HSBC 2003 Annual Report Download - page 334

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
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• The deferred taxation impact of all temporary differences arising from fair value adjustments on acquisition is
recognised as part of the purchase accounting adjustment.
Sale and repurchase transactions (‘repos’) and reverse repos
UK GAAP
• Repos and reverse repos are accounted for as if the collateral involved remains with the transferor. On the
balance sheet, repos are included within ‘Deposits by banks’ or ‘Customer accounts’ and reverse repos are
included within ‘Loans and advances to banks’ or ‘Loans and advances to customers’ .
US GAAP
• Repos and reverse repos transacted under agreements that give the transferee the right by contract or custom to
sell or repledge collateral give rise to the following adjustments and disclosures (SFAS 140 ‘Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities’ ):
– For repos, where the transferee has the right to sell or repledge the collateral, the transferor reports the
securities separately in the financial statements from other securities not so encumbered.
– For reverse repos, where the transferee has the right to sell or repledge the collateral, the transferee does not
recognise the pledged asset but discloses the fair value of the collateral. If the transferee sells collateral
pledged to it, the proceeds from the sale and the transferee’ s obligation to return the collateral are
recognised.
Loan origination
UK GAAP
• Fee and commission income is accounted for in the period when receivable, except when it is charged to cover
the costs of a continuing service to, or risk borne for, the customer, or is interest in nature. In these cases, it is
recognised on an appropriate basis over the relevant period.
• Loan origination costs are generally expensed as incurred. As permitted by UK GAAP, HSBC applies a
restricted definition of the incremental, directly attributable origination expenses that are deferred and
subsequently amortised over the life of the loans.
US GAAP
• Certain loan fee income and direct loan origination costs are amortised to the profit and loss account over the
life of the loan as an adjustment to interest income (SFAS 91 ‘Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases’ .)
Pension costs
UK GAAP
• Pension costs, based on actuarial assumptions and methods, are charged so as to allocate the cost of providing
benefits over the average remaining service lives of employees.
US GAAP
• SFAS 87 ‘Employers’ Accounting for Pensions’ prescribes a similar method of actuarial valuation but requires
assets to be assessed at fair value and the assessment of liabilities to be based on current settlement rates.
Certain variations from regular cost are allocated in equal amounts over the average remaining service lives of
current employees.