HSBC 2009 Annual Report Download - page 386

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 2 and 3
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options and guarantees. The PVIF asset is presented gross of attributable tax in the balance sheet and movements
in the PVIF asset are included in ‘Other operating income’ on a gross of tax basis.
Future profit participation
Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts
include provisions for the future discretionary benefits to policyholders. These provisions reflect actual
performance of the investment portfolio to date and management expectation on the future performance in
connection with the assets backing the contracts, as well as other experience factors such as mortality, lapses and
operational efficiency, where appropriate. This benefit may arise from the contractual terms, regulation, or past
distribution policy.
In the case of net unrealised investment gains on contracts whose discretionary benefits principally reflect the
actual performance of the investment portfolio, the corresponding increase in the liabilities is recognised in
either the income statement or other comprehensive income, following the treatment of the unrealised gains on
the relevant assets. In the case of net unrealised losses, a deferred participating asset is recognised only to the
extent that its recoverability is highly probable. Movements in the liabilities arising from realised gains and
losses on relevant assets are recognised in the income statement.
Investment contracts
Customer liabilities under linked and certain non-linked investment contracts and the corresponding financial
assets are designated at fair value. Movements in fair value are recognised in ‘Net income from financial
investments designated at fair value’. Premiums receivable and amounts withdrawn are accounted for as
increases or decreases in the liability recorded in respect of investment contracts.
Liabilities under linked investment contracts are at least equivalent to the surrender or transfer value which is
calculated by reference to the value of the relevant underlying funds or indices.
Investment management fees receivable are recognised in the income statement over the period of the provision
of the investment management services, in ‘Net fee income’.
The incremental costs directly related to the acquisition of new investment contracts or renewing existing
investment contracts are deferred and amortised over the period during which the investment management
services are provided.
(z) Debt securities issued and deposits by customers and banks
Financial liabilities are recognised when HSBC enters into the contractual provisions of the arrangements with
counterparties, which is generally on trade date, and initially measured at fair value, which is normally the
consideration received net of directly attributable transaction costs incurred. Subsequent measurement of
financial liabilities, other than those measured at fair value through profit or loss and financial guarantees, is at
amortised cost, using the effective interest method to amortise the difference between proceeds received, net of
directly attributable transaction costs incurred, and the redemption amount over the expected life of the
instrument.
(aa) Share capital
Shares are classified as equity when there is no contractual obligation to transfer cash or other financial assets.
Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from
the proceeds, net of tax.
HSBC Holdings plc shares held by HSBC are recognised in equity as a deduction from retained earnings until
they are cancelled. When such shares are subsequently sold, reissued or otherwise disposed of, any consideration
received is included in equity, net of any directly attributable incremental transaction costs and related income
tax effects.
(ab) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents include highly liquid investments that
are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in