HSBC 2013 Annual Report Download - page 31

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Internal control over financial reporting
Internal control over financial reporting is designed
to provide reasonable assurance regarding the
reliability of financial reporting and preparation of the
consolidated financial statements in accordance with
IFRS. Management is responsible for establishing and
maintaining adequate internal control over financial
reporting. These controls include those policies and
procedures that:
– pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the
bank;
– provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the
consolidated financial statements in accordance with
IFRS;
– that receipts and expenditures of the bank are being
made only in accordance with authorizations of
management; and
– provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition,
use or disposition of the bank’s assets that could
have a material effect on the consolidated financial
statements.
Because of the inherent limitations, internal
control over financial reporting may not prevent or
detect misstatements on a timely basis. Furthermore,
projections of any evaluation of the effectiveness of
internal control over financial reporting to future periods
are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures
may deteriorate.
Management has evaluated, under the supervision
of and with the participation of the CEO and the CFO,
the design and effectiveness of the internal control over
financial reporting as required by the Canadian securities
regulatory authorities under National Instrument 52-109.
This evaluation was performed using the framework
and criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 1992.
Based on this evaluation, management has concluded
that internal control over financial reporting was
effective as at 31 December 2013.
The Committee of Sponsoring Organizations
of the Treadway Commission recently released its
updated Internal Control – Integrated Framework
(2013 Framework). Management will apply the 2013
Framework to evaluate the effectiveness of the internal
control over financial reporting in 2014.
Changes in internal control over financial reporting
There were no changes in our internal control over
financial reporting during the year ended 31 December
2013 that have materially affected, or are reasonably
likely to materially affect, our internal control over
financial reporting.
Related party transactions
We enter into transactions with other HSBC affiliates
as part of the normal course of business, such as
banking and operational services. In particular, as a
member of one of the world’s largest financial services
organizations, we share in the expertise and economies
of scale provided by the HSBC Group. We provide and
receive services or enter into transactions with a number
of HSBC Group companies, including sharing in the
cost of development for technology platforms used
around the world and benefit from worldwide contracts
for advertising, marketing research, training and other
operational areas. These related party transactions are on
terms similar to those offered to non-related parties and
are subject to formal approval procedures that have been
approved by the bank’s Conduct Review Committee.
Further details can be found in note 31.
In December 2013, the bank redeemed subordinated
debentures and purchased and cancelled preferred shares
held with HSBC Group companies. Refer to the capital
section for further information. All our common shares
are indirectly held with HSBC Holdings as a wholly-
owned subsidiary.