The world's local bank - HSBC

HSBC FRANCE
Chairman’s report on corporate governance and internal control procedures (continued)
– to review the external auditors’ management letter
together with management’s response to it, and to
monitor the implementation of recommendations
made in the letter;
– to carry out a general review of the internal
control system and to examine the internal
control programme and resources;
– to examine management reports on the internal
control system;
– to examine the system used by the Company and
its subsidiaries to ensure compliance with directives
issued by the supervisory authorities and
with regulations applicable to them;
– to examine regular reports on the management
of material risks and litigation related to the
Company’s activity, and to ensure the effectiveness
of the system for controlling these risks.
The Committee must meet the external auditors
and the internal audit officers alone at least once per
year to ensure that no particular problems remain
unresolved.
As required under HSBC Group rules, once the
Audit Committee has verified the accounting procedures
used to prepare the financial statements,
the Chairman of the Committee sends a letter of
confirmation to the Chairman of the Audit
Committee of HSBC Bank plc, HSBC France’s
direct shareholder.
The Committee’s work in 2005
The Audit Committee met four times in 2005, and
the attendance rate was 100 per cent, as in 2004:
– 17 February 2005;
– 11 May 2005;
– 22 July 2005;
– 18 November 2005.
Meetings were also attended by external auditors
and HSBC France officers responsible for the
subjects under discussion. All meetings were also
attended by the head of HSBC Group Internal
Audit who became a member of the Audit
Committee in May 2005. At least one of HSBC
France’s Executive Directors attended each meeting
to answer questions.
The Committee reviewed the parent company
and consolidated financial statements and analysed
the impact of changes in scope of consolidation on
group earnings. The 2004 financial statements were
presented according to French and UK GAAP, with
a distinction drawn between the legal and French
managerial scope of consolidation. 2005 interim
financial statements were presented according to
French GAAP and IFRS. The Committee discussed
the choices made by the company in drawing up its
financial statements, particularly concerning the
first-time adoption of IFRS, with the assistance
of the external auditors. The external auditors
commented on their management letter in the
meeting concerning the closing of the 2004 accounts,
and presented their audit on the financial statements
for the first half of 2005. A key point of concern was
to verify the adequacy of provisions for identified
risks as part of the first-time adoption of IFRS.
The Committee verified the quarterly reconciliation
certificates produced at the request of the HSBC
Group, and was informed of unresolved issues raised
in external auditors’ management letters.
At each meeting, the Committee reviewed the
bank’s significant risks, assisted by the person
responsible for internal control in each case:
– credit risk, with an individual review of major
exposures and the provisioning policy for all
credit risks;
– market risk, including trends in market risk
compared with limits and the fixing of limits;
– compliance, legal and litigation risk;
– other risks, including operational and information
systems risk.
The Committee regularly reviewed the company’s
internal audit work and discussed the “Group
Internal Audit Charter”, which it approved. It was
regularly informed about audit recommendations
and progress in implementing them, and about work
on the new “risk-based audit” technique and the
continuous audit technique used for networks. It
reviewed the Chairman’s report on internal control as
required by the law on Financial Security, and the
“Review of Internal Control Framework”, which
meets UK and US requirements on corporate
governance. In its meeting of 11 May 2005, it
conducted a detailed review of the annual internal
control report required under the CRBF’s regulation
no. 97-02 (amended by CRBF 2001-01 and 2004-02)
and received a presentation of the internal control
system as defined in the 31 March 2005 amendment
of CRBF 97-02 which requires in particular a clear
distinction between the permanent and periodic
control organisations.
As part of its compliance work, the Committee
reviewed quarterly compliance certificates, which
state the main procedural violations. It discussed
the action plan for 2005 and 2006, prioritising
efforts to strengthen anti-money laundering actions
and controls concerning the duty of best advice.
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