HSBC 2003 Annual Report Download - page 329

327
• Changes in the value of HSBC’ s interest in long-term assurance business are calculated on a post-tax basis and
are reported in the profit and loss account as part of ‘Other operating income’ after adjusting for taxation.
US GAAP
• The net present value of these profits is not recognised. Acquisition costs and fees are deferred and amortised in
accordance with SFAS 97 ‘Accounting and reporting by insurance enterprises for certain long-duration
contracts and for realised gains and losses from the sale of investments’.
Share compensation schemes
UK GAAP
• Options granted under executive share option schemes are granted at market price and no compensation costs
are recognised under the ‘intrinsic value method’ .
• Employees in save-as-you-earn schemes are granted shares at a 20 per cent discount to market price at the date
of grant. No compensation cost is recognised for such awards.
• The fair value of shares awarded under longer term and other restricted share award schemes is charged to
compensation cost over the period in respect of which performance conditions apply. To the extent the award is
adjusted by virtue of performance conditions being met or not, the compensation cost is adjusted in line with
this.
US GAAP
• SFAS 123 ‘Accounting for Stock Based Compensation’ encourages a fair value method of accounting for stock-
based compensation plans. HSBC follows this fair value method. Under the fair value method, compensation
cost is measured at the date of grant based on the value of the award and is recognised over the service period,
which is usually the vesting period. Where options lapse before their costs have been fully recognised, any costs
previously recognised relating to lapsed options are written back.
Costs of software for internal use
UK GAAP
• HSBC generally expenses costs of software developed for internal use. If it can be shown that conditions for
capitalisation are met under FRS 10 ‘Goodwill and intangible assets’ or FRS 15 ‘Tangible fixed assets’ , the
software is capitalised and amortised over its useful life.
• Website design and content development costs are 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.
US GAAP
• The American Institute of Certified Public Accountants’ (‘AICPA’ ) Statement of Position 98-1 ‘Accounting for
the costs of computer software developed or obtained for internal use’ 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 their estimated useful life.
Website design costs are capitalised and website content development costs are expensed as they are incurred.
Goodwill
UK GAAP
• Goodwill arising on acquisitions of subsidiary undertakings, associates or joint ventures prior to 1998 was
charged against reserves in the year of acquisition.
• 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. UK GAAP allows goodwill previously eliminated against