HSBC 2005 Annual Report Download - page 206

HSBC HOLDINGS PLC
Report of the Directors (continued)
204
independent non-executive Directors.
The Board has determined that Sir Brian Moffat,
R A Fairhead and J D Coombe are independent
according to SEC criteria, may be regarded as audit
committee financial experts for the purposes of
section 407 of the Sarbanes-Oxley Act and as having
recent and relevant financial experience.
Since 2004 appointments to the Committee have
been made for periods of up to three years,
extendable by no more than two additional three-
year periods, so long as members continue to be
independent.
Formal and tailored induction programmes are
held for newly appointed Committee members and
appropriate training is provided on an ongoing and
timely basis.
There were seven meetings of the Group Audit
Committee during 2005. Sir John Kemp-Welch and
Sir Brian Moffat attended all of the meetings; R K F
Ch’ien attended five meetings; R A Fairhead
attended six meetings; and J D Coombe attended
each of the five meetings held following his
appointment.
At the beginning of 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/committeeg. To ensure consistency
of scope and approach by subsidiary company audit
committees, the Group Audit Committee has
established minimum core terms of reference for
those committees. These are in the course of being
adopted.
The Group Audit Committee is accountable to
the Board and assists the Board 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 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. This is described on page 208. 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, including the preparations for
reporting on the review of internal financial
reporting controls required by section 404 of the
Sarbanes-Oxley Act.
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 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 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
influenced the choice of, KPMG. All services entered
into with KPMG during 2005 were pre-approved by
the Group Audit Committee or were entered into