HSBC 2008 Annual Report Download - page 299

297
for maintaining an effective system of internal
control and compliance and for meeting its external
financial reporting obligations. The Committee
undertakes an annual review of the effectiveness of
HSBC’s system of internal control, which is
described on page 299, and reviews the Company’s
financial statements before they are considered by
the Board.
Regular reports are received on the risks
involved in HSBC’s business and how they are
controlled and monitored by management which
enable the Committee to review the effectiveness of
HSBC’s risk management framework. Each year the
Committee agrees a schedule of presentations to be
made to it by management during the ensuing year
on the operation of the risk control framework within
the Group. The presentations specifically address
risk indicators and performance measures such as
indicators of credit, liquidity and interest rate risk.
During 2008 the Committee received frequent
presentations on global market risk and liquidity and
reports on the US mortgage services business, credit
performance in the US and the impact of the
tightening of liquidity in the money markets.
Comprehensive reports are received at each regular
meeting from the Group Chief Risk Officer, the
Head of Group Compliance, the Group General
Manager, Legal and Compliance and the Group
General Manager Internal Audit. Periodic
presentations are made by other function heads
and line management.
The reports from the Group General Manager
Internal Audit include information on frauds and
special investigations and weakness in internal
controls identified through internal audit reports or
reviews of 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 principal internal audit functions. 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,
undertaken by Independent Audit Limited, was
presented to the Committee in 2008.
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 2008, the
Committee received regular updates on the review of
internal financial reporting controls required by
section 404 of the Sarbanes-Oxley Act and the
implementation of the Basel II capital adequacy
requirements.
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 is directly responsible on behalf
of the Board for the selection, oversight and
remuneration of the external auditor. 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 an annual report of those
former employees of the external auditor employed
by HSBC and the number of former employees of
the external auditor currently employed in senior
positions in HSBC. The reports enable the
Committee to consider whether there has been any
impairment, or appearance of impairment, of the
auditor’s judgement or independence in respect of
the audit.
The Group Audit Committee has established
policies for the pre-approval of specific services that
may be provided by the principal auditor, KPMG
Audit Plc and its affiliates (‘KPMG’). 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,
while 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