HSBC 2004 Annual Report Download - page 325

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general account assets, i.e. consistent with other HSBC holdings of similar assets. Any related liability should be
accounted for as a general account liability.
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.
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, because an employee ceases to be employed by HSBC before their entitlement to the
options vest, any costs previously recognised relating to lapsed options are written back. From 2004, estimates of
such future employee departures are taken into account when accruing the cost during the service period and
revised and trued-up over this period.
• Where the number of option awards that vest is contingent on HSBC meeting certain performance targets of
Total Shareholder Return, this uncertainty is factored into the calculation of the fair value of the award at grant
date.
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
• AICPA SOP 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
reserves to be reinstated, but does not require it. In common with many other UK companies, HSBC elected not
to reinstate such goodwill on the grounds that it would not materially assist the understanding of readers of its
accounts who were already familiar with UK GAAP.