HSBC 2002 Annual Report Download - page 289

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UK GAAP US GAAP
Pension costs
Pension costs, based on actuarial assumptions and
methods, are charged so as to allocate the cost of
providing benefits over the average remaining service
lives of employees.
SFAS 87 ‘Employers’ Accounting for Pensions’
prescribes a similar method of actuarial valuation but
requires assets to be assessed at fair value and the
assessment of liabilities to be based on current
settlement rates. Certain variations from regular cost
are allocated in equal amounts over the average
remaining service lives of current employees.
Stock-based compensation
For executive share option schemes, such options are
granted at fair value and no compensation costs are
recognised under the ‘intrinsic value method’ .
For Save-As-You-Earn schemes, employees are
granted shares at a 20 per cent discount to fair value at
the date of grant. No compensation cost is recognised
for such awards.
SFAS 123 ‘Accounting for Stock Based
Compensation’ encourages a fair value based method
of accounting for stock-based compensation plans.
Under the fair value method, compensation cost is
measured at date of grant based on the value of the
award and its recognised over the service period, which
is usually the vesting period. Where options lapse
before their costs have been fully recognised, any costs
previously recognised relating to lapsed options are
written back.
For longer term and other restricted share award
schemes, the fair value of the shares awarded is
charged to compensation cost over the period in respect
of which performance conditions apply. To the extent
the award is adjusted by virtue of performance
conditions being met or not, the compensation cost is
adjusted in line with this.
Goodwill
For acquisitions prior to 1998, goodwill arising on the
acquisition of subsidiary undertakings, associates or
joint ventures was charged against reserves in the year
of acquisition.
Goodwill acquired up to 30 June 2001was capitalised
and amortised over its estimated useful life but not
more than 25 years. Goodwill acquired after 30 June
2001 is not amortised. Previously acquired goodwill
ceased to be amortised from 31 December 2001.
For acquisitions made on or after 1 January 1998,
goodwill is included in the balance sheet and amortised
over its estimated useful life on a straight-line basis.
UK GAAP allows goodwill previously eliminated
against reserves to be reinstated, but does not require it.
In common with many other UK companies, HSBC
elected not to reinstate such goodwill. HSBC
considered whether reinstatement would materially
assist the understanding of readers of its accounts who
were already familiar with UK GAAP and decided that
it would not.
SFAS 142 ‘Goodwill and Other Intangible Assets’
requires that goodwill should not be amortised but
should be tested for impairment at least annually at the
reporting unit level by applying a fair-value-based test.