HSBC 2009 Annual Report Download - page 313

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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 eight meetings of the Group Audit
Committee during 2009. The table on page 304 gives
details of Directors’ attendance at these meetings.
Following each meeting the Committee reports to
the Board on its activities.
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 Committee also has the
opportunity to meet with the Group Chief Executive
at each of its meetings.
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 audit committees when adopting
terms of reference. The Committee’s endorsement is
required for any proposed changes to subsidiary
audit committee terms of reference and for
appointments to such committees. Subsidiary audit
committees are required to provide bi-annual
certificates to the Committee or to an intermediate
subsidiary audit committee, relating to the financial
statements and internal control procedures of the
relevant subsidiary audit committee.
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
undertakes an annual review of the effectiveness
of HSBC’s system of internal control, which is
described on page 313. The Committee reviews the
Company’s financial statements before they are
considered by the Board and the Interim
Management Statements before they are approved
by management.
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 2009 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
Counsel and the Group General Manager, Group
Head of Audit. Periodic presentations are made by
other function heads and line management.
In February 2009, the Committee considered a
working capital Board memorandum in connection
with the Company’s rights issue. The memorandum
summarised the liquidity, funding and capital
position of HSBC to support a statement by the
Directors on the sufficiency of working capital. The
memorandum defined possible stress events which
could materially impact HSBC’s liquidity, funding
and capital position, described the mitigants
available and the strategic actions that management
could take in response to such material stresses.
The reports from the Group General Manager,
Group Head of Audit include information on frauds
and weakness in internal controls identified through
internal audit reports, special investigations 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 2009, 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 also received updates
on a gap analysis against various risk management and
governance recommendations from reports issued in
2008 in response to the current financial crisis,