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Audit, Remuneration & Nomination Committees

Audit Committees (Mainland China)

The key roles and responsibilities of the audit committee in Mainland China are to ensure, on behalf of the Board of Directors, that the external and internal auditors are qualified and independent; to review the company's financial statements and auditor's report; to review and monitor the effectiveness of the company's internal controls and of its internal control self-assessment process; and to coordinate internal control audits and other related matters. The audit committee also plays a key role in ensuring the board of directors is accountable to the company's stakeholders.

Audit Committee Structure

In Mainland China, according to the Code of Corporate Governance for Listed Companies, listed companies' boards of directors should establish an audit committee. Audit committee members are composed of members of the company’s board of directors and independent directors should account for the majority of the committee’s members. Each audit committee should contain at least one independent director with relevant professional qualification in accounting. Find a link to the Code of Corporate Governance here. (In Chinese only)  

The work of the Audit Committee

According to the Code of Corporate Governance for Listed Companies, audit committees are responsible for the following activities:

  1. Proposing to hire or replace the external auditor;
  2. Monitoring the company's internal audit policies and their implementation;
  3. Coordinating communication between internal and external auditors;
  4. Reviewing the company's financial information and disclosure;
  5. Reviewing the company's internal control policies.

On 28 June 2008, the PRC Ministry of Finance, the China Securities Regulatory Commission, the National Audit Office of the People's Republic of China, the China Banking Regulatory Commission and the China Insurance Regulatory Commission jointly issued 《企业内部控制基本规范》, or the Basic Standards for Enterprise Internal Control (referred to as 'BSEIC'). Effective from 1 July 2009, listed companies are required to comply with these standards and non-listed medium to large-sized enterprises are encouraged to adopt them as well. Listed companies complying with BSEIC standards are required to perform self-assessments over the effectiveness of internal controls and to disclose the results. Listed companies may also appoint qualified accounting firms with securities and futures-related experience to perform an audit of the company's internal control effectiveness. Clear guidelines about the roles and responsibilities of the audit Committee with respect to monitoring of internal controls are stated in the BSEIC.  BSEIC is available via this link (In Chinese only).

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.

For details, please refer to:
Main Board Listing Rules (Section 3.21 of Chapter 3)
GEM Board (Growth Enterprise Market) Listing Rules (Section 5.28 of Chapter 5)

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 Corporate Governance Code and Corporate Governance Report. For details, please refer to:

Main Board Listing Rules (Section C.3 of Appendix 14)
GEM Board Listing Rules (Section C.3 of Appendix 15)

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.

External audit

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 Audit Committee should meet the external auditor at least twice a year.

Risk Management & Internal Control

The Audit Committee has the responsibility to oversee the risk management and internal control systems of the company. It should obtain assurance that management has identified key risks in relation to business objectives and that appropriate measures have been in place to mitigate the risks identified. The Audit Committee should also ensure that management has discharged its duty to have an effective internal control system and consider any findings of investigations conducted by internal audit or issues raised in the external auditor's management letter.

According to Section C2.1 of the Corporate Governance Code and Corporate Governance Report, listed companies should at least annually conduct a review of the effectiveness of the system of internal control and the review should cover all material controls and risk management functions. According to the Corporate Governance Code and Corporate Governance Report’s requirements, listed companies are also required to prepare a report on corporate governance practices. In this report, listed companies are required to disclose the work performed during the year in discharging its responsibilities in its review of the system of internal control.

Securities and Futures Commission ("SFC"): Speech at Hong Kong Institute of Chartered Secretaries Corporate Governance Conference 2014

Ashley Alder, SFC's Chief Executive Officer, gave a speech in the Hong Kong Institute of Chartered Secretaries Corporate Governance Conference 2014. The speech discussed the regulatory architecture for Hong Kong listed companies regarding corporate governance. Click here to read the speech.

Disclosure of Audit Committee Information

Section L of the Corporate Governance Code and Corporate Governance Report stipulates the disclosure requirements of Audit Committee information in the Corporate Governance Report. Such disclosure should include the following:

  • Role and function of the Audit Committee;
  • Composition of the Audit Committee;
  • Number of meetings of the Audit Committee and record of attendance of its members;
  • Summary of work performed by the Audit Committee;
  • Details of non-compliance with rule 3.21 (for Main Board) / rule 5.28 (for GEM Board) and an explanation of any remedial steps.

For details, please refer to

Main Board Listing Rules (Section L of Appendix 14)
GEM Board Listing Rules (Section L of Appendix 15)

Hong Kong Institute of Certified Public Accountants ("HKICPA"): A Guide on Better Corporate Governance Disclosure (2014)

HKICPA published an online guide to help those who have responsibilities for corporate governance within their companies, and also for the boards and management of companies which seek to achieve high standards of corporate governance disclosure and practices. Find a link to this guide here.

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

In Hong Kong, all listed companies must establish a remuneration committee chaired by an independent non-executive director and comprising a majority of independent non-executive directors.

For details, please refer to

Main Board Listing Rules (Section 3.25 of Chapter 3)
GEM Board Listing Rules (Section 5.34 of Chapter 5)

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 Corporate Governance Code and Corporate Governance Report. 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 remuneration committee of a listed company is responsible for making recommendations to the board on policy and structure for all remuneration of directors and senior management and on the establishment of a formal and transparent procedure for developing this policy. It is also responsible for determining specific remuneration packages for executive directors and senior management, including compensation payments and benefits in kind. It should also make recommendations to the board of directors for the remuneration of non-executive directors as well. When considering remuneration structure and policy, it should consider salaries paid by comparable companies and responsibilities of directors and it should have access to professional advice, if necessary. It is important to ensure that no director or any of his associates is involved in deciding his own remuneration.

In addition, Remuneration Committee should be delegated with the authority to review and approve the following:

  • Management’s remuneration proposals with reference to the board’s corporate goals and objectives;
  • Compensation payable to Executive Directors and senior management in connection with any loss or termination of office or appointment; and
  • Compensation arrangements relating to dismissal or removal of directors for misconduct.

For details, please refer to

Main Board Listing Rules (Section B of Appendix 14)
GEM Board of Listing Rules (Section B of Appendix 15)

Directors' Remuneration Disclosure

Disclosure requirements for director remuneration are stipulated in the Hong Kong listing rules. Listed companies are required to disclose in their annual reports all details of current and past directors’ pay, including:

  • Director fees for the financial year;
  • Director basic salaries, housing allowance, other allowance and benefits in kind;
  • Contributions to pension schemes for directors;
  • Bonuses paid or receivable by directors;
  • Amounts paid or receivable as an inducement to join or upon joining the listed company; and
  • Compensation paid or receivable for loss of office.

For details, please refer to:

Main Board Listing Rules (Section 24 of Appendix 16)
GEM Board Listing Rules (Section 18.28 and 18.29 of Chapter 18)

Directors' Remuneration Disclosure - Committee Practices

In addition to the above requirements, Section L of Corporate Governance Code and Corporate Governance Report also stipulates the disclosure requirements for remuneration committee practices in the Corporate Governance Report. Such disclosure includes information relating to directors' remuneration policy:

  • Role and function of the remuneration committee;
  • Composition of the remuneration committee;
  • Number of meetings of the remuneration committee and record of attendance of its members; and
  • Summary of work performed by the remuneration committee, including determining the remuneration policy, assessing performance, and approving the terms of service contracts for executive directors.

For details, please refer to:

Main Board Listing Rules (Section L of Appendix 14)
GEM Board Listing Rules (Section L of Appendix 15) 

Nomination Committees (Hong Kong SAR)

The major function of a Nomination Committee is to assist the Board of Directors in developing and administering a fair and transparent procedure for setting policy on the overall human resources strategy of the company and the remuneration of Directors and senior management of the company, and for determining their remuneration packages. The company should provide the Nomination Committee sufficient resources to perform its duties.

Nomination Committee Structure

According to Section A.5 of Corporate Governance Code and Corporate Governance Report, all listed companies should establish a nomination committee which is chaired by the chairman of the board or an independent non-executive director and comprises a majority of independent non-executive directors.

For details, please refer to

Main Board Listing Rules (Section A5 of Appendix 14)
GEM Board Listing Rules (Section A5 of Appendix 15)

The work of the Nomination Committee

The Stock Exchange of Hong Kong has set out principles and recommendations for effective nomination committee practices in Section A.5 of the Corporate Governance Code and Corporate Governance Report. The nomination committee should be established with specific written terms of reference which deal clearly with its duties and its authority delegated by the Board of Directors. Such information should be made available on the Exchange's website and its website.

The nomination committee of a listed company should be responsible for reviewing the structure, and composition of the board at least annually and making recommendations to the board to complement the its corporate strategy. It should identify individuals suitably qualified to become board members and select or make recommendations to the board on the selection of individuals nominated for directorships. It is also responsible for assessing the independence of independent non-executive directors. Besides, it should make recommendation to the board on the appointment or re-appointment of directors and succession planning for directors, in particular the chairman and the chief executive.

For details, please refer to

Main Board Listing Rules (Section A5.2 of Appendix 14)
GEM Board Listing Rules (Section A5.2 of Appendix 15)

The Hong Kong Institute of Directors ("HKIOD"): The 21st Century Director: The Board, Is it Working?

Victor Hughes, a working director who offers a range of courses on governance and directorship based his experience, issued an article on HKIOD's website. Find a link to this article here.

The Hong Kong Institute of Directors ("HKIOD"): The 21st Century Director: Board Diversity – Compliance or Competitive Advantage

Fern Ngai, Community Business' CEO, issued an article on HKIOD's website discussing board diversity policy and the benefits of board diversity. Find a link to this article here.

Disclosure requirements for Nomination Committee

In addition to the above requirements, Section L of Corporate Governance Code and Corporate Governance Report also stipulates the disclosure requirements for nomination committee practices in the Corporate Governance Report. Such disclosure should include the following:

  • Role and function of the nomination committee;
  • Composition of the nomination committee;
  • Number of meetings of the nomination committee and record of attendance of its members; and
  • Summary of work performed by the nomination committee, including determining the policy for the nomination of directors, nomination procedures and the process and criteria adopted to select and recommend candidates for the directorship.
  • Summary of policy, where applicable, on board diversity, including any measurable objectives that it has set for implementing the policy, and progress on achieving those objectives.

For details, please refer to:

Main Board Listing Rules (Section L of Appendix 14)
GEM Board Listing Rules (Section L of Appendix 15)