented.
  • The DGF relies on another control tool, which complements the different documented procedures. Such tool consists of a number of indicators (KPIS, “key performance indicators”) which aim at evaluating the quality of financial information reported by the relevant managers of the Group companies. Such tool is available to the different units which create information. KPIS are regularly reviewed by members of the different financial departments of companies, with the proposal, where appropriate, of corrective measures and specific action plans and the follow-up thereof.
  • Likewise, the DGF carries out analytical reviews of financial statements of the main companies of the Group on a quarterly basis.

7.3.2. Internal control policies and procedures for IT systems supporting the key process of the Company regarding the drafting and publication of financial information

The internal control framework of IT systems of the Group has been defined based upon a catalogue of IT processes (hereinafter, IT) which covers the whole activity associated to each system and a basic risks review associated to such processes. Thus, the internal control framework covers all the risks associated to each and every process.

The Computer Security area of the Group, which reports to the IT Division, aims at ensuring security of all computer processes by:

  • Setting and disseminated regulations to ensure security. With this respect, the Policy for Information Security (PSI, Spanish acronym) was approved in September 2011.
  • Carrying out reviews aimed at verifying enforcement of such regulations.

The PSI serves as a benchmark which provides guidelines to be followed by the staff of the Inditex Group, for the purposes of ensuring computer security within all business processes; therefore, they also support the SCIIF. Guidelines provided in the Security Policy address the following issues:

  • Assets classification and control
  • Security versus human deeds
  • Physical security and security of the environment
  • Accesses control
  • Systems, Communications and Transactions Management
  • Systems Development and Update
  • Business Continuity Management
  • Management of Information Security Incidences
  • Regulatory and Legal Compliance.

Additionally, regarding the design and implementation of applications, the Group has defined a methodological framework with different requirements aimed at ensuring that the solution implemented actually meets the functions demanded by users and so that the quality level meets the security standards set out.

Finally, the Group relies on contingency mechanisms and procedures, both technical and operational, which have been defined to ensure recovery of IT systems in case of lack of availability.

7.3.3. Internal control policies and procedures to oversee activities outsourced to third parties. Appraisal, calculation or assessment activities commissioned from independent experts

As a general rule, the INDITEX Group does not have any process with a relevant impact on financial information outsourced to any third party. The general policy of the Group lies in not outsourcing any activity which might have any material impact on its financial statements.

During FY2012, the following main activities entrusted to third parties have been identified, without their having any material impact on financial statements:

  • Real estate appraisals
  • Valuation of intangible assets and companies.
  • Actuarial calculations.

Such services are engaged by the managers of the relevant areas, ensuring the technical and legal qualifications and capacity of the individuals or companies hired.

7.3.4. Procedures to review and authorize financial information and the SCIIF description to be disclosed to stock exchanges. Relevant managers

Pursuant to the Board of Directors’ Regulations, it is incumbent on the Audit and Control Committee, among other things, to review the annual accounts and the periodic information that the Board of Directors must submit to the markets and their supervisory bodies, overseeing at all times compliance with the legal requirements and the appropriate use in the preparation of such information of generally accepted accounting standards.

Likewise, the above referred Regulations provide that the Audit and Control Committee will meet on a quarterly basis to review the periodic financial information to be submitted to the Stock Exchanges authorities and the information that the Board of Directors must approve and add to its annual public documentation.

Prior to the statement of the annual accounts and to the approval of the half-yearly financial statements, the DGF and External Auditors meet for the purposes of reviewing and assessing the financial information prior to submitting it to the Board of Directors.

The Audit and Control Committee submits this information to the Board of Directors which is responsible for approving it, prior to it being disclosed to the market.

7.4. Information and communication

Procedures and mechanisms to which the Group resorts, for the purposes of disclosing to the staff involved in the drafting of financial information, the applicable guidelines and the information systems used in such processes.

7.4.1. Procedures to review and authorize financial information and the description of the SCIIF, to be published by securities markets. Relevant managers

The Consolidation and Reporting area within the Planning and Management Control department is responsible for drafting, publishing, implementing and updating the Manual of Accounting Policies of the Group. Such area has, among others, the following duties associated to accounting policies:

  • Defining the accounting treatment of the transactions which make up the business of the Group.
  • Defining and updating the accounting practices of the Group .
  • Addressing accounting questions raised by any company of the Group.
  • Standardizing the accounting practices of the Group.

7.4.2. Existence of an updated manual of accounting policies circulated to the relevant units within the organization

As previously stated, the Group relies on a manual of Accounting Policies of the Group drafted by the Consolidation and Reporting area. Such manual covers transactions inherent in the Groups´ business.

The manual is regularly updated. For such updating procedure, the Consolidation and Reporting area includes all accounting changes arisen during the fiscal year which were already advanced to those in charge of drafting the financial statements.

The manual and the remaining documentation are available on the corporate intranet.

During the fiscal year, the above referred manual has been completely updated and it is available on the intranet since February 2013.

7.4.3. Mechanisms for the capture and preparation of financial information in standard format, which are enforced and used by all the units of the Company or the Group, supporting the main financial statements and the notes thereto, as well as the disclosure concerning SCIIF

The process for the capture and preparation of consolidated financial statements is centralized, falling on the External Reporting area which reports to the Planning and Management Control Department.

The Group relies on IT systems for the drafting of financial information of individual companies, which on the one hand allow the automatic recording of the different transactions, with the standard configuration of individual financial statements of each company within the Group, and on the other hand, provides the information required to draft the consolidated financial statements.

For the purposes of reporting financial information, the subsidiaries of the Group resort to a specific application whereby they include their financial statements and carry out the reconciliation of transactions and inter-group balances. The remaining part of the consolidation process (removal, adjustment, etc.,) is carried out through another tool, specific to the Group.

Financial information reported to CNMV is drafted based upon consolidated financial statements gathered through the above referred tool, and based upon certain supplementary information reported by the subsidiaries, required to prepare the annual/half-year report. Contemporaneously, certain specific controls are exerted to confirm integrity of such information.

The Group is currently implementing a new software tool to carry out the consolidation process. This new application will permit an increase in controls on capture mechanisms and a higher review of financial information.

7.5. Monitoring operation of the system

Information which helps understand how SCIIF is overseen, in order to prevent and settle any defect in its design and operation.

7.5.1. Internal audit function charged, inter alia, with supporting the audit committee in the monitoring of the internal system, including SCIIF

The Group has an independent Internal Audit Department whose mission and goals are provided in its Charter and Regulations. The following duties are incumbent on the Internal Audit Department, inter alia:

  • Assuring the Audit and Control Committee of the effective and independent monitoring of the internal control system (including SCIIF).
  • Collaborating in the reasonable reduction of the potential impact of risks which hamper achieving the goals of the Group.
  • Promoting, by means of findings and recommendations, the existence of appropriate internal control and risk management systems, namely SCIIF; as well as the homogeneous and efficient application of internal control system policies and procedures.
  • Serving as the communication channel between the Organization and the Audit and Control Committee.

To discharge such duties, Internal Audit relies on an Annual Audit Plan approved by the Audit and Control Committee.

For organizational purposes, Internal Audit is included in the current structure by means of a direct link to the Board of Directors, to which it reports via the Chairman, and to which it is functionally subordinated through the Audit and Control Committee, which ensures a full independence in the performance of its activities.

7.5.2. Discussion procedure whereby the auditor, (in accordance with the provisions of the NTA), the internal audit function and other experts may disclose to the senior management and to the Audit Committee or the directors of the Company any significant internal control weaknesses identified in the course of the review of the financial statements or any other assignment entrusted. Action plan to try and correct or reduce weaknesses observed

Internal Audit regularly reports to the Senior Management and the Audit and Control Committee the internal control weaknesses identified in the reviews of SCIIF of the Group, as well as the follow-up of the action plans set out to settle or reduce them.

Meanwhile the External Auditors regularly meet with the DGF and Internal Audit, both to gather information and to disclose any potential control weaknesses which they might detect, where appropriate, in the course of their work.

On the other hand, the Audit and Control Committee meets with the auditors of individual and consolidated accounts for the purposes of reviewing the annual accounts of the Group and certain half-yearly periodical information that the Board of Directors must supply to the markets and their supervisory bodies, overseeing fulfillment of legal requirements and the appropriate application of generally accepted accounting principles in the drafting thereof.

Section 43.4 of the Board of Directors´ Regulations provides that:

“The Board of Directors shall endeavor to definitively prepare the accounts in such a manner that they do not give rise to qualifications on the part of the auditor. Nonetheless, when the Board considers that it must maintain its criterion, it shall publicly explain the content and scope of the discrepancy”.

To meet the provisions laid down in the above referred section, any discussion or different view existing is anticipated in the meetings held between the Audit and Control Committee and the external auditors. Meanwhile, external auditors report, where appropriate, about the main improvement issues on internal control identified as a result of their work. Additionally, the Management reports on the degree of implementation of the relevant action plans set in train to correct or reduce the issues identified.

During FY2012, Internal Auditors have attended six meetings of the Audit and Control Committee and External Auditors four.

7.5.3. Scope of SCIIF assessment carried out during the fiscal year, and of the procedure to disclose the results of such assessment. Action plan providing any potential corrective measures. Consideration of the impact of such measures on the financial information

Based upon the above referred Scoping Matrix of SCIIF Risks, Internal Audit drafted a pluri- annual plan for the regular review of SCIIF of the Group which was submitted to and approved by the Audit and Control Committee.

Such pluri-annual plan envisages reviews of SCIIF for the main processes and geographical areas with a material impact on financial statements of the Group. Priority reviews are set in accordance with the risks identified. Suitability of such plan shall be reviewed every year, further to the update of the process to identify and assess financial information risks.

Namely, the design and effective operation of key transactional controls and of general controls on the main software tools involved in the preparation of the financial information, is subject to review, as well as the review of the general control environment.

Additionally, this review is complemented by the execution and review (KRI, key risk indicators) defined by Internal Audit on most critical risks areas, which have been designed to detect and reduce likelihood of risks and mistakes, including those of financial nature and fraud. Execution of such key risk indicators is centralized for all business units and geographical areas, pursuant to the annual plan approved.

In the implementation of its proceedings, Internal Audit relies on different audit techniques, mainly interviews, analytical reviews, specific transaction control tests, reviews of the effectiveness of software tools and material tests.

Likewise, Internal Audit carries out certain limited procedures of analytical review on consolidated financial statements for the first and third quarter of the year on consolidated information.

Results of the assignments, together with the corrective measures proposed, where appropriate, are reported to the DGF and the Audit and Control Committee. The implementation of such measures has been subsequently monitored by Internal Audit and reported to the Audit and Control Committee.

7.5.4. Monitoring activities about SCIIF carried out by the Audit Committee

With regard to the monitoring activities about SCIIF carried out by the Audit and Control Committee during the year, it has performed, inter alia, with the following:

  • It has reviewed the annual accounts of the Group and the periodic financial information, this latter on a quarterly basis, to be provided by the Board of Directors to the markets and its supervisory bodies, overseeing compliance with the legal requirements and the appropriate application of the generally accepted accounting standards upon drafting such information.
  • It has proposed to the Board of Directors, so that it may table it to the Annual General Meeting of Shareholders, the appointment of auditors within the statutory terms. Likewise, the Audit and Control Committee proposes to the Board of Directors the terms of the agreement to be executed with auditors, the scope of their professional mandate and, where appropriate, their removal or renewal, overseeing performance of the agreement and regularly assessing their results.
  • As part of its monitoring duties regarding the Audit Department, the Committee has approved the annual activities report of such Department, as well as its budget and the annual audit plan.
  • It has reviewed the annual audit plan of external auditors, including the audit goals based upon the assessment of financial information risks, and the main areas involved or significant transactions which shall be reviewed during the fiscal year.
  • It has reviewed with the external auditors and with Internal Audit the internal control weaknesses detected, where appropriate, in the course of audit and review assignments. Likewise, both external auditors and Internal Audit regularly report to the Audit and Control Committee the degree of enforcement of recommendations resulting from such assignments.
  • It has kept regular meetings with other corporate departments of the INDITEX Group for the purposes of overseeing the effectiveness of internal control systems of the Group, including SCIIF, and verifying their suitability and integrity.

7.5.5. Information about SCIIF sent to the markets reviewed by the external auditor

The Group´s Management team has decided to subject the information about SCIIF for FY2012 prepared by the company to the review by the external auditor. Such report is attached hereto as a Schedule.