ALCAN PRIMARY METAL

SELF AUDIT PROGRAM

MAY 2002
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

TABLE OF CONTENTS

CASH AND BANK.............................................................................................................4

PETTY CASH ..........................................................................5
BANK ACCOUNTS ..........................................................................5
Reconciliation’s............................................................................................................5
General........................................................................................................................6
CHEQUE DISBURSMENTS ..........................................................................6
DEPOSITS ..........................................................................6
SALES AND ACCOUNTS RECEIVABLE........................................................................7
INVOICING ..........................................................................8
CREDIT NOTES ..........................................................................8
ACCOUNTS RECEIVABLE ..........................................................................8
BAD DEBT WRITE-OFFS AND PROVISIONS..............................................................9
CLAIMS ..........................................................................9
INVENTORIES.................................................................................................................10
CUSTODY ........................................................................11
INVENTORY MOVEMENTS ........................................................................11
INVENTORY BALANCES ........................................................................11
PHYSICAL COUNTS ........................................................................11
INVENTORY VALUATION ........................................................................12
FIXED ASSETS...............................................................................................................13
FIXED ASSET BALANCES ........................................................................14
PHYSICAL COUNTS AND RELATED ADJUSTMENTS..............................................14
DISPOSAL OF FIXED ASSETS ........................................................................15
CHARGES TO OPERATIONS, VALUATION AND..........................................................
DISCLOSURE (INCLUDING ACCELERATED DEPRECIATION ON OBSOLETE
EQUIPMENT) ........................................................................16
ADDITIONS TO FIXED ASSETS ........................................................................17
OTHER ASSETS.............................................................................................................18
PREPAID EXPENSES ........................................................................19
DEFERRED ASSETS ........................................................................19
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

INTANGIBLES ........................................................................19
PURCHASES AND ACCOUNTS PAYABLE..................................................................20
PURCHASES AND ACCOUNTS PAYABLE................................................................21
ACCRUED EXPENSES ........................................................................23
CONTRACT HOLDBACKS ........................................................................24
INTERCOMPANY PAYABLES ........................................................................24
PAYROLL........................................................................................................................25
PAYMENT OF COMPENSATION COSTS...................................................................26
PENSION.........................................................................................................................28
GENERAL ........................................................................29
PENSION EXPENSES ........................................................................29
CURRENT SERVICE COST ........................................................................30
RISK MANAGEMENT.....................................................................................................31
INSURANCE ........................................................................32
FOREIGN EXCHANGE ........................................................................32
HEDGING AND FIXED FORWARD PRICING.............................................................32
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

CASH AND BANK

CASH AND BANK

PETTY CASH

BANK ACCOUNTS

CHEQUE DISBURSMENTS

DEPOSITS

4
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

CASH AND BANK

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

PETTY CASH

 Payments supported by approved vouchers and/or

invoices/receipts.

 Invoices/receipts cancelled after payment.

 Payments limited to minor expenditure.

 Petty cash periodically counted by someone other than petty

cashier (count documented and signed).

BANK ACCOUNTS

Reconciliation’s

 Prepared on a monthly basis by an employee unconnected

with checks and cash receipts functions.

 Paid checks examined for:

-numerical sequence
-agreement of number, payee and amount with
disbursement records
- endorsements

 Independently examined and unusual reconciling items

investigated on a timely basis (examination should be
documented, including nature of corrective action taken).

 Stale-dated checks cancelled annually.

5
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

CASH AND BANK

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

General

 Signatories approved by Alcan Inc. and confirmed by

Treasury.

 List of authorized signatories should be updated upon

movement of personnel.

 Blank checks:
- Pre-numbered and recorded
- Kept under lock and key (accessible only to person
authorized to prepare checks)
- Void checks recorded and stamped "void"

CHEQUE DISBURSMENTS

 All checks (computer-generated and manual checks) must be

signed by 1 or 2 duly authorized persons, depending on the
amount, and supported by original approved documentation.

 Manual checks should be restricted to a minimum (e.g. urgent

payments to avoid penalties, special or confidential
payments).

DEPOSITS

 Checks should be endorsed upon receipt.

 Cash and checks received should be deposited on a timely

basis.

6
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

SALES AND ACCOUNTS RECEIVABLE

SALES AND ACCOUNTS RECEIVABLE

INVOICING

CREDIT NOTES

ACCOUNTS RECEIVABLE

BAD DEBT WRITE-OFFS AND

PROVISIONS

CLAIMS

7
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

SALES AND ACCOUNTS RECEIVABLE

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

INVOICING

 Goods should only be released for shipment upon

presentation of appropriate authorization, usually a shipping
document.

 Signed bills of lading (or other receipts) should be obtained

From carriers and agreed to shipping document.

 The accounting department should account for the numerical

Sequence of shipping documents and follow-up on missing
Numbers.

 Sale prices should be appropriately authorized.

 A copy of the invoice should be sent to the department

responsible for updating the accounts receivable sub-ledger.

 Appropriate cut-off procedures based on shipping documents

should exist to ensure invoices are recorded in the correct
accounting period.

 Sales should not be recognized for billed and hold items

unless they meet specific criteria established by Corporate.

CREDIT NOTES

 In addition to the general segregation of duties, the initial

preparation and approval of credit notes and bad debt write-
offs should be segregated from one another.

 Management investigates the reasons for returns and

disputes with customers on a timely basis.

 Credit notes must be supported by appropriate

documentation. For example:
1. Receiving reports for returned goods.
2. Copy of invoice where invoicing errors are being corrected.

 Appropriate cut-off procedures should exist to ensure credit

notes are recorded in the appropriate period.

ACCOUNTS RECEIVABLE

 The functions of maintaining the general ledger and accounts

receivable subsidiary ledger should be separated.

8
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

SALES AND ACCOUNTS RECEIVABLE

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

 The accounts receivable subsidiary ledger should be balanced
with the G/L on a monthly basis.

 The accounts receivable trial balance, aging and reconciliation

to the G/L control account should be reviewed and approved by
the Works Controller on a regular basis.

 The accounts receivable subsidiary ledger should be

investigated for credit balances, past due balances, doubtful
accounts and claims by customers.

BAD DEBT WRITE-OFFS AND PROVISIONS

 Credit limits are based on a systematic risk evaluation and

credit rating, and the authority for approving credit limits is
defined.

 Management approves excess credit before any related order is

processed.

 Accounts receivable should not be written-off until all

reasonable collection efforts have been made.

 Approval of provision for and write-off of bad debts

are properly authorized.

 Provisions for doubtful accounts should be based on specific

accounts receivable or in accordance with Corporate Policy
(See Alcan Group Accounting Manual).

 Collection procedures must be initiated as soon as an account

becomes delinquent.

CLAIMS

 The accounting department should be informed of claims for

freight damages, insurance recoveries and other items at the
time the claim is made.

 The estimated value of the claim should be recorded

as an asset at the time it is reported.

 Claims for sales tax recoveries on goods damaged or destroyed

should be made whenever possible.

9
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

INVENTORIES

INVENTORIES

CUSTODY

INVENTORY MOVEMENTS

INVENTORY BALANCES

PHYSICAL COUNTS

INVENTORY VALUATION

10
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

INVENTORIES

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

CUSTODY

 Inventory should be protected and inventory of particularly high

value, or susceptible to pilferage, should be stored under lock
and key.

INVENTORY MOVEMENTS

 Raw materials should only be released to production upon

receipt of approved requisition.

 Production should be transferred to inventory on the basis of

production reports.

 Inventory should only be released on receipt of an approved

shipping release.

 A count should be made of all inventory transferred from

production, and the production report initialed as evidence of
performance.

INVENTORY BALANCES

 The general ledger and inventory subsidiary ledger

(perpetual records) should be independently maintained.

 The perpetual records should be reconciled monthly to

the general ledger control accounts. Differences should
be investigated and any necessary adjustments made.

 Reconciliations and related adjustments should be reviewed by

the Works Controller.

PHYSICAL COUNTS

 Physical inventories should be taken at least once a year.

 Stored materials should be counted on a rotating basis,

ensuring all items are counted at least once a year.

11
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

INVENTORIES

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

 Physical inventories must be taken by, or under the direct
supervision of, individuals not responsible for the physical
custody of the inventories.

 Proper physical count procedures should be followed.

(Example: proper designation of count areas, pre-numbered
inventory cards, identification of damaged materials, etc.)

 Cut-off procedures should ensure that:

1. Liability has been recorded for all items included in the physical
inventory.
2. All shipments/issues and withdrawals made prior to the physical
inventory have been billed or recorded.

 Last minute receipts, rejected transactions not corrected before

closing of accounting records, and pending shipments
segregated and excluded from the physical inventory, have
been appropriately handled in the reconciliation of physical
inventory to inventory control accounts.

 Physical counts should be reconciled with perpetual inventory

records and all major differences should be investigated and
appropriate corrective action taken.

 Appropriate records should be maintained for materials in

outside warehouses, consignors, supplies, processors,
customers, etc, and should be counted or certified in writing at
least once a year. Records of such inventories should be
maintained by persons who do not authorize purchases or
shipments of inventories stored in off-premises locations.

INVENTORY VALUATION

 Inventory should be valued at the lower of cost or net realizable

value. Potential losses should be investigated and any
necessary adjustments made and approved in accordance with
the authorization limits policy of the Company.

12
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

FIXED ASSETS

FIXED ASSETS

FIXED ASSETS BALANCES

PHYSICAL COUNTS AND

RELATED ADJUSTMENTS

DISPOSAL OF FIXED ASSETS

CHARGES TO OPERATIONS,
VALUATION AND DISCLOSURE
(INCLUDING ACCELERATED
DEPRECIATION ON OBSOLETE
EQUIPMENT)

ADDITIONS TO FIXED ASSETS

13
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

FIXED ASSETS

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

FIXED ASSET BALANCES

 The fixed asset sub-ledger should be regularly reconciled

to the general ledger.

 Review the detailed records of property and equipment

balances and investigate any large or unusual items (e.g.
negative balances, accumulated depreciation balances in
excess of cost).

 Perform a detailed review of repairs and maintenance expenses

and determine whether capitalization of certain items is more
appropriate.

PHYSICAL COUNTS AND RELATED ADJUSTMENTS

 A physical inventory of fixed assets should be taken regularly

and performed by employees not responsible for the custody of
fixed assets or the maintenance of the fixed assets register.

 Differences resulting from the physical count should be

investigated and explained. The results of the investigation
should be documented.

 If fixed assets are counted cyclically, a summary of the resulting

adjustments should be provided to management when the cycle
has been completed, or annually, whichever is the shorter
period.

 A write-off requires a request for asset disposal (refer to the

guide section "Disposals of Fixed Assets" for approval
procedures).

14
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

FIXED ASSETS

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

DISPOSAL OF FIXED ASSETS

 The owner of a fixed asset is responsible for its disposal and

must be recorded on a request for asset disposal (RFAD).

 Where a request for authorization (RFA) involves the disposal

of a fixed asset, the RFAD must be an integral part of the RFA.

 The net book value of a scrapped fixed asset is written-off only

after it has been completely destroyed.

 Assets (except for uncapitalized construction work in progress)

transferred between PMG divisions or between PMG and other
Alcan group companies must be transferred at net book value.

 The disposal of fixed assets whose original cost exceeds

$10,000 is governed by the Appropriation System for Non-
Routine Expenditures. Local procedures should be followed for
assets below that limit.

 When a group of assets forming part of an overall facility are to

be disposed of, the approval limits should be applied using the
total net value of the grouped assets, and not the individual
asset values.

 When a cancelled or postponed project results in a surplus or

obsolete equipment or supplies, the owner of the original project
is responsible for initiating disposal procedures.

 RFADs for which no disposal has been recorded should be

periodically reviewed and followed-up.

15
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

FIXED ASSETS

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

CHARGES TO OPERATIONS, VALUATION AND
DISCLOSURE (INCLUDING ACCELERATED DEPRECIATION ON
OBSOLETE EQUIPMENT)

 The construction work in progress account should be

periodically reviewed to ensure that it is promptly relieved of the
cost of the projects upon their completion.

 If an asset enters service before it is capitalized, depreciation is

recorded on the basis of cost to date plus estimated cost of
completion.

 When a fixed asset is constructed in stages so that each

element is an asset capable of independent use, the asset is
commissioned and capitalized in stages.

 Lease payments should be correctly allocated between lease

obligation and interest expense.

 The fixed assets register should be periodically reviewed for any

fixed assets, which are no longer in use or are obsolete.

 Residual value estimates for capitalized lease transactions

should be reviewed regularly.

 Leasehold improvements of less than a certain amount should

not be capitalized.

 Leasehold improvements should be classified under Buildings,

Equipment and Machinery. They should be depreciated over
the term of the lease or the useful life of the asset, whichever is
shorter.

 Depreciation of fixed assets should be recorded using the

straight-line method based on the estimated useful lives of the
respective assets using prescribed rates as indicated in AGAM.

 Any revision of the useful life of an asset should be calculated

on its residual value.

 Verify that the asset qualifies for capitalization.

16
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

FIXED ASSETS

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

ADDITIONS TO FIXED ASSETS

 Irrespective of the method of acquiring the right to use a capital

asset, (i.e. lease or buy, the decision to acquire the use of an
asset where the intended sum of payments exceeds $10,000)
should be justified by a request for authorization (RFA).

 RFA must be submitted to the respective authorization levels to

receive official authorization to proceed with execution.

 The RFA should include all contingencies. Approved funds are

based on the base price plus the allowances.

 Management must be rapidly advised wherever on an

authorized project, the scope or financial justification varies
significantly from that stated in the RFA or when the estimated
total cost exceeds the total authorized amount by 10% or more.
The project’s owner is responsible for informing formally his
manager of these changes by means of an Advice of Project
Change.

 A revised RFA must be completed when the estimated cost of

the projects exceeds the amounts previously authorized on an
RFA by 20% or more.

 A final report on authorization is required on completion of all

projects.

 Detailed instructions for the completions and distribution of

RFAs, RFADs, Advice of Project Change, Revised RFAs and
Final Reports on Authorization are contained in the
Appropriation System for Non-Routine Expenditures manual.

 Construction contracts should provide for holdbacks and

recorded as construction in progress and a liability, as incurred.
Holdbacks should be released only on satisfactory proof of
performance.

17
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

OTHER ASSETS

OTHER ASSETS

PREPAID EXPENSES

DEFERRED ASSETS

INTANGIBLES

18
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

OTHER ASSETS

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

PREPAID EXPENSES

 Prepaid expenses are accounted for on an appropriate basis

during the period to which they relate.

 Any prepaid expense that no longer has the previously

anticipated future benefit is written down.

DEFERRED ASSETS

 On a quarterly basis, assess the nature of deferred items, their

classification and confirm that a future benefit exists.

 Any questions arising on the accounting for deferred items

should be directed to Montreal head office (MaRCC group).

INTANGIBLES

 All intangibles assets (goodwill, trademarks, license

agreements, and patents) held by the company are included in
the quarterly analysis and accounted for in accordance to the
Alcan Group Accounting Manual (AGAM).

19
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

PURCHASES AND ACCOUNTS PAYABLE

PURCHASES AND ACCOUNTS PAYABLE

PURCHASES AND ACCOUNT

PAYABLE

ACCRUED EXPENSES

CONTRACT HOLDBACKS

INTERCOMPANY PAYABLES

20
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PURCHASES AND ACCOUNTS PAYABLE

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

PURCHASES AND ACCOUNTS PAYABLE

 Majority of the goods and services should be acquired through

the purchasing department.

 Contracts or non-standard form contracts for purchase

commitments are reviewed by legal.

 Purchases are optimized through the use of competitive bids,

corporate/group purchase agreements and formal/documented
procedures to ensure that purchasing decisions are made in the
best interest of the company.

 Only authorized individuals can create or update the vendor

master file. An authorized individual should review all changes
to the vendor files.

 Properly approved purchase orders should be required for all

significant purchases.

 Purchase orders should only be issued to approved vendors.

 Invoice processing and payment procedures must ensure that:

1. All original invoices are justified and then approved.
2. Payment is in compliance with the terms stipulated in the
purchase order or contract.
3. Duplicate payment is avoided.

 Persons authorized to approve invoices must ensure that all the

pertinent supporting documents have been properly completed
and that the goods have been delivered or services rendered.

 Invoices and payments vouchers are invalidated upon payment

to prevent duplicate payment.

21
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PURCHASES AND ACCOUNTS PAYABLE

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

 Whenever possible, an incorrect invoice should be returned to
the supplier for correction. In other cases a debit note should
be issued, processed according to the established procedure
and deducted from payment to the supplier.

 If the quality received is in excess of the quantity ordered the

matter should be referred to the person authorized to accept or
refuse the excess.

 Receivers should count and inspect goods.

 Returned goods should be subjected to the same control

procedures as shipments and claims.

 The accounting department should compare supplier invoice

prices, quantities and descriptions with purchase order.

 Suppliers’ invoices for services should be initialed by an

authorized individual to acknowledge that the service has been
received and that the price being charged is correct.

 Invoices for significant recurring expenses, such as utility

charges and telephone bills should be agreed to supporting
documentation, such as meter readings and telephone charge
slip.

 Freight paid on behalf of customers, adjustment claims and duty

drawbacks should be set up as a receivable.

 A cash discount on supplier’s invoices should be accepted if the

discount rate, computed on an annual basis, is higher than the
marginal rate for short-term borrowings.

 Manual checks or rush payments are made only on an

exception basis, are properly approved and supported and
entered in the payable system on a timely basis.

22
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PURCHASES AND ACCOUNTS PAYABLE

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

 Controls for blank checks are sufficient to prevent unauthorized
access. (See cash and bank section)

 Checks are prepared in a manner that prevents alteration after

signing.

 Accounts payable trial balances should be reconciled to the

general ledger.

 Accounts payable sub-ledger should be reviewed and

investigated for any significant past due invoices and debit
balances.

ACCRUED EXPENSES

 Goods or services that have been supplied but not paid for by a
predetermined date should be accrued for inclusion in the
monthly financial statements.

 The accrued expenses included in the monthly financial

statements should also reflect the capital/expense portions of
work performed by suppliers but not invoiced by the end of the
month.

Determine if accruals are required for:

 Accrued salaries, wages, vacation pay, commissions
 Bonuses and payroll taxes
 Amounts withheld from employees
 Unemployment and worker's compensation
 Customer advances or credit balances
 Security or customer deposits
 Interest payable
 Warranty and product liabilities
 Accrued taxes
 Supplemental retirement benefits
 Spent potlining (transportation and processing costs)
 Environmental costs
 Any unrecorded liabilities

23
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PURCHASES AND ACCOUNTS PAYABLE

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

 Identify all reserves. Determine whether reserves are still
required or should be written off.

 Commitments to future obligations (by granting guaranties or

warranties) under contract or agreements are reviewed and
approved by management.

CONTRACT HOLDBACKS

 The accounts payable department in co-ordination with the

project sponsor is responsible for withholding the required
amounts and for placing a "hold" in the vendor file for the
suppliers concerned.

 Security holdback amounts are never paid until after the

completion of the work, or until full and final discharge has been
received from the supplier and from all parties who have given
the Company a notification of contract.

INTERCOMPANY PAYABLES

 Intercompany balances should be reconciled on a regular basis

and any old outstanding items should be reviewed and
investigated.

24
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

PAYROLL

PAYROLL

PAYMENT OF COMPENSATION
COST

The procedures apply to both hourly and salary payrolls unless otherwise indicated.

25
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PAYROLL

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

PAYMENT OF COMPENSATION COSTS

 The following functions should be segregated:

1. Preparation of payroll registers from approved data.
2. Preparation of disbursements.
3. Distribution of payments to employees or employees’ bank
accounts.
4. Reconciliation of payroll bank accounts.

 Payroll procedures are in full compliance with local legal

requirements.

 Personnel records maintained in the personnel department

should include specimen employee signatures and sufficient
information and approval on promotion, job classification,
voluntary deductions, and statutory deductions.

 The payroll department should only add or delete employees or

make changes (e.g. pay rates or voluntary deductions) upon
receipt of an authorized document.

 Manual payroll check disbursements are supported by

authorized documentation.

 Hourly timesheets should be:

1. Authorized by supervisory staff.
2. Identified as to individual employees’ name and/or number.
3. Received by the payroll department directly from the
supervisory staff.

 Hourly timesheets should be checked for completeness before

processing.

 Payroll cost components should be allocated based on

predetermined criteria (e.g. cost centers, G/L accounts or
operating departments).

 Overtime hours should be regularly reviewed by department

heads and variances from budget explained.

26
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PAYROLL

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

 Deductions should be calculated on the basis of current tables.

 T4 returns should be reconciled with the payroll records. The

reconciliation should be performed by an employee who does
not prepare or distribute payments.

27
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

PENSION

PENSION

GENERAL

PENSION EXPENSES

CURRENT SERVICE COST

The procedures apply to locations, which are not part of the Alcan Inc. pension plan, example Iceland,
Norway, UK and Switzerland.

28
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PENSION

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

GENERAL

 The legal entity will ensure that all information provided to the
external actuary for purposes of developing management
assumptions are valid.

 For each period end, business units should ensure that they
have complied with pension accrual rates as provided by the
external actuary.

 The business units should perform reasonableness checks of

annual pension and other post retirement accruals.

 Pension accrual should be equal to pensionable earnings

multiplied by the accrual rate as specified by the external
actuary.

 Post retirement accrual rate should be equal to eligible salary

multiplied by the accrual rate as specified by the external
actuary.

 Pension funding (e.g. Employers' contribution to the pension

fund) should be in accordance with the payment schedules and
amounts as indicated by the external actuary.

PENSION EXPENSES

 Under Canadian GAAP, pension expense is recorded at the

plan sponsor level - i.e. Alcan Inc (and not the pension fund
level), and has several components:
1. Current service cost
2. Amortization of past service cost
3. Amortization of experience gains and losses – difference
between assumptions and actual

 At Alcan, only the employer current service cost and related

accrual is recorded at the business unit level. The remaining
components are recorded via a consolidation journal entry.

29
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

PENSION

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

CURRENT SERVICE COST

 For each period end, the business units should ensure that they
have complied with pension accrual rates as provided by
Adminco for the employer current service cost.

 The business units should perform a reasonableness check of

annual pension accrual. Pension accrual should be equal to
pensionable earnings multiplied by accrual rate as specified by
the actuary of Adminco.

 For each period end, business units should ensure that other
post retirement benefits accruals are consistent with amounts
provided by Adminco (e.g. Higher Aged Hire (HAH),
Supplemental Retirements Benefits (SRB) and other benefits).

 The period end pension accrual should be equal to the opening

balance + accrual of the period. No drawdowns are expected,
and any closing balances less than expected value should be
followed up with the actuary of Adminco.

30
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

REVIEW AND SUMMARY

RISK MANAGEMENT

RISK MANAGEMENT

INSURANCE

FOREIGN EXCHANGE

HEDGING AND FIXED FORWARD

PRICING

31
 PRIMARY METAL GROUP
SELF AUDIT PROGRAM

RISK MANAGEMENT

1ST Qtr 2ND Qtr 3RD Qtr 4TH Qtr

INSURANCE

 All high-value assets and risks are adequately insured.

 A record of all claims is maintained.

FOREIGN EXCHANGE

 Approval is obtained by Corporate Treasurer prior to entering

into any type of foreign exchange transactions.

 All transactions in a foreign currency in excess of $50,000 must

be reported to the Treasury department in order that it could be
appropriately hedged.

HEDGING AND FIXED FORWARD PRICING

 The business unit must obtain a fixed forward price or option

from the Metal Management and Trading Group in Montreal for
fixed price commitments beyond three months before entering
into a contract with a customer.

 All hedging transactions must only be performed by authorized

services at Head Office.

32