HSBC 2001 Annual Report Download - page 252

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
250
UK GAAP US GAAP
Interest rate swaps are also used to alter synthetically
the interest rate characteristics of financial instruments.
In order to qualify for synthetic alteration, a derivative
instrument must be linked to specific individual, or
pools of similar, assets or liabilities by the notional
principal and interest rate risks of the associated
instruments, and must achieve a result that is consistent
with defined risk management objectives. If these
criteria are met, accrual based accounting is applied,
i.e. income or expense is recognised and accrued to the
next settlement date in accordance with the contractual
terms of the agreement.
– For net investment hedges, in which derivatives
hedge the foreign currency exposure of a net
investment in a foreign operation, the change in
fair value of the derivative associated with the
effective portion of the hedge is included as a
component of other comprehensive income,
together with the associated loss or gain on the
hedged item. The ineffective portion is reported in
earnings immediately.
For a derivative not designated as a hedging
instrument, the gain or loss is recognised in
earnings in the period of change in fair value.
Any gain or loss arising on the termination of a
qualifying derivative is deferred and amortised to
earnings over the original life of the terminated
contract. Where the underlying asset, liability or
position is sold or terminated, the qualifying derivative
is immediately marked-to-market through the profit
and loss account.
Derivatives that do not qualify as hedges or synthetic
alterations at inception are marked-to-market through
the profit and loss account, with gains and losses
included within ‘Dealing profits’ .
The effect of adoption of SFAS 133 is treated as a
change in accounting principles.
Own shares held
UK GAAP allows for the inclusion of own shares held
within equity shares.
AICPA Accounting Research Bulletin 51
‘Consolidated Financial Statements’ requires a
reduction in shareholders’ equity for own shares held.
Dividends payable
Dividends declared after the period end are recorded in
the period to which they relate.
Dividends are recorded in the period in which they are
declared.