HSBC 2003 Annual Report Download - page 342

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
340
No goodwill on the acquisition of Household was deductible for tax purposes.
UK GAAP US GAAP
US$m US$m
Amount of goodwill by reportable geographic customer group
North America
–Commercial banking ........................................................................................................... 59 56
–Consumer finance ...............................................................................................................9,382 6,077
Europe
–Consumer finance ...............................................................................................................567 484
Total amount of goodwill ........................................................................................................ 10,008 6,617
(b) Shareholders’ interest in long-term assurance fund
Under UK GAAP, the value of the shareholders’ interest in the in-force life assurance and fund pensions
policies of the long-term assurance fund are valued at the net present value of the profits inherent in such
policies. The net present value of such profits is not recognised under US GAAP.
US GAAP requires the application of different accounting treatments in a number of areas of accounting for the
long-term assurance fund. In particular, the definition and amortisation of deferred acquisition costs and the
methodology for determining actuarial reserves vary between US and UK GAAP.
Net pre-tax income under US GAAP would have been US$394 million lower than under UK GAAP, as a result
of differences in accounting for the shareholder’ s interest in the log term assurance fund. The reduction in
income is greater than in previous years, because of an increase in the net present value of in force policies in
the UK, due in part to a reduction in the risk discount rate, new business in Hong Kong (profits on new business
are recognised sooner under UK GAAP) and certain refinements to the models underlying the US GAAP
calculation.
(c) Pension and post-retirement costs
Pensions
For the purpose of the above reconciliations, the provisions of SFAS 87 ‘Employers’ Accounting for Pensions’
have been applied to HSBC’s main pension plans, which make up approximately 95 per cent of all HSBC’ s
schemes by plan assets. For non-US schemes, HSBC has applied SFAS 87 ‘Employers’ Accounting for
Pensions’ with effect from 30 June 1992 as it was not feasible to apply it as at 1 January 1989, the date specified
in the standard.
The projected benefit obligation in excess of plan assets at 30 June 1992 for the HSBC Bank (UK) Pension
Scheme has been recognised as a liability under the purchase accounting requirements of APB 16 ‘Business
Combinations’ . For other pension plans, the excess of the projected benefit obligation over plan assets at 30
June 1992 is recognised as a charge to pension expense over 15 years.
The projected benefit obligation in excess of plan assets at 28 July 2000 for CCF was recognised as a liability
under the purchase accounting adjustments of APB 16 ‘Business combinations’ .
When the accumulated benefit obligation on a pension plan (the value of the benefits accrued based on
employee service up to the balance sheet date) exceeds the fair value of plan assets, the employer recognises an
additional minimum pension liability equal to this excess, so long as the excess is greater than any accrual
which has already been established for unfunded pension costs. At the same time, an intangible asset is
established equal to the lower of the liability recognised for the unfunded benefit obligation or the amount of
any unrecognised prior service cost.
At 31 December 2003, HSBC recognised an additional minimum pension liability of US$2,789 million (2002:
US$1,175 million) in respect of its unfunded accumulated benefit obligations. This liability is partially offset by
an intangible asset of US$14 million. (2002: US$16 million). The net impact of these items, after taking account