HSBC 2012 Annual Report Download - page 324

HSBC HOLDINGS PLC
Report of the Directors: Corporate Governance (continued)
Board committees > Group Audit Committee / Group Risk Committee
322
the internal audit function and concluded that
overall, the internal audit function generally
conformed to the Institute of Internal Auditors’
International Standards and Code of Ethics for
the Professional Practice on Internal Auditing.
The Committee received reports over the course
of 2012 on the activities of the internal audit
function and reviewed its planned activities for
the following year.
• Legal and regulatory environment. The
Committee received regular reports on litigation
and on the application of changes in law,
regulation, accounting policies and practices
and regulatory developments, including reports
on developments in the programme to change
International Financial Reporting Standards,
Basel III, the recommendations of the
Independent Commission on Banking, Dodd-
Frank Act and changes in the UK Corporate
Governance Code and Guidance on Audit
Committees.
• External auditor. The Committee provided
oversight of the external auditor through regular
meetings with the external auditor, including
meetings without management present, and
receiving reports on the external auditor’s
strategy in relation to the audit of financial
statements and the progress of the audit. The
Committee monitored the effectiveness of the
audit process through a review of the public
report published by the Financial Reporting
Council’s Audit Inspection Unit on the
inspection of the external auditor, an assessment
against a best practice checklist for evaluating
external auditors, an external audit assessment
questionnaire completed by the chief financial
officers of the Group’s major geographical
regions, a review of the relationship between the
Group and the external auditor at a senior level
and considered the results of feedback provided
to the external auditor by members of the
finance function throughout the Group. The
Committee approved the remuneration and
terms of engagement and recommended to the
Board the re-appointment of the external
auditor.
• Terms of reference and effectiveness of the
Committee. The Committee undertook an
annual review of its terms of reference and of
its own effectiveness. Changes were made to
the Committee’s terms of reference to reflect
changes to the requirements of the UK
Corporate Governance Code applicable to
financial years beginning on or after 1 October
2012 and the Hong Kong Corporate Governance
Code.
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
The GAC is responsible for non-executive oversight
of internal controls over financial reporting.
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 company committees with responsibility
for non-executive oversight of financial reporting
and risk-related matters was held in June 2012 to
share understanding and to facilitate a consistent
approach to the way in which these subsidiary
company committees operate. The next forum will
be held in June 2013.
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.
KPMG has been the Group’s auditor since 1991,
when HSBC Holdings became the ultimate holding
company of the Group, without a tender process for
the external audit contract having taken place. It is
our intention that a tender process for the external
audit contract will be undertaken, with the successful
audit firm being appointed by 2015.
The Board has approved, on the
recommendation of the Committee, a policy for
the employment by HSBC of former employees
of KPMG. The Committee receives an annual report
on such former employees who are employed and
the number in senior positions. This report enables
the Committee to consider whether there has been
any impairment, or appearance of impairment, of the
external auditor’s judgement, objectivity or
independence in respect of the audit. The external