HSBC 2001 Annual Report Download - page 263

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261
hsbc.com, Inc., has been engaged, in development activities to provide a global website and web hosting
services to HSBC companies. A provision of US$50 million was made in 2001 for impairment against the US
GAAP capitalised amount of development costs.
(f) Purchase accounting adjustments
Under UK GAAP, certain costs which relate to either post-acquisition management decisions or decisions made
prior to the acquisition are required to be expensed to the profit and loss account and cannot be capitalised as
goodwill.
(g) Accruals accounted derivatives
Under UK GAAP, internal derivatives used to hedge banking book transactions may be accruals accounted but,
under US GAAP, all derivatives are held at fair value. With the exception of certain subsidiaries in North
America, HSBC has not elected to satisfy the more prescriptive hedge documentation requirements of SFAS
133 in respect of derivative contracts.
At 1 January 2001 contracts which had previously qualified as fair value hedges under US GAAP were marked
to market with a corresponding revaluation of the hedged item. There was no material ineffectiveness of these
hedges and therefore no adjustment was required to US GAAP reported income. There were no significant
contracts at 1 January 2001 which had previously qualified as cash flow hedges under US GAAP.
Since 1 January 2001 further contracts which qualify as fair value hedges under SFAS 133 have been entered
into by HSBC’ s North American subsidiaries. These are used to hedge the risk associated with the risk free
component of the value of certain fixed rate investment securities. As above, since there was no material
ineffectiveness of these hedges no adjustment is required to US GAAP reported net income.
In addition, since 1 January 2001 certain contracts which qualify as cash flow hedges under SFAS 133 have
been entered into by HSBC Bank USA. These contracts are used to hedge the forecast repricing of certain
deposit liabilities. The reduction in US GAAP reported equity due to such hedges at 31 December 2001 was
US$38 million.
All other UK GAAP hedging derivatives have been marked to market for US GAAP purposes, giving rise to the
increase to US reported net income of US$280 million (2000: US$116 million).