HSBC 2006 Annual Report Download - page 262

HSBC HOLDINGS PLC
Report of the Directors: Governance (continued)
Board of Directors > Board committees
260
R A Fairhead and Sir Brian Moffat attended all of the
meetings; Sir John Kemp-Welch attended two of the
three meetings held before his retirement and
J W J Hughes-Hallett attended each of the four
meetings held following his appointment.
At each meeting, the Committee has the
opportunity to meet with the external auditor,
without management present, to facilitate the
discussion of any matter relating to its remit and any
issue arising from the audit. Similar arrangements
have been adopted for the Committee to meet with
the internal auditor.
The terms of reference of the Committee, which
are reviewed annually, are available at
www.hsbc.com/boardcommittees. To ensure
consistency of scope and approach by subsidiary
company audit committees, the Group Audit
Committee has established core terms of reference to
guide subsidiary company boards when adopting
terms of reference for their audit committees. The
Committee receives bi-annual confirmations from
subsidiary company audit committees relating to the
financial statements and internal control procedures
of those subsidiaries.
The Group Audit Committee is accountable to
the Board and assists it in meeting its responsibilities
for maintaining an effective system of internal
control and compliance and for meeting its external
financial reporting obligations. The Committee is
directly responsible on behalf of the Board for the
selection, oversight and remuneration of the external
auditor. The Committee receives frequent
comprehensive reports from the Group General
Manager Credit and Risk, the Head of Group
Compliance, the Group General Manager, Legal and
Compliance, the Group General Manager Internal
Audit and the Head of Group Security and receives
periodic presentations from other functional heads
and line management.
Regular comprehensive reports on the work of
the internal audit function are submitted to the
Committee. These reports include reports on frauds
and special investigations and summaries of internal
audit findings, regulatory reports and external
auditors’ reports. The Committee monitors and
reviews the effectiveness of the internal audit
function and receives summaries of periodic peer
reviews of HSBC’s internal audit functions around
the world. HSBC has adopted the Principles of the
International Institute of Internal Auditors, which
include a periodic external quality assurance review
of the internal audit function. The first such review
will be undertaken in 2007.
The Committee undertakes an annual review of
the effectiveness of HSBC’s system of internal
control. This is described on page 262. The
Committee receives regular updates on changes in
law, regulations and accounting standards and
practices and the preparations being made to respond
to those requirements. During 2006, the Committee
received regular updates on the preparations for the
review of internal financial reporting controls
required by section 404 of the Sarbanes-Oxley Act,
the implementation of the Basel 2 capital adequacy
requirements and the actions taken to implement the
recommendations of the Corrigan Report on
reducing the risks of, and limiting the damage
caused by, systemic financial shocks. The report,
issued by the Counterparty Risk Management Policy
Group focused on risk management, risk monitoring
and enhanced transparency in financial institutions.
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 handling of complaints
regarding accounting, internal accounting controls
and 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 reviews the strategy and
approves the terms for the engagement of the
external auditor for the audit of the Annual Report
and Accounts. Regular reports on the progress of the
audit facilitate the Committee’s assessment of the
effectiveness of the audit.
The Committee receives reports from the
external auditor on its own policies and procedures
regarding independence and quality control and
oversees the appropriate rotation of audit partners
within the external auditor. The external auditor
provides the Committee with an annual confirmation
of its independence in accordance with industry
standards.
On the recommendation of the Committee the
Board has approved a policy for the employment by
HSBC of former employees of the external auditor
or its affiliates. The Committee monitors this policy
through the receipt of periodic reports of those
former employees of the external auditor employed