HSBC 2002 Annual Report Download - page 288

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
286
50 Differences between UK GAAP and US GAAP
The consolidated financial statements of HSBC are prepared in accordance with UK generally accepted accounting
principles (‘GAAP’ ) which differ in certain significant respects from US GAAP. The following is a summary of the
significant differences applicable to HSBC:
UK GAAP US GAAP
Leasing
Finance lease income is recognised so as to give a
constant rate of return on the net cash investment in the
lease, taking into account tax payments and receipts
associated with the lease.
Unearned income on finance leases is taken to income
at a rate calculated to give a constant rate of return on
the investment in the lease, but no account is taken of
the tax flows generated by the lease.
Leases are categorised as finance leases when the
substance of the agreement is that of a financing
transaction and the lessee assumes substantially all of
the risks and benefits relating to the asset. All other
leases are categorised as operating leases.
Leases are classified as capital leases when any of the
criteria outlined under Statement of Financial
Accounting Standards (‘SFAS’ ) 13 ‘Accounting for
Leases’ are met.
Operating leased assets are depreciated over their
useful lives such that, for each asset, rentals less
depreciation are recognised at a constant periodic rate
of return on the net cash invested in that asset. Rentals
receivable under operating leases are accounted for on
a straight-line basis over the lease term.
Operating leased assets are depreciated such that in
each period the depreciation charge is at least equal to
that which would have arisen on a straight-line basis.
Debt swaps
Assets acquired in exchange for other advances in
order to achieve an orderly realisation are reported as
advances. The assets acquired are recorded at the
carrying value of the advances disposed of at the date
of the exchange, with any provision having been duly
updated. Any subsequent deterioration in their value
will be recorded as an additional provision.
Under SFAS No. 15 ‘Accounting by Debtors and
Creditors for Troubled Debt Restructurings’ , debt
securities and equity shares acquired in exchange for
advances in order to achieve an orderly realisation are
required to be accounted for at their fair value, usually
their secondary market value, at the date of exchange.
Under SFAS 115 ‘Accounting for Certain Investments
in Debt and Equity Securities’ , certain of these debt
swaps qualify as securities and accordingly are
classified as available-for-sale.
Shareholder’s interest in the long-term assurance fund
The shareholders’ interest in the in-force life assurance
and fund pensions policies of the long-term assurance
fund are valued at the net present value of the profits
inherent in such policies. This value includes a prudent
valuation of the discounted future earnings expected to
emerge from business currently in force, taking into
account factors such as recent experience and general
economic conditions, together with the surplus retained
in the long-term assurance funds. These are determined
annually in consultation with independent actuaries and
are included in ‘Other assets’ .
The net present value of these profits is not recognised.
An adjustment is made to amortise acquisition costs
and fees in accordance with SFAS 97 ‘Accounting and
Reporting by Insurance Enterprises for Certain Long-
Duration Contracts and for Realized Gains and Losses
from the Sale of Investments’ .