HSBC 2010 Annual Report Download - page 206

HSBC HOLDINGS PLC
Report of the Directors: Governance (continued)
Internal control / Going concern basis / Directors’ interests
204
primarily the responsibility of business
management. The Internal Audit function,
which is centrally controlled, monitors the
effectiveness of internal control structures
across the whole of HSBC focusing on the
areas of greatest risk to HSBC as determined
by a risk-based grading approach. The head of
this function reports to the Group Chairman,
the Group Chief Executive, the GRC and the
GAC; and
• executive management is responsible for
ensuring that recommendations made by the
Internal Audit function are implemented within
an appropriate and agreed timetable.
Confirmation to this effect must be provided to
Internal Audit. Executive management must also
confirm annually as part of the Internal Audit
process that offices under their control have
taken, or are in the process of taking, the
appropriate actions to deal with all significant
recommendations made by external auditors in
management letters or by regulators following
regulatory inspections.
Historically the GAC has provided oversight of
internal controls and risk as well as oversight of
financial reporting. Currently there is a degree of
overlap between the responsibilities of the GAC and
the GRC in relation to internal controls and risk
governance. Each committee is reviewing its terms
of reference with the aim of minimising the overlap.
The GRC and the GAC have kept under review
the effectiveness of this system of internal control
and have reported regularly to the Board. The key
processes used by the GRC and the GAC in carrying
out their reviews include: regular business and
operational risk assessments; regular reports from
the heads of key risk functions including Internal
Audit and Compliance; the production annually of
reviews of the internal control framework applied at
GMO and major operating subsidiary levels
measured against HSBC benchmarks, which cover
all internal controls, both financial and non-
financial; semi-annual confirmations from chief
executives of principal subsidiary companies as to
whether there have been any material losses,
contingencies or uncertainties caused by weaknesses
in internal controls; internal audit reports; external
audit reports; prudential reviews; and regulatory
reports. The GRC and the GAC keep under review a
risk map of the status of key risk areas which impact
the Group and considers whether the mitigating
actions put in place are appropriate. In addition,
when unexpected losses have arisen or when
incidents have occurred which indicate gaps in the
control framework or in adherence to Group policies,
the GRC and the GAC review special reports,
prepared at the instigation of management, which
analyse the cause of the issue, the lessons learned
and the actions proposed by management to address
the issue.
The Directors, through the GRC and the GAC,
have conducted an annual review of the effectiveness
of HSBC’s system of internal control covering all
material controls, including financial, operational
and compliance controls and risk management
systems and the adequacy of resources,
qualifications and experience of staff of the issuer’s
accounting and financial reporting function, and
their training programmes and budget. The review
does not extend to joint ventures or associates. The
GRC and the GAC have received confirmation that
executive management has taken or is taking the
necessary actions to remedy any failings or
weaknesses identified through the operation of
HSBC’s framework of controls.
Going concern basis
The Financial Statements are prepared on a going
concern basis, as the Directors are satisfied that the
Group and parent company have the resources to
continue in business for the foreseeable future. In
making this assessment, the Directors have considered
a wide range of information relating to present and
future conditions, including future projections of
profitability, cash flows and capital resources. Further
information relevant to the assessment is provided
elsewhere in this Report. In particular, HSBC’s
principal activities, strategic direction and challenges
and uncertainties are described in the Operating and
Financial Review; a financial summary, including a
review of the consolidated income statement and
consolidated balance sheet, is provided in the
Operating and Financial Review and HSBC’s
objectives, policies and processes for managing credit,
liquidity and market risk, and its approach to capital
management and allocation, are described in the Risk
section.
Directors’ interests
Pursuant to the requirements of the UK Listing Rules
and according to the register of Directors’ interests
maintained by HSBC Holdings pursuant to section
352 of the Securities and Futures Ordinance of
Hong Kong, the Directors of HSBC Holdings at
31 December 2010 had the following interests, all
beneficial unless otherwise stated, in the shares and
loan capital of HSBC Holdings and its associated
corporations: