Annual Report 2016

Report of the Audit Committee

Dear Shareholders,

As Chairman of the Audit Committee, I am very pleased to report to you on the tasks and activities performed by that body in financial year 2016.

Responsibility

On the basis of applicable law, the German Corporate Governance Code and the Rules of Procedure of the Supervisory Board and its committees, the Audit Committee deals primarily with questions of accounting and financial reporting. In addition, it deals with the annual audit and reviews the qualifications and independence of the external auditors. Furthermore, it discusses the effectiveness and functional capabilities of the risk management system, the internal control system, the internal auditing system and the compliance management system. After the external auditors are elected by the Annual Shareholders’ Meeting, the Audit Committee engages the external auditors to conduct the annual audit and the auditors’ review of interim financial statements, determines the important audit issues and negotiates the audit fees with the external auditors.

Equal representation

Audit Committee Chairman Dr. Clemens Börsig and Joe Kaeser served as the shareholder representatives on the Audit Committee in financial year 2016. Both are independent and have expertise in the field of financial reporting, as well as special knowledge of and experience in the auditing of financial statements and the application of methods of internal control. During financial year 2016, the employees were represented on the Audit Committee by Michael Brecht as the Deputy Chairman of the Committee and by Dr. Sabine Maaßen. Dr. Sabine Maaßen resigned from her position as a member of the Supervisory Board of Daimler AG, effective June 30, 2016, and thus relinquished her membership in the Audit Committee as well. In a meeting held on June 17, 2016, the members of the Supervisory Board elected Ergun Lümali as an employee representative member of the Audit Committee, effective July 1, 2016.

Meetings and participants

The Audit Committee met six times in the financial year 2016. All of these meetings were also attended by the Chairman of the Supervisory Board, Dr. Manfred Bischoff, as a permanent guest. The meetings were also attended by the Chairman of the Board of Management, the members of the Board of Management responsible for Finance and Controlling and for Integrity and Legal Affairs, and the external auditors. The heads of specialist departments such as Accounting, Corporate Audit, Group Compliance and Legal, as well as other experts, were also present for the appropriate items of the agenda.

In addition, the Chairman of the Audit Committee held regular individual discussions, for example with the external auditors, the members of the Board of Management responsible for Finance and Controlling and for Integrity and Legal Affairs, and, if required, the heads of the specialist departments. Such individual discussions were mainly held to prepare for the next committee meetings.

Reporting to the Supervisory Board

The Chairman of the Audit Committee informed the Supervisory Board about the activities of the Committee and about the contents of its meetings and discussions in the following Supervisory Board meetings.

Topics in 2016

In a meeting held on February 3, 2016, the Audit Committee dealt with the preliminary figures of the annual financial statements and the annual consolidated financial statements for the year 2015, as well as with the proposal on the appropriation of profits made by the Board of Management. Following an in-depth review, the Audit Committee took positive note of the presented figures and determined that no objections could be made to their proposed publication. The Committee further recommended that the Supervisory Board, which met immediately thereafter, adopt the same view. The preliminary key figures and the proposal on the appropriation of profits were announced at the Annual Press Conference on February 4, 2016.

In another meeting on February 16, 2016, the Audit Committee dealt with the annual financial statements, the consolidated financial statements and the combined management report for Daimler AG and the Daimler Group for the financial year 2015, each of which had been issued with an unqualified auditor’s opinion by the external auditors, as well as with the proposal on the appropriation of profits. At the meeting, the external auditors reported on the results of their audit and were available to answer supplementary questions and to provide additional information. The audit reports on the annual company and consolidated financial statements and on the internal control system (ICS), the report on the risk management system for the year 2015, the Annual Report 2015 and important issues related to financial reporting were discussed with the external auditors. Following an in-depth review and discussion, the Audit Committee recommended that the Supervisory Board approve the financial statements and the combined management report, and on this basis adopt the recommendation of the Board of Management to pay a dividend of €3.25 per share entitled to a dividend. Furthermore, the Audit Committee approved the Report of the Audit Committee for the financial year 2015.

Also in this meeting, the Audit Committee discussed the report on the total fees paid to the external auditors in the financial year 2015 for auditing and non-auditing services. The Audit Committee also decided to recommend to the Supervisory Board, and subsequently to the Annual Shareholders’ Meeting, that KPMG be engaged to conduct the annual external audit and the external auditors’ review of interim financial reports for the financial year 2016. Among other things, the Audit Committee based this recommendation on the quality of the annual audit and the results of the independence review, for which no indications of partiality or a threat to independence could be found. Subject to the election of the proposed external auditors by the Annual Shareholders’ Meeting, the Committee discussed the proposal for the fees to be agreed upon with the external auditors for the financial year 2016. Finally, within the framework of its responsibility, the Audit Committee dealt with the draft agenda for the 2016 Annual Shareholders’ Meeting and the annual audit plan for 2016 of the Internal Auditing department.

In the meetings during 2016 related to the quarterly results, the Audit Committee discussed the interim financial reports before their publication with the Board of Management and with the external auditors engaged to carry out the auditors’ review of interim financial statements. In addition, the Committee received reports from the Group Compliance, Legal and Corporate Audit departments. In this connection, the Audit Committee dealt, for example, with the current status of pending legal proceedings. In addition, the Audit Committee dealt with notifications concerning possible violations of rules submitted by employees and third parties to the Group’s own whistleblower system BPO (Business Practices Office).

On April 21, 2016, the Audit Committee approved the fees agreed upon with the external auditors for the financial year 2016 after the Annual Shareholders’ Meeting made its decision on April 6, 2016 regarding the election of the proposed external auditors for the annual financial statements and the consolidated financial statements.

In its meeting on June 14, 2016, the Audit Committee discussed the Group’s risk management system and dealt in particular with its changes and further development. It also discussed the methods and processes of, and possible changes to, the internal control system, which along with accounting also encompasses the internal auditing function and the compliance management system. Furthermore, the Committee received a report on the non-auditing services provided by the external auditors. In this meeting, the Committee also defined key audit issues for the external audit of the reporting period and the framework of approval for engaging the external auditors to provide non-audit services. In this connection, the Committee extensively addressed the EU audit reforms and the effect they will have on Daimler. This meeting was also used to discuss the results of the internal quality analysis of the external audit for the financial year 2015.

Also in the meeting on June 14, 2016, the Audit Committee dealt in depth with new developments in accounting and financial reporting, such as the new financial reporting standards IFRS 9 and 15, and other audit-relevant areas such as tax law. Furthermore, the Committee was informed in detail about the Group Legal System and Group Legal Risk Reporting. Finally, the Committee was informed in detail about the currency hedging and interest-rate management system utilized by the Group’s Treasury department and also discussed with the Board of Management the annual report produced by the Group’s Data Protection Officer. The Audit Committee then drew up a recommendation for action for the Supervisory Board that calls for the Group’s shares in Renault and Nissan to be contributed into the Daimler AG pension fund in Germany.

The meeting of the Audit Committee on July 20, 2016 took place within the framework of the Supervisory Board meeting that was held abroad in Portland, Oregon in the United States. In this meeting, the Committee primarily dealt with the results of the second quarter of 2016 and with the risk report. In this connection, the members of the Committee discussed production and technology risks, the effects of the conclusion of the European Commission’s antitrust proceedings against Daimler and other truck manufacturers, and the current status of the internal examination of the emissions certification and approval process for Daimler vehicles in the United States that was requested by the US Department of Justice.

In a meeting held on October 20, 2016, the Audit Committee dealt with, among other things, audit reform legislation once again, which has led to changes in the requirements that members of the Committee have to meet. The new legal stipulations require the Audit Committee to more closely monitor the external auditors’ independence as defined by the new and more restrictive legislation. This affects the monitoring of the process for selecting the external auditors (external rotation), the requirements for approving permitted non-auditing services, and measures to ensure compliance with the fee ceiling for non-auditing services of 70 % of the average external auditors’ fee paid throughout the Group. In this context, the Audit Committee discussed proposals for altering its Rules of Procedure and drew up a corresponding recommendation for action for the Supervisory Board. The Audit Committee also dealt with the strategy and content of insurance programs around the world that are used to protect the company and its employees.

Company and consolidated financial statements 2016

In a meeting held on February 1, 2017, the Audit Committee dealt with the preliminary figures of the annual company and consolidated financial statements for the year 2016, as well as with the proposal on the appropriation of profits made by the Board of Management. Following an in-depth review, the Audit Committee took positive note of the presented figures and determined that no objections could be made to their proposed publication. The Committee further recommended that the Supervisory Board, which met immediately thereafter, adopt the same view. The preliminary key figures and the proposal on the appropriation of profits were announced at the Annual Press Conference on February 2, 2017.

In another meeting on February 10, 2017, the Audit Committee reviewed and discussed in detail the annual financial statements, the consolidated financial statements and the combined management report for Daimler AG and the Daimler Group for the financial year 2016, each of which had been issued with an unqualified auditor’s opinion by the external auditors, as well as the proposal on the appropriation of profits. At the meeting, the external auditors reported on the results of their audit and were available to answer supplementary questions and to provide additional information. The audit reports on the company and consolidated financial statements and on the internal control system (ICS), the report on the risk management system for the year 2016, the Annual Report 2016 and important issues related to financial reporting were discussed with the external auditors. Following an in-depth review and discussion, the Audit Committee recommended that the Supervisory Board approve the financial statements and the combined management report, and on this basis adopt the recommendation of the Board of Management to pay a dividend of €3.25 per share entitled to a dividend. Furthermore, the Audit Committee approved the Report of the Audit Committee for the financial year 2016.

Efficiency review

As in previous years, the Audit Committee once again conducted a self-evaluation of its own activities in 2016 on the basis of an extensive company-specific questionnaire. The very positive results of this efficiency review were presented and discussed in the meeting in mid-February 2017. This did not result in any need for action with regard to the Committee’s tasks, or with regard to the content, frequency or procedure of its meetings.

Stuttgart, February 2017

The Audit Committee

Dr. Clemens Börsig
Chairman

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