HSBC 2001 Annual Report Download - page 82

HSBC HOLDINGS PLC
Financial Review (continued)
80
also establishes how the purchase method is to be
applied for business combinations completed after
30 June 2001. This guidance is similar to previous
US GAAP, however, SFAS 141 establishes
additional disclosure requirements for transactions
occurring after its effective date.
SFAS 141 will also require HSBC to evaluate,
at 1 January 2002, its existing intangible assets
and goodwill that were acquired in prior purchase
business combinations, and to make any necessary
reclassifications in order to conform with the new
criteria for recognition apart from goodwill. This
review is not expected to have a material impact
on HSBC’ s US GAAP financial statements.
SFAS 142 ‘Goodwill and Other Intangible
assets’ was issued in July 2001. The Statement is
effective for fiscal years beginning after 15
December 2001 and may not be retroactively
applied to financial statements of prior periods.
During a transition period from 1 July to 31
December 2001 goodwill associated with business
combinations completed before 1 July 2001 will
continue to be amortised. SFAS 142 requires that
goodwill should not be amortised but should be
tested for impairment annually at the reporting
unit level by applying a fair-value-based test.
Goodwill will no longer be tested for impairment
under SFAS 121 ‘Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of’ .
HSBC will adopt SFAS 142 on 1 January
2002, at which time approximately US$20 billion
goodwill at cost will be held with an unamortised
net book value of US$17 billion. The estimated
increase in net income for the year ended 31
December 2002 due to the non-amortisation of
goodwill under SFAS 142 is US$1,005 million.
The increase in net income due to the non-
amortisation of goodwill would have been US$1.3
billion for the year ended 31 December 2001.
HSBC is currently reviewing the impact of
applying impairment testing in accordance with
SFAS 142.
SFAS 143 ‘Accounting for Asset Retirement
Obligations’ was issued in August 2001. The
Statement is effective for fiscal years beginning
after June 15 2002 although early adoption is
encouraged. SFAS 143 requires that the fair value
of an asset retirement obligation be recognised in
the balance sheet in the period in which it is
incurred and then charged to the profit and loss
account over the useful economic life of the asset.
Adoption is not expected to have a material
impact on HSBC’ s US GAAP financial
statements.
SFAS 144 ‘Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to
be Disposed Of’ was issued in October 2001. The
Statement supersedes SFAS 121 and is effective
for fiscal years beginning after 15 June 2002
although early adoption is encouraged. SFAS 144
retains many of the fundamental principles of
SFAS 121 but differs from it in that it excludes
goodwill and intangible assets from its provisions
and provides greater direction relating to the
implementation of its principles. Adoption is not
expected to have a material impact on HSBC’s US
GAAP financial statements.