Independent auditor’s report to the Securities and Futures Commission

(Established in Hong Kong under the Securities and Futures Commission Ordinance)

We have audited the consolidated financial statements of the Securities and Futures Commission (the “SFC”) and its subsidiaries (together referred to as the “Group”) set out on pages 79 to 99, which comprise the consolidated and the SFC statement of financial position as at 31 March 2011 and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Directors’ responsibility for the financial statements

The Hong Kong Securities and Futures Ordinance requires the directors of the SFC to prepare financial statements which give a true and fair view. The directors of the SFC are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and for such internal control as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the SFC and of the Group’s affairs as at 31 March 2011 and of the Group’s result and cash flows for the year then ended in accordance with International Financial Reporting Standards.

KPMG

Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road
Central, Hong Kong

20 May 2011

Consolidated statement of comprehensive income

For the year ended 31 March 2011 (Expressed in Hong Kong dollars)

	Note	2011 $’000	2010 $’000
Income
Levies		1,373,404	1,498,659
Fees and charges		171,696	154,583
Investment income	5	131,097	138,351
Less: custody and advisory expenses		(2,613)	(2,230)
Investment income net of third party expenses		128,484	136,121
Recoveries from Investor Compensation Fund		4,157	4,165
Other income	6	6,057	4,879
		1,683,798	1,798,407
Expenses
Staff costs and directors’ emoluments	7	564,876	529,274
Premises
rent		63,642	58,491
other		25,640	23,632
Other expenses	8	85,162	84,785
Depreciation	10(a)	41,090	33,468
		780,410	729,650
Surplus and total comprehensive income for the year		903,388	1,068,757

The notes on pages 84 to 99 form part of these financial statements.

Consolidated statement of financial position

At 31 March 2011 (Expressed in Hong Kong dollars)

	Note	2011 $’000	2010 $’000
Non-current assets
Fixed assets	10(a)	46,689	49,423
Held-to-maturity debt securities	9	3,827,632	3,769,238
		3,874,321	3,818,661
Current assets
Held-to-maturity debt securities	9	2,401,449	1,536,402
Debtors, deposits and prepayments	14	207,000	208,198
Bank deposits	11	602,190	566,709
Cash at bank and in hand	11	3,226	2,617
		3,213,865	2,313,926
Current liabilities
Fees received in advance		68,657	9,260
Creditors and accrued charges		71,504	71,298
		140,161	80,558
Net current assets		3,073,704	2,233,368
Total assets less current liabilities		6,948,025	6,052,029
Non-current liabilities	13	22,397	29,789
Net assets		6,925,628	6,022,240
Funding and reserves
Initial funding by Government	15	42,840	42,840
Accumulated surplus		6,882,788	5,979,400
		6,925,628	6,022,240

Approved and authorized for issue by the SFC on 20 May 2011 and signed on its behalf by

Martin Wheatley	Eddy C Fong
Chief Executive Officer	Chairman

The notes on pages 84 to 99 form part of these financial statements.

Statement of financial position

At 31 March 2011 (Expressed in Hong Kong dollars)

	Note	2011 $’000	2010 $’000
Non-current assets
Fixed assets	10(b)	46,677	49,398
Held-to-maturity debt securities	9	3,827,632	3,769,238
		3,874,309	3,818,636
Current assets
Held-to-maturity debt securities	9	2,401,449	1,536,402
Debtors, deposits and prepayments	14	206,862	208,048
Bank deposits	11	602,190	566,709
Cash at bank and in hand	11	2,909	2,318
		3,213,410	2,313,477
Current liabilities
Fees received in advance		68,657	9,260
Creditors and accrued charges		71,037	70,824
		139,694	80,084
Net current assets		3,073,716	2,233,393
Total assets less current liabilities		6,948,025	6,052,029
Non-current liabilities	13	22,397	29,789
Net assets		6,925,628	6,022,240
Funding and reserves
Initial funding by Government	15	42,840	42,840
Accumulated surplus		6,882,788	5,979,400
		6,925,628	6,022,240

Approved and authorized for issue by the SFC on 20 May 2011 and signed on its behalf by

Martin Wheatley	Eddy C Fong
Chief Executive Officer	Chairman

The notes on pages 84 to 99 form part of these financial statements.

Consolidated statement of changes in equity

For the year ended 31 March 2011 (Expressed in Hong Kong dollars)

	Initial funding by Government $’000	Accumulated surplus $’000	Total $’000
Balance at 1 April 2009	42,840	4,910,643	4,953,483
Total comprehensive income for the year	–	1,068,757	1,068,757
Balance at 31 March 2010 and 1 April 2010	42,840	5,979,400	6,022,240
Total comprehensive income for the year	–	903,388	903,388
Balance at 31 March 2011	42,840	6,882,788	6,925,628

The notes on pages 84 to 99 form part of these financial statements.

Consolidated statement of cash flows

For the year ended 31 March 2011 (Expressed in Hong Kong dollars)

	2011 $’000	2010 $’000
Cash flows from operating activities
Surplus for the year	903,388	1,068,757
Adjustments for:
Depreciation	41,090	33,468
Investment income	(131,097)	(138,351)
(Profit)/loss on disposal of fixed assets	(24)	47
	813,357	963,921
Increase in debtors, deposits and prepayments	(8,819)	(27,022)
Increase/(decrease) in fees received in advance	59,397	(56,322)
Increase in creditors and accrued charges	206	594
Decrease in non-current liabilities	(7,392)	(8,177)
Net cash generated from operating activities	856,749	872,994
Cash flows from investing activities
Interest received	197,228	189,147
Held-to-maturity debt securities purchased	(2,503,382)	(1,765,672)
Held-to-maturity debt securities redeemed at maturity	1,523,827	857,376
Fixed assets purchased	(38,332)	(40,923)
Net cash used in investing activities	(820,659)	(760,072)
Net increase in cash and cash equivalents	36,090	112,922
Cash and cash equivalents at beginning of the year	569,326	456,404
Cash and cash equivalents at end of the year	605,416	569,326

Analysis of the balance of cash and cash equivalents:

	2011 $’000	2010 $’000
Bank deposits	602,190	566,709
Cash at bank and in hand	3,226	2,617
	605,416	569,326

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