HSBC 2011 Annual Report Download - page 295

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
The consolidated financial statements of HSBC also include the attributable share of the results and reserves
of joint ventures and associates. These are based on financial statements made up to 31 December, with the
exception of BoCom, Ping An and Industrial Bank which are included on the basis of financial statements made
up for the twelve months to 30 September. These are equity accounted three months in arrears in order to meet
the requirements of the Group’s reporting timetable. HSBC has taken into account the effect of significant
transactions or events that occur between the period from 1 October to 31 December that would have a material
effect on its results.
(f) Future accounting developments
At 31 December 2011, a number of standards and amendments to standards had been issued by the IASB, which
are not effective for HSBC’s consolidated financial statements or the separate financial statements of HSBC
Holdings as at 31 December 2011. These new requirements have not yet been endorsed for use in the EU. In
addition to the projects to complete financial instrument accounting, the IASB is continuing to work on projects
on insurance, revenue recognition and lease accounting, which together with the standards described below, will
represent widespread and significant changes to accounting requirements from 2013.
Standards and amendments issued by the IASB but not endorsed by the EU
Standards applicable in 2013
In May 2011, the IASB issued IFRS 10 ‘Consolidated Financial Statements’ (‘IFRS 10’), IFRS 11 ‘Joint
Arrangements’ (‘IFRS 11’) and IFRS 12 ‘Disclosure of Interests in Other Entities’ (‘IFRS 12’). The standards
are effective for annual periods beginning on or after 1 January 2013 with early adoption permitted. IFRSs 10
and 11 are required to be applied retrospectively.
Under IFRS 10, there will be one approach for determining consolidation for all entities, based on the concept
of power, variability of returns and their linkage. This will replace the current approach which emphasises legal
control or exposure to risks and rewards, depending on the nature of the entity. IFRS 11 places more focus on
the investors’ rights and obligations than on structure of the arrangement, and introduces the concept of a joint
operation. IFRS 12 includes the disclosure requirements for subsidiaries, joint arrangements and associates and
introduces new requirements for unconsolidated structured entities.
Based on our initial assessment, we do not expect IFRS 11 to have a material effect on HSBC’s financial
statements. HSBC is currently assessing the impact of IFRS 10 and it is not practicable to quantify the effect as
at the date of the publication of these financial statements.
In May 2011, the IASB also issued IFRS 13 ‘Fair Value Measurement’ (‘IFRS 13’). This standard is effective
for annual periods beginning on or after 1 January 2013 with early adoption permitted. IFRS 13 is required to
be applied prospectively from the beginning of the first annual period in which it is applied. The disclosure
requirements of IFRS 13 do not require comparative information to be provided for periods prior to initial
application.
IFRS 13 establishes a single source of guidance for all fair value measurements required or permitted by IFRSs.
The standard clarifies the definition of fair value as an exit price, which is defined as a price at which an orderly
transaction to sell the asset or to transfer the liability would take place between market participants at the
measurement date under current market conditions, and enhances disclosures about fair value measurement.
HSBC is currently assessing IFRS 13 and it is not practicable to quantify the effect as at the date of the
publication of these financial statements, which will depend on final interpretations of the standard, market
conditions and HSBC’s holdings of financial instruments at 1 January 2013. However, based on the analysis
performed to date, the most significant potential effect from applying IFRS 13 is considered to be on the
methodologies for the calculation of credit valuation adjustments in valuing certain financial instruments. See
Note 16 for further information on credit valuation adjustment methodologies.
In June 2011, the IASB issued amendments to IAS 19 ‘Employee Benefits’ (‘IAS 19 revised’). The revised
standard is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted.
IAS 19 revised is required to be applied retrospectively.
The most significant amendment for HSBC is the replacement of interest cost and expected return on plan assets
by a finance cost component comprising the net interest on the net defined benefit liability or asset. This finance