HSBC 2002 Annual Report Download - page 292

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
290
UK GAAP US GAAP
Accruals accounted derivatives (continued)
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.
− 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.
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’ .
– 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.
Investment securities
Debt securities and equity shares intended to be held on
a continuing basis are disclosed as investment
securities and are included in the balance sheet at cost
less provision for any permanent diminution in value.
Other participating interests are accounted for on the
same basis. Where dated investment securities are
purchased at a premium or discount, these premiums
and discounts are amortised through the profit and loss
account over the period from date of purchase to date
of maturity and included in ‘interest income’ . Any
profit or loss on realisation of these securities is
recognised in the profit and loss account as it arises and
included in ‘Gains on disposal of investment
securities’ .
SSAP 20 ‘Foreign currency translation’ requires
foreign exchange differences on foreign-currency-
denominated monetary items, including securities, to
be recognised in the profit and loss account.
Other debt securities and equity shares held for trading
purposes are included in the balance sheet at market
value. Changes in the market value of such assets are
recognised in the profit and loss account as ‘Dealing
profits’ .
Under SFAS 115 ‘Accounting for Certain Investments
in Debt and Equity Securities’ all debt securities and
equity shares are classified and disclosed within one of
the following three categories: held-to-maturity;
available-for-sale; or trading.
Held-to-maturity debt securities are measured at
amortised cost.
Available-for-sale securities are measured at fair value
with unrealised holding gains and losses excluded from
earnings and reported net of applicable taxes and
minority interests in a separate component of
shareholders’ funds.
Foreign exchange gains or losses on foreign currency
denominated available-for-sale securities are also
excluded from earnings and recorded as part of the
same separate component of shareholders’ funds.
Where an available-for-sale or held-to-maturity
security experiences other-than-temporary decline in
fair value below cost this decline is treated as a realised
loss and included in earnings. This lower fair value
becomes the cost basis for the security.
Trading securities are measured at fair value with
unrealised holding gains and losses included in
earnings.