Hong Kong SAR
Audit Committees (Hong Kong SAR)
The major function of an Audit Committee is to assist the Board of Directors in providing an independent review of the effectiveness of the financial reporting process, internal control and risk management system of the company, overseeing the audit process and performing other duties and responsibilities as assigned by the Board. This section provides a range of useful publications relating to the audit committee's operations and oversight responsibilities.
Audit Committee Structure
In Hong Kong, all listed companies must establish an audit committee. Audit committees must be comprised of non-executive directors only and must have at least three members. At least one of the members must be an independent non-executive director, who has appropriate professional qualifications or accounting or related financial management expertise. The majority of its members must be independent non-executive directors and the chairman of the audit committee must be an independent non-executive director as well.
The work of the Audit Committee
General Information – Hong Kong Exchange Recommendations
The Hong Kong Stock Exchange has set out principles and recommendations for leading audit committee practices in its Code on Corporate Governance Practices. For details, please refer to:
General Information – HKICPA Audit Committee Guide
The Hong Kong Institute of Certified Public Accountants (HKICPA) has issued a guide covering various aspects of the implementation of an effective Audit Committee and the disclosure of its work. This guide provides useful guidance to companies that have or will set up an audit committee. Download the Hong Kong Institute of Certified Public Accountants ("HKICPA"): A Guide for Effective Audit Committee via this link.
Financial and other reporting
The Audit Committee is required to monitor the integrity of financial statements, annual reports, interim reports and quarterly reports, if prepared. The review should focus on the completeness, accuracy, appropriateness and fairness of disclosures and statements given by directors.
The Hong Kong Institute of Directors: The 21st Century Director: Financial Statement Challenges and How to Face Them
The Hong Kong Institute of Directors conducted a luncheon and invited The Hon Paul Chan, Legislative Councillor for the accounting functional constituency to give a speech over the current financial statement challenges.Find a link to this publication here.
Hong Kong Institute of Certified Public Accountants ("HKICPA"): Subprime and Credit Crunch – Financial Reporting and Auditing Issues
Another role of the Audit Committee is to make recommendation to the Board on the appointment, reappointment and removal of the external auditor, to approve the remuneration and terms of engagement of the external auditor, to review and monitor external auditor's independence and objectivity, and to develop and implement policy on the engagement of an external auditor to supply non-audit services.
The Standards and Quality Division of HKICPA has issued an alert to update members on the proposed new Hong Kong Standards on Auditing (HKSAs), which will be part of the ongoing policy of convergence with International Standards on Auditing (ISAs). Find a link to the report from the Hong Kong Institute of Certified Public Accountants ("HKICPA") here: Financial Reporting and Auditing Alert (Issue 4 – June 2009): Updates to Hong Kong Standards on Auditing for the new International Standards on Auditing
Risk Management & Internal Control
Securities and Futures Commission ("SFC"): SFC Enforcement and Fraud
Mark Steward, SFC’s Executive Director of Enforcement gave a speech in the Conference on Fraud Risk Management. The content of the speech included how SFC responded to fraud cases and what should be done to prevent and detect fraud.
Find a link to this speech here.
Hong Kong Institute of Certified Public Accountants ("HKICPA"): Internal Control and Risk Management - A Basic Framework
Asian Corporate Governance Association ("ACGA"): Presentation on "Corporate Governance Failures in Asia: How can Directors and Corporate Counsel Help to Manage Risk?"
The Hong Kong Institute of Directors (HKIOD): The 21st Century Director: Acknowledging the Reality of Risk
The Hong Kong Institute of Directors (HKIOD): The 21st Century Director – Risking It All
HKICPA Financial Reporting and Auditing Alert (Issue 2 – March 2009): Going concern – Assessing an Entity's Ability to Continue as a Going Concern
Disclosure of Audit Committee Information
Remuneration Committees (Hong Kong SAR)
In Hong Kong, the key objectives of establishing a remuneration committee are to assist the Board of Directors to maintain a formal and transparent procedure for setting policy on directors' remuneration and to determine an appropriate remuneration packages for all directors. The Remuneration Committee should ensure that remuneration arrangements support the strategic aims of the business and enable the recruitment, motivation and retention of senior executives while complying with all rules and regulations.
Remuneration Committee Structure
The work of the Remuneration Committee
The Stock Exchange of Hong Kong has set out principles and recommendations for effective remuneration committee practices in Section B of the Code on Corporate Governance Practices. Listed companies should develop a written terms of reference to properly document the roles and responsibilities of remuneration committees and the authority delegated to them by the Board of Directors.
Determination of Directors' and Senior Management's Remuneration
The Chamber of Hong Kong Listed Companies ("CHKLC"): Balancing Senior Management Compensation Arrangements with Shareholders' Interest
The CHKLC has published an article about the determination of senior management's remuneration in its quarterly newsletter called "Momentum". The article provides useful guidance for designing a value-added and balancing compensation structure for senior management.
Find a link to "Momentum" here.