HSBC 2004 Annual Report Download - page 208

HSBC HOLDINGS PLC
Report of the Directors (continued)
206
During 2004 the Committee received
presentations on the implications of the introduction
of International Financial Reporting Standards and
the plans for implementing the standards within
HSBC in 2005.
In undertaking its annual review of its own
effectiveness the Committee discussed with the
external auditor the effectiveness of the internal
audit function. The Committee also receives
summaries of periodic peer reviews of the internal
audit functions around HSBC.
The Committee undertakes an annual review of
the effectiveness of HSBC’s system of internal
control, as set out on page 209.
The Committee reports on its activities at each
Board meeting and, twice annually, produces a
written summary of its activities.
The Committee has approved procedures for the
receipt, retention and treatment of complaints
regarding accounting, internal accounting controls
and auditing matters, and the confidential and
anonymous submission by employees of concerns
regarding questionable accounting or auditing
matters. The Committee receives regular reports
regarding the nature, investigation and resolution of
material complaints and concerns from the Head of
Group Compliance.
The Committee reviews and monitors the
external auditor's independence and objectivity and
the effectiveness of the audit process, taking into
consideration relevant professional and regulatory
requirements. The Committee receives reports from
the external auditor on their own policies and
procedures regarding independence and quality
control and oversees the appropriate rotation of audit
partners with the external auditor.
The Group Audit Committee has adopted
policies for the pre-approval of specific services that
may be provided by the principal auditor, KPMG
Audit Plc and its affiliates (‘KPMG’ ), since 2003.
These policies are kept under review and amended as
necessary to meet the dual objectives of ensuring
that HSBC benefits in a cost effective manner from
the cumulative knowledge and experience of its
auditor whilst also ensuring that the auditor
maintains the necessary degree of independence and
objectivity. These pre-approval policies apply to all
services where HSBC Holdings or any of its
subsidiaries pays for the service, or is a beneficiary
or addressee of the service and has selected, or
influences the choice of, KPMG. In two instances in
2004, services provided by KPMG were
inadvertently not pre-approved individually or
entered into pursuant to the pre-approval policies but
were subsequently approved by the Group Audit
Committee after the services had been rendered.
Total fees billed for such services were US$15,000,
which represents less than 0.01 per cent of the total
non-audit fees billed by KPMG during 2004. All
other services entered into with KPMG during 2004
were pre-approved by the Group Audit Committee or
were entered into under pre-approval policies
established by the Group Audit Committee.
The pre-approved services relate to the
provision of objective advice, attestation type
services or opinions on areas such as controls and
are used as an input into management decision
making. They fall into the following four categories:
Audit services
In addition to the statutory audit appointments,
which are approved by the Group Audit Committee,
this category includes services that are normally
provided by the independent auditor in connection
with statutory and regulatory filings or engagements,
such as reviews of interim financial information,
letters to securities underwriters in connection with
debt or equity offerings, the inclusion of auditors’
reports in filings with the SEC and certain reports on
internal control over financial reporting.
Audit-related services
These services are those provided by the principal
auditor that are reasonably related to the
performance of the audit or review of the Group’ s
financial statements. Examples of such services are
due diligence services provided in connection with
potential acquisitions, audits or reviews of employee
benefit plans, ad hoc attestation or agreed-upon
procedures reports (including reports requested by
regulators), and accounting and regulatory advice on
actual or contemplated transactions.
Tax services
This category includes both tax advice and
compliance services. Examples of such services are
advice on national and local income taxation matters,
(including assistance in data gathering for
preparation, review and submission as agent of tax
filings), advice on tax consequences of management-
proposed transactions and assistance in responding
to tax examinations by governmental authorities.
The pre-approved tax services explicitly exclude
proposals for tax structures unconnected with a
contemplated transaction and whose main motive is
to reduce taxation.