Management’s Discussion of Financial Responsibility We believe that great companies are built on a foundation of reliable financial information and compliance with the spirit and letter of the law. For GE, that foundation includes rigorous management oversight of, and an unyielding dedication to, controllership. The fi nancial disclo- sures in this report are one product of our commitment to high quality financial reporting. In addition, we make every effort to adopt appro- priate accounting policies, we devote our full resources to ensuring that those policies are applied properly and consistently and we do our best to fairly present our financial results in a manner that is complete and understandable. We also recognize that we operate in an environ- ment that requires us to apply complex accounting guidance to a broad range of transactions and events. Regulators, standard setters and other financial reporting stakeholders have acknowledged that accounting and financial reporting complexity is a major challenge facing companies, auditors and investors alike. This complexity gives rise to the possibility that knowledgeable individuals will reach different, well-reasoned judgments based on the same underlying facts. How to respond to this challenge is a matter of continuing debate. Rigorous Management Oversight Members of our corporate leadership team review each of our busi- nesses routinely on matters that range from overall strategy and financial performance to staffing and compliance. Our business lead- ers monitor financial and operating systems, enabling us to identify potential opportunities and concerns at an early stage and positioning us to respond rapidly. Our Board of Directors oversees management’s business conduct, and our Audit Committee, which consists entirely of independent directors, oversees our internal control over fi nancial reporting. We continually examine our governance practices in an effort to enhance investor trust and improve the Board’s overall effec- tiveness. The Board and its committees annually conduct a performance self-evaluation and recommend improvements. Our Presiding Director led three meetings of non-management directors this year, helping us sharpen our full Board meetings to better cover signifi cant topics. Compensation policies for our executives are aligned with the long- term interests of GE investors. Dedication to Controllership We maintain a dynamic system of internal controls and procedures including internal control over fi nancial reporting designed to ensure reliable financial record-keeping, transparent fi nancial reporting and disclosure, and protection of physical and intellectual property. We recruit, develop and retain a world-class financial team. Our internal audit function, including members of our Corporate Audit Staff, conducts thousands of financial, compliance and process improvement audits each year. Our Audit Committee oversees the scope and evaluates the overall results of these audits, and its Chairman regularly attends GE Capital Services Board of Directors, Corporate Audit Staff and Controllership Council meetings. Our global integrity policies “The Spirit & The Letter” require compliance with law and policy, and pertain to such vital issues as upholding financial integrity and avoiding conflicts of interest. These integrity policies are available in 31 languages, and are provided to all of our employees, holding each of them accountable for compliance. Our strong compliance culture reinforces these efforts by requiring employees to raise any compliance concerns and by prohibiting retribution for doing so. To facilitate open and candid communication, we have designated ombudspersons throughout the Company to act as independent resources for reporting integrity or compliance concerns. We hold our directors, consultants, agents and independent contractors to the same integrity standards. Our internal controls proved inadequate to prevent a restatement of our financial reports. We concluded that the restatement resulted from a material weakness in our internal controls related to interest rate swaps designated as hedges of commercial paper, and we reported that weakness. We eliminated this program in 2007 pending satisfactory clarification of the related accounting requirements. Informative Disclosure and Visibility to Investors We are keenly aware of the importance of full and open presentation of our financial position and operating results and rely for this pur- pose on our disclosure controls and procedures, including our Disclosure Committee, which comprises senior executives with detailed knowledge of our businesses and the related needs of our investors. We ask this committee to review our compliance with accounting and disclosure requirements, to evaluate the fairness of our financial and non-financial disclosures, and to report their fi ndings to us. We further ensure strong disclosure by holding more than 350 analyst and investor meetings annually. Conclusion We welcome the strong oversight of our fi nancial reporting activities by our independent registered public accounting firm, KPMG LLP, engaged by and reporting directly to the Audit Committee. U.S. legis- lation requires management to report on internal control over fi nan- cial reporting and for auditors to render an opinion on such controls. Our report follows and the KPMG LLP report for 2006 appears on the following page. We present our financial information proudly, with the expecta- tion that those who use it will understand our Company, recognize our commitment to performance with integrity, and share our confi - dence in GE’s future. Management’s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. With our participation, an evaluation of the effectiveness of our internal control over financial reporting was conducted as of December 31, 2006, based on the framework and criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We identified the following material weakness in our internal con- trol over financial reporting we did not have adequately designed procedures to designate each hedged commercial paper transaction with the specificity required by Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities, as amended. This material weakness resulted in restate- ment, in January 2007, of our previously issued fi nancial statements as of and for each of the interim periods ended March 31, 2006, June 30, 2006 and September 30, 2006. Accordingly, we concluded that our internal control over financial reporting was not effective as of December 31, 2006. Our independent registered public accounting firm has issued an audit report on our management’s assessment of our internal control over financial reporting. Their report appears on the following page. JEFFREY R. IMMELT Chairman of the Board and Chief Executive Officer February 9, 2007 KEITH S. SHERIN Senior Vice President, Finance and Chief Financial Offi cer 46 ge 2006 annual report
Report of Independent Registered Public Accounting Firm To Shareowners and Board of Directors of General Electric Company We have audited the accompanying statement of financial position of General Electric Company and consolidated affiliates (“GE”) as of December 31, 2006 and 2005, and the related statements of earnings, changes in shareowners’ equity and cash flows for each of the years in the three-year period ended December 31, 2006. We also have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that GE did not maintain effective internal control over fi nancial reporting as of December 31, 2006, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). GE management is responsible for these consolidated fi nancial state- ments, for maintaining effective internal control over fi nancial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements, an opinion on management’s assessment, and an opinion on the effectiveness of GE’s internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reason- able assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements, assessing the accounting principles used and signifi cant estimates made by management, and evaluating the overall fi nancial statement presentation. Our audit of internal control over fi nancial reporting included obtaining an understanding of internal control over fi nancial reporting, evaluating management’s assessment, testing and evaluat- ing the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over fi nancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly refl ect the transactions and dispositions of the assets of the company (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and (3) provide reason- able assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the fi nancial statements. Because of its inherent limitations, internal control over fi nancial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim fi nancial statements will not be prevented or detected. Management has identifi ed and included in its assessment the following material weakness as of December 31, 2006: the Company did not have adequately designed procedures to designate each hedged commercial paper transaction with the specificity required by Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities, as amended. This material weakness resulted in restatement of the Company’s previously issued financial statements as of and for each of the interim periods ended March 31, 2006, June 30, 2006 and September 30, 2006. The aforementioned material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2006 consolidated fi nancial statements. In our opinion, the consolidated financial statements appearing on pages 68, 70, 72, 74–108 and the Summary of Operating Segments table on page 53 present fairly, in all material respects, the fi nancial position of GE as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three- year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, management’s assessment that GE did not maintain effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control Integrated Framework issued by COSO. Further more, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, GE did not maintain effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control Integrated Framework issued by COSO. As discussed in note 1 to the consolidated fi nancial statements, GE in 2006 changed its methods of accounting for pension and other postretirement benefits and for share-based compensation. Our audits of GE’s consolidated financial statements were made for the purpose of forming an opinion on the consolidated fi nancial statements taken as a whole. The accompanying consolidating infor- mation appearing on pages 69, 71 and 73 is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position, results of operations and cash flows of the individual entities. The consolidating information has been subjected to the auditing procedures applied in the audits of the con- solidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated fi nancial statements taken as a whole. KPMG LLP Stamford, Connecticut February 9, 2007 ge 2006 annual report 47
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