HSBC 2015 Annual Report Download - page 265

HSBC HOLDINGS PLC
263
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
Members
Jonathan Symonds (Chairman)
Phillip Ameen
Kathleen Casey
Rachel Lomax
Based upon a review that has been undertaken, the Board
has confirmed that it is satisfied that each member of the
GAC is independent according to SEC criteria, may be
regarded as audit committee financial experts for the
purposes of section 407 of the Sarbanes-Oxley Act and has
recent and relevant financial experience for the purposes
of the UK and Hong Kong Corporate Governance Codes.
The Committee has complied with the relevant parts of the
Competition and Markets Authority Final Order on the
statutory audit market for the year ended 31 December
2015.
Role and responsibilities
The role and responsibilities of the GAC are set out in its
terms of reference which can be found on our website at
www.hsbc.com/about-hsbc/corporate-governance/board-
committees.
The key areas of responsibility for the GAC include:
• monitoring the integrity of financial statements;
• overseeing the internal controls systems relating to
financial reporting;
• monitoring and reviewing the effectiveness of the
Global Internal Audit function;
• reviewing the Company’s financial and accounting
policies and practices;
• oversight and remuneration of the external auditor
and making recommendations to the Board on the
appointment of the external auditor; and
• reviewing with management steps for recovery and
resolution planning.
Governance
During 2015, the GAC held seven meetings, including a
joint meeting with GRC. Attendance of the current GAC
members is set out in the table on page 258. The Group
Finance Director, Group Chief Accounting Officer, Group
Head of Internal Audit and other members of senior
management attended meetings of the GAC, by invitation,
to contribute to the discussions relating to their respective
areas of expertise. The external auditor, PwC, also attended
all meetings and in camera sessions with internal and
external audit were held at every meeting. The Chairman
of the GAC had regular meetings with a number of the
attendees separately to discuss agenda planning and
specific issues as they arose during the year. The GAC
Chairman reported matters of significance to the Board
after each meeting and the minutes of the GAC meetings
were made available to all Board members.
During 2015, an accounting and control maturity map was
developed as a means of focusing accountabilities across
the various Board Committees and to allow the escalation
of issues relating to financial reporting or internal controls.
The GAC worked closely with the Group Risk Committee
(‘GRC’) and met jointly during 2015 to define and draw out
areas of commonality between the GAC and the GRC and
thereby avoid duplication between the two committees.
From this work, it was concluded that the GAC would have
accountability for recovery and resolution planning. The
GRC has accountability for data integrity and quality, stress
testing and the operational risk framework, which is a
critical part of the internal control framework.
The annual forum for the chairs of the major subsidiary
audit and risk committees was held in June 2015 which
resulted in an enhanced reporting protocol, providing
clearer understanding of the roles and lines of accountability
at Group, regional, country and business line levels. The
operation of this enhanced engagement protocol will be
closely monitored during 2016 and reviewed at the next
annual forum.
How the Committee discharged its responsibilities
Financial reporting
The table on page 265 shows the key areas considered
during the year and the action taken.
The GAC reviewed HSBC’s financial and accounting
judgements and their application to the quarterly and
annual reporting of the Group’s activities and financial
performance. In addition, the GAC reviewed the external
analysts’ presentations and the key financial metrics
included in the 10 strategic actions, particularly the
planning of risk-weighted assets.
The legal and regulatory environment was monitored
and consideration given to changes in law, regulation,
accounting policies and practices including developments
in programmes to implement IFRS 9 Financial Instruments
and Basel III/CRD IV.
Internal control and risk management
Pursuant to the requirement of section 404 of the Sarbanes-
Oxley Act, the Group undertook an annual assessment of the
effectiveness of internal control over financial reporting.
The GAC reviewed the Group’s system of internal control
over financial reporting and the developments affecting it
over the course of 2015. The GAC considered the process
used to evaluate the effectiveness of the system,
overseeing the transition by management to the COSO
framework. The transition included a comprehensive
programme of upgrades across all entity level controls. This
work focused on those entity level controls that did not
meet the required standards and the GAC received
progress updates from management at each meeting. In
addition, particular emphasis was given to the remediation
of controls over access management in IT and the financial
controls necessary to mitigate the impact on financial
reporting. Applying this new framework, the GAC assessed
the effectiveness of the internal control system over
financial reporting as part of the Board’s overall
assessment of internal controls. The Board’s assessment
can be found on page 275 under the heading ‘Internal
Control’.