Risk Management and Internal Control

All business involves risk and accepting that risk is an inherent part of doing business. One of the roles of management is to implement systems that will identify material risks in order to minimize their impact, provide a sound basis for integrated risk management and internal control, and encourage a more innovative culture based on the taking of calculated risks in pursuit of opportunities. CTC Media is committed to the identification, monitoring and management of risks affecting its business activities and achievement of objectives. We aim to effectively manage our risks and maintain a robust internal control system.

Internal Control

Internal control is a process affected by the Board of Directors, management, and other employees to ensure effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations. CTC Media has a Company-wide process for clearly establishing the financial reporting risks and responsibilities assigned to each level of management and the controls which are required to be operated and monitored.
The internal control framework developed at CTC Media ensures accomplishment of the following objectives:

- accountability for internal control processes across the organization;
- employees awareness and fulfillment of their internal control responsibilities;
- maintenance of the internal control framework for financial reporting (based on the Committee of Sponsoring Organizations of the Treadway Commission model);
- maintenance and update of the documentation of important internal control processes;
- implementation of the procedures to maintain process documentation, monitor objectives and activities, identify deficiencies, and test and evaluate control effectiveness;
- compliance with SOX Section 404 by establishing appropriate monitoring of control policies and procedures

For the proper fulfillment of the above objectives CTC Media introduced an Internal Control Department which is responsible for management of the day-to-day operations of the internal control system. This includes updating process documentation, testing key controls, resolving issues, ensuring availability and priority of appropriate resources, monitoring the project progress, providing knowledge and expertise to the employees, conducting effective information exchange among the employees at all levels, and on-going risk management of the financial reporting.

Internal Audit

The Internal Audit Department is a separate structural entity established within CTC Media to independently examine and evaluate the activities of the Company as a service to the Board of Directors in particular and to the management in general.

The mission of the Internal Audit Department is to provide independent, objective assurance and consulting services designed to add value and improve the Company’s operations. It helps the Company accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, internal control, and governance processes.

To provide for the independence of the Internal Audit Department, its personnel report to the Director of Internal Audit, who functionally reports to the Audit Committee of the Board of Directors and administratively reports to CFO.

Risk Factors

At CTC Media, we review risk factors affecting our business on a regular basis. Key risks are continuously evaluated and monitored for their potential impact with the aim to ensure that no significant financial strategic and operational risks are overlooked throughout the entire Company. The risks and uncertainties described in the attached document (based on our quarterly and annual reports filed with the U.S. SEC) are not the only ones that we face. Additional risks and uncertainties of which we are unaware, or that we currently consider as substantially mitigated through ongoing operational controls or deem immaterial, may also become important factors that affect us. Any of the following risks could adversely affect our business, financial condition and results of operations.

Risk Factors