C . Accountability and Audit

C.1 Financial reporting

Principle

The Board should present a balanced, clear and comprehensible assessment of the Company's performance, position and prospects.

The directors acknowledge that they are responsible for overseeing the preparation of financial statements of each financial period, which give a true and fair view of the operating results and financial conditions of the Company.

In preparing the accounts for the year ended 31 December 2005, the directors have:

1)      selected appropriate accounting policies and applied them consistently;

2)     made judgments and estimates that are prudent and reasonable, and have prepared accounts on a going concern basis.

Deviation: Nil

C.2 Internal controls

Principle

The Board should ensure that the Company maintains sound and effective internal controls to safeguard the shareholders' investment and the Company's assets.

The Company's target is to establish an efficient and effective internal control system which comprises the following five components: control environment, risk assessment, control activities, information and communication and monitoring.

The Company believes that the control environment sets the tone of an organization and provides a foundation of all other components of internal control. It includes integrity, business ethics, management's philosophy and operating style, the way management assigns authority and responsibility, and attention and direction provided by the Board, all of which form and create a control environment.

The Company emphasizes on professional integrity and high business ethics. It creates handbooks and manuals for management and staff, explaining our fundamental value and corporate culture, which is based on honesty and integrity and focuses on value creation.

The Company and its subsidiaries provide regular training to its management and staff. The training sessions not only cover the technical and operational aspects of our businesses, but also on business ethics and corporate value.

The Company has created a Code for Managers that sets out the respective responsibilities, rights and reporting procedures of the management team, mainly the general managers, deputy general managers and chief financial officers of our power plants.

The Company has also laid out an evaluation and remuneration policy which encourages our management team to focus on return and value creation for shareholders.

The Company has an internal audit department that is independent of the activities it audits. The internal auditors report to the Chairman of the Audit Committee and administratively to the Chief Executive Officer. The internal auditors have unrestricted access to any and all aspects of the Company's and the subsidiaries' activities and business functions. The internal auditors can employ outside resources when necessary. In 2005, the Company's internal audit department engaged a major international accounting firm to carry out internal audit work for a number of subsidiaries.

The responsibilities of the internal auditors include but not limited to the following:

1)      to review adequacy and effectiveness of internal systems and controls;

2)      to check compliance with the Company's policies and procedures, appropriate laws and good business practices; and

3)      to ensure economical and efficient use of the Company's resources.

The directors have annually reviewed the effectiveness of the system of internal controls (including financial, operational and compliance controls and risk management functions) of the Company and its subsidiaries. The directors believe that in order to manage the risk of failure in achieving the Company's goals and objectives to an ultimate extent, the Company should improve continuously its internal control system.

During 2005, the internal audit department, with the assistance of a major international accounting firm, has carried out audit of four power plants and presented their findings and recommendations to the Audit Committee.

Deviation: Nil

C.3 Audit Committee

Principle

The Board should establish formal and transparent arrangements for considering how it applies the financial reporting and internal control principles and for maintaining an appropriate relationship with the Company's auditors. Audit Committee established pursuant to the Listing Rules should have clear terms of reference.

The Company's Audit Committee only comprises independent non-executive directors, namely Mr. Fong Ching, Eddy, Mr. Anthony H. Adams, Mr. Wu Jing Ru and Mr. Chen Ji Min (appointed as a director on 13 February 2006) as members. Mr. Fong Ching, Eddy is the Chairman of the Committee. He is a certified public accountant and was formerly a senior partner of PricewaterhouseCoopers, an international accounting firm.

The terms of reference of the Audit Committee include but not limit to the following duties:  

1)      primarily responsible for making recommendations to the Board on the appointment, re-appointment and removal of the external auditor, and to approve the remuneration and terms of engagement of the external auditor, and any questions of resignation or dismissal of that auditor;

2)     to review and monitor the external auditor's independence and objectivity and the effectiveness of the audit process in accordance with applicable standard. The Audit Committee should discuss with the auditor the nature and scope of the audit and reporting obligations before the audit commences;

3)   to develop and implement policies on the engagement of an external auditor to supply non-audit services. The Audit Committee should report to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;

4)   to monitor integrity of financial statements, accounts, annual reports and interim reports of the Company and to review significant financial reporting judgments contained in them, including:

a)       any changes in accounting policies and practices;

b)       major judgment areas;

c)       significant adjustments resulting from audit;

d)       the going concern assumptions and any qualifications;

e)       compliance with accounting standards; and

f)       compliance with the Listing Rules and other legal requirements in relation to financial reporting.  

5)    to review the Company's financial controls, internal control and risk management systems;

6)      to discuss with the management the system of internal control and ensure that the management has discharged its duty to have an effective internal control system;

7)    to consider any findings of major investigations of internal control matters as delegated by the Board or on its own initiative and management's response;

8)      to ensure co-ordination between the internal and external auditors, and to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company; and

9)      to review and monitor the effectiveness of the internal audit function. 

The Audit Committee held three meetings in 2005. External and internal auditors, representatives of the executive directors as well as senior management were invited to attend the Audit Committee meetings.

There was no disagreement between the Board and Audit Committee on the selection and appointment of the internal and external auditors.

During 2005, the fees paid to the Company's external auditor amounted to HK$3,283,000, of which fees paid for non-audit related service amounting to HK$979,000. Non-audit related service mainly includes financial due diligence work carried out in connection with acquisitions of certain business and assets.

Deviation: Nil

A. Directors
B. Remuneration of Directors and Senior Management
C. Accountability and Audit
D. Delegation by the Board
E. Communication with shareholders