HSBC 2001 Annual Report Download - page 249

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UK GAAP US GAAP
Costs of software for internal use
HSBC generally expenses costs of software developed
for internal use. However, if it can be demonstrated
that conditions for capitalisation are met under FRS 10
‘Goodwill and intangible assets’ or FRS 15 ‘Tangible
fixed assets’ , the software should be capitalised as part
of the cost of related hardware and amortised over its
useful life.
Website design and content development costs should
be capitalised only to the extent that they lead to the
creation of an enduring asset delivering benefits at least
as great as the amount capitalised.
The American Institute of Certified Public
Accountants’ (‘AICPA’ ) Statement of Position (‘SOP’ )
98-1 ‘Accounting for the costs of computer software
developed or obtained for internal use’ was issued in
March 1998, to be effective for fiscal years beginning
after 15 December 1998. It requires that all costs
incurred in the preliminary project and post
implementation stages of internal software
development be expensed. Costs incurred in the
application development stage must be capitalised and
amortised over the estimated useful life.
Goodwill
For acquisitions prior to 1998, goodwill arising on the
acquisition of subsidiary undertakings, associates or
joint ventures was charged against reserves in the year
of acquisition.
Goodwill acquired up to 30 June 2001 is capitalised
and amortised over its estimated useful life but not
more than 25 years. Under the transition requirements
of SFAS 142 ‘Goodwill and Other Intangible Assets’
goodwill acquired after 30 June 2001 is capitalised but
not amortised, and is subject to annual impairment
testing as required under APB 17 ‘Intangible Assets’ .
All goodwill will cease to be amortised from 31
December 2001.
In 1998, HSBC adopted FRS 10. For acquisitions made
on or after 1 January 1998, goodwill is included in the
balance sheet and amortised over its estimated useful
life on a straight-line basis. FRS 10 allows goodwill
previously eliminated against reserves to be reinstated,
but does not require it. In common with many other
UK companies, HSBC elected not to reinstate such
goodwill. HSBC considered whether reinstatement
would materially assist the understanding of readers of
its accounts who were already familiar with UK GAAP
and decided that it would not.
US GAAP requires the recoverability of goodwill to be
assessed whenever events or changes in circumstances
indicate that the carrying amount of an asset may not
be recoverable. Impairment of goodwill relating to an
entity is recognised if the sum of the estimated future
cashflows (undiscounted and without interest charges)
expected to be generated by that entity is less than its
carrying amount. If impairment is assessed to exist, the
amount recognised is the amount by which the carrying
amount of the entity exceeds its fair value.
Goodwill included in the balance sheet is tested for
impairment when necessary by comparing the
recoverable amount of an entity with the carrying value
of its net assets, including attributable goodwill. The
recoverable amount of an entity is the higher of its
value in use, generally the present value of the
expected future cash flows from the entity, and its net
realisable value.