# Financial Report

## Report of Management

Responsibility for the integrity and objectivity of the financial information presented in this Annual Report rests with IBM management. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, applying certain estimates and judgments as required.

IBM maintains an effective system of internal accounting control. It consists, in part, of organizational arrangements with clearly defined lines of responsibility and delegation of authority. We believe this system provides reasonable assurance that transactions are executed in accordance with management authorization, and that they are appropriately recorded, in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify and maintain accountability of assets. An important element of the system is an ongoing internal audit program.

To assure the effective administration of internal control, we carefully select and train our employees, develop and disseminate written policies and procedures, provide appropriate communication channels, and foster an environment conducive to the effective functioning of controls. We continue to believe that it is essential for the company to conduct its business affairs in accordance with the highest ethical standards, as set forth in the IBM Business Conduct Guidelines. These guidelines, translated into numerous languages, are distributed to employees throughout the world, and reemphasized through internal programs to assure that they are understood and followed.

Price Waterhouse, independent accountants, are retained to examine IBM's financial statements. Their accompanying report is based on an examination conducted in accordance with generally accepted auditing standards, including a review of internal accounting controls and tests of accounting procedures and records.

The Audit Committee of the Board of Directors is composed solely of outside directors, and is responsible for recommending to the Board the independent accounting firm to be retained for the coming year, subject to stockholder approval. The Audit Committee meets periodically and privately with the independent accountants, with our internal auditors, as well as with IBM management, to review accounting, auditing, internal accounting controls and financial reporting matters.

**John F. Akers**
President and
Chief Executive Officer

**Allen J. Krowe**
Senior Vice President,
Finance & Planning

## Report of Independent Accountants

To the Stockholders and Board of Directors of International Business Machines Corporation

January 28, 1986

In our opinion, the accompanying consolidated financial statements, appearing on pages 26, 28, 30, and 33 through 43, present fairly the financial position of International Business Machines Corporation and its subsidiary companies at December 31, 1985, and 1984, and the results of their operations and changes in funds for each of the three years in the period ended December 31, 1985, in conformity with generally accepted accounting principles consistently applied. Our examinations of these statements were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

**Price Waterhouse**

153 East 53rd Street
New York, N.Y. 10022

IBM 1985 Annual Report
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