HSBC 2002 Annual Report Download - page 309

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the extent of residual external US dollar liabilities which were no longer matched with US dollar assets. HSBC
recognised these losses through its income statement in 2001; these amounted to US$520 million.
Following pesification, HSBC Argentina’s balance sheet primarily reflected Argentine peso assets more than
fully funded by Argentine peso liabilities and this represents HSBC’ s ongoing business in Argentina. On top of
this HSBC Argentina had residual external US dollar liabilities which essentially represented a portion of the
loss recognised in 2001.
Under UK GAAP these US dollar liabilities, as they are no longer funding the ongoing business, are treated as a
separate operation with the US dollar as the unit of account. To date, these liabilities have been settled as they
fall due by the Group outside Argentina. As HSBC prepares its accounts in US dollars no further translation
effect arises.
Under US GAAP this accounting treatment is not possible and the US dollar liabilities are treated as part of the
Argentine operation which accounts in Argentine pesos. As a result, as the Argentine peso weakens, the US
dollar denominated liabilities generate a substantial loss in Argentine pesos which is reflected in US GAAP
income. However, as HSBC accounts in US dollars and economically there is no change in the amount of US
dollars owing an exactly offsetting gain is reflected in the US GAAP accounts in shareholders’ equity.
(l) Taxation
The components of the net deferred tax liability calculated under SFAS No. 109 ‘Accounting for Income
Taxes’ , are as follows:
2002 2001
US$m US$m
Deferred tax liabilities:
Leasing transactions............................................................................................. 1,247 1,041
Capital allowances ............................................................................................... 73 79
Provision for additional UK tax on overseas dividends....................................... 44 24
Reconciling items ................................................................................................ 1,060 938
Other .................................................................................................................... 460 354
Total deferred tax liabilities ................................................................................. 2,884 2,436
Deferred tax assets:
Provisions for bad and doubtful debts.................................................................. 1,259 743
Tax losses............................................................................................................. 908 1,014
Reconciling items ................................................................................................ 1,316 901
Other .................................................................................................................... 661 892
Total deferred tax assets before valuation allowance........................................... 4,144 3,550
Less: valuation allowance.................................................................................... (868) (920)
Deferred tax assets less valuation allowance ....................................................... 3,276 2,630
Net deferred tax (asset) under SFAS No. 109...................................................... (392) (194)
Included within ‘other assets’ under US GAAP .................................................. (2,585) (1,509)
Included within ‘deferred tax liabilities’ under US GAAP.................................. 2,193 1,315
The valuation allowance against deferred tax assets principally relates to trading and capital losses carried
forward, which have not been recognised due to uncertainty as to when and if they will be utilised. A valuation
allowance is established to reduce deferred tax assets if, based on available evidence, it is considered more
likely than not that some portion or all of the deferred tax assets will not be realised.
(m) Loans and advances
SFAS 114 ‘Accounting by Creditors for Impairment of a Loan’ as amended by SFAS No. 118 ‘Accounting by
Creditors for Impairment of a Loan – Income Recognition and Disclosures’ is effective for accounting periods