HSBC 2011 Annual Report Download - page 234

HSBC HOLDINGS PLC
Report of the Directors: Corporate Governance (continued)
Board committees > Group Audit Committee / Group Risk Committee
232
reports on meetings with the FSA as part of the
FSA’s close and continuous supervisory regime.
• External auditor. The Committee provided
oversight of the external auditor through regular
meetings with the external auditor, including
meetings without management present. Reports
were received on the external auditor’s strategy
in relation to the audit of financial statements
and the progress of the audit. The Committee
has approved policies on the provision of non-
audit services by the external auditor and its
affiliates and on the employment by HSBC of
former employees of the external auditor or
its affiliates. The Committee reviewed the
independence and objectivity of the external
auditor through meetings with the external
auditor, annual reports on employment of
former employees of the external auditor and its
affiliates and quarterly reports on provision of
non-audit services. The external auditor
provided written confirmation of its
independence under industry standards. The
Committee approved the remuneration and
terms of engagement of, and recommended to
the Board the re-appointment of, the external
auditor.
• Financial reporting. The Committee advised
the Board on meeting its external financial
reporting obligations through a review of
financial statements, interim reports and interim
management statements prior to approval by the
Board. The Committee endorsed for inclusion in
the financial statements the going concern
statement and the statement of compliance with
the provisions of the Rules Governing the
Listing of Securities on The Stock Exchange of
Hong Kong Limited and the UK Corporate
Governance Code. The Committee received
reports on proposed changes to the Group’s
disclosures in the financial statements and the
adequacy of procedures to identify transactions
and matters requiring disclosure under certain
accounting standards. A review of accounting
policies and practices, including approval of the
critical accounting policies, was undertaken.
The Committee considered accounting
provisioning for, and disclosure of, certain
litigation and regulatory matters with external
legal counsel providing a status update on these
matters. The Committee reviewed minutes of
the Disclosure Committee. A presentation was
received from the Global Head of Tax on
current tax issues. The disclosure of the results
of the European Banking Authority (‘EBA’)
EU-wide stress testing programme was
considered. Reports were received on economic
hedges which do not meet the requirements of
hedge accounting.
• Terms of reference and effectiveness of the
Committee. The Committee undertook a
review of its terms of reference and of its own
effectiveness. Changes were made to the terms
of reference to minimise the overlap of
responsibilities between the GAC and the GRC.
In addition to the scheduled Committee
meetings, the Chairman met regularly with the
Group Finance Director, the Group Chief
Accounting Officer, the Group Chief Risk Officer,
the Group Head of Internal Audit, other senior
executives and the external auditor.
Terms of reference and subsidiary company
audit oversight
Since May 2011, the GAC’s responsibility for non-
executive oversight of internal controls has been
limited to oversight of internal controls over
financial reporting, as a consequence of changes
made to the terms of reference of the GRC and the
GAC to minimise the overlap between the
committees.
To ensure consistency of scope and approach
by subsidiary company audit committees, the
GAC has established core terms of reference to
guide subsidiary companies when adopting terms
of reference for their audit committees. The
Committee’s endorsement is required for any
proposed material changes to subsidiary audit
committee terms of reference and for appointments
to such committees.
A forum for the chairmen of our principal
subsidiary committees with responsibility for non-
executive oversight of financial reporting and risk-
related matters is held to facilitate a consistent
approach to the way in which these subsidiary
committees operate. The last forum was held in
November 2010 and the next will be held in June
2012.
Arrangements relating to the external
auditor
The Committee has recommended to the Board that
KPMG Audit Plc be reappointed as auditor at the
forthcoming Annual General Meeting.
An analysis of the remuneration paid in respect
of audit and non-audit services provided by KPMG
Audit Plc and its affiliates (‘KPMG’) for each of the