HSBC 2003 Annual Report Download - page 336

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
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• A modified version of FIN 46 (‘FIN 46R’ ) addresses certain implementation issues that arose under FIN 46 and
changes some of the criteria used to determine whether HSBC is the primary beneficiary of an entity. HSBC has
applied FIN 46R to its assessment of certain entities where the impact of the modifications in FIN 46R is
known. HSBC is still assessing the impact of FIN 46R on other entities, and will adopt FIN 46R in 2004 for all
interests in VIEs for accounting periods ending after 15 March 2004.
• A VIE is an entity in which equity investors do not hold an investment with the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to finance its activities. HSBC is the
primary beneficiary of a VIE if its variable interests absorb a majority of the entity’ s expected losses. Variable
interests are contractual, ownership or other pecuniary interests in an entity that change with changes in the fair
value of an entity’ s net assets exclusive of variable interests. If no party absorbs a majority of the entity’ s
expected losses, HSBC consolidates the VIE if it receives a majority of the expected residual returns of the
entity.
• Under the transitional provisions of FIN 46R, HSBC is only required to consolidate VIEs where it is the primary
beneficiary if HSBC’ s involvement in the VIE was created or acquired after 31 January 2003 and it had
previously applied FIN 46 to those entities. For VIEs created or acquired before this date, disclosure that HSBC
is the primary beneficiary is sufficient. HSBC will be required to consolidate all VIEs where it is the primary
beneficiary from 1 January 2004.
Restructuring provisions
UK GAAP
• In accordance with FRS 12 ‘Provisions, contingent liabilities and contingent assets’ , provisions are made for
any direct costs and net future operating losses arising from a business that management is committed to
restructure, sell or terminate, has a detailed formal plan to exit, and has raised a valid expectation of carrying out
that plan.
US GAAP
• SFAS 146 ‘Accounting for Costs Associated with Exit or Disposal Activities’ , requires that the fair value of a
liability for a cost associated with an exit or disposal activity be recognised when the liability is incurred.
Accordingly, provisions are recognised upon the implementation of the restructuring plan.
Acceptances
UK GAAP
• Acceptances outstanding are not included in the consolidated balance sheet.
US GAAP
• Acceptances outstanding and matching customer liabilities are included in the consolidated balance sheet.
Profit and loss presentation
UK GAAP
• The following items are separately disclosed in the profit and loss account:
– Provisions for contingent liabilities and commitments.
– Amounts written off fixed asset investments.
– Gains on disposal of investments and tangible fixed assets.