HSBC 2012 Annual Report Download - page 322

HSBC HOLDINGS PLC
Report of the Directors: Corporate Governance (continued)
Board committees > Group Audit Committee
320
Committee activities
The GAC undertook the following activities in the
discharge of its responsibilities:
• Financial reporting. The Committee advised
the Board on meeting its external financial
reporting obligations through its reviews of
financial statements, interim reports and interim
management statements prior to approval by the
Board. The Committee also undertook the
following:
− endorsed the going concern statement and
the statement of compliance with the UK
Corporate Governance Code and Hong
Kong Corporate Governance Code
(formerly the Code on Corporate
Governance Practices in Appendix 14 to the
Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong
Limited) for inclusion in the financial
statements;
− advised the Board that the annual report and
accounts, taken as a whole, is fair, balanced
and understandable;
− 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;
− reviewed accounting policies and practices,
including approval of the critical accounting
policies;
− considered provisioning for, and disclosure
of, certain litigation and regulatory matters
with external legal counsel providing a
status update on these matters;
− received a presentation from the Global
Head of Tax on current tax issues;
− received a report on the European Banking
Authority Capital Exercise 2012 to monitor
adherence to recommended core tier 1
ratios; and
− reviewed the procedures for the submission
by employees of concerns regarding
accounting and/or auditing matters.
During 2012, the GAC considered the
significant accounting issues described below.
In addressing these issues the Committee
considered the appropriateness of management’s
judgements and estimates and, where
appropriate, discussed these judgements and
estimates with the external auditor. The
Committee considered:
− the circumstances leading to the recognition
of a provision at 30 June 2012 relating to
US regulatory and law enforcement
investigations into inadequate compliance
with anti-money laundering, US Bank
Secrecy and sanctions laws. The Committee
noted that management had considered the
available information, recent developments,
the opinions of external legal counsel and
the outcome of past cases on similar
matters. The Committee discussed the
judgements exercised by management in
forming a best estimate of the amount that
might have been required to settle the
matter, and agreed that a provision of
US$700m should be made, while noting
that this estimate was highly uncertain, and
that the amount, when determined, could be
higher, possibly significantly so. In the third
quarter, the Committee considered the latest
developments in this matter and discussed
the possibility of a criminal prosecution
being brought against one or more Group
companies and the possible implications.
The Committee agreed with management’s
judgement that the provision should be
increased to US$1.5bn, while continuing to
note that the final amount could be
significantly higher. Subsequently, the
Committee noted the payments made in
December 2012 under the agreements to
achieve resolution with US and UK
government agencies, and the terms of the
Deferred Prosecution Agreement;
− the developments in the industry
investigations and reviews into the setting
of Libor, Euribor and other benchmark
interest and foreign exchange rates by
various regulators and competition and
enforcement authorities around the world.
The Committee discussed the high degree
of uncertainty as to the resolution of these
regulatory investigations and reviews,
including the timing and potential impact;
− HSBC’s exposure to the payment of redress
in respect of the possible mis-selling of
payment protection insurance policies in the
UK and the related provisions. The
Committee considered the key assumptions
which determine the provisions and the
factors driving the increase during the year.
Management’s assessment was that the
amount of provision at 31 December 2012