HSBC 2005 Annual Report Download - page 386

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
384
• Foreign exchange differences on available-for-sale securities denominated in foreign currency are recognised in
‘Net income’ under IFRSs. Under US GAAP, they are not reflected in net income but are deferred and
recognised on maturity or sale of the security.
• Subsequent recoveries in the value of an impaired debt security are not reported in net income for US GAAP
purposes.
Interests in own shares held
IFRSs
• In accordance with IAS 32, long positions in HSBC Holdings’ shares are deducted from shareholders’ funds. No
gains or losses are recognised on own shares held.
• IAS 32 also applies to derivatives over HSBC’s own shares, when they meet the definition of an equity
instrument, and HSBC shares held to meet liabilities under insurance and investment contracts.
US GAAP
• AICPA Accounting Research Bulletin 51, ‘Consolidated Financial Statements’ (‘ARB 1’), requires a reduction
in shareholders’ equity for own shares held. The rules in ARB 51 do not extend to derivatives over own shares.
• AICPA Accounting Research Bulletin 43 ‘Restatement and Revision of Accounting Research Bulletins’ also
requires a reduction in shareholders’ equity for own shares held. HSBC shares held within ‘Long-term assurance
assets attributable to policyholders’ are classified as an asset when the criteria for classification as ‘separate
accounts’ are met.
Impact
• Certain HSBC insurance operations hold shares in HSBC as part of policyholder funds that qualify for
classification as ‘separate accounts’. These shares represent an addition to shareholders’ equity for US GAAP
purposes and are reported within ‘Other assets’ with gains and losses during the period reported in ‘Other
income’, where they are matched with corresponding movements in the amounts attributable to policyholders.
No such gains and losses are recognised under IFRSs and the cost of the shares is deducted from shareholders’
equity.
Loan origination
IFRSs
From 1 January 2005
• Certain loan fee income and incremental directly attributable loan origination costs are amortised to the income
statement over the life of the loan as part of the effective interest calculation under IAS 39.
1 January 2004 to 31 December 2004
• Prior to 1 January 2005, fee and commission income was accounted for in the period when receivable, except
when charged to cover the costs of a continuing service to, or risk borne for, the customer, or was interest in
nature. In these cases, income was recognised on an appropriate basis over the relevant period. Loan costs
associated with origination were generally expensed as incurred.
US GAAP
• Certain loan fee income and direct but not necessarily incremental loan origination costs, including an
apportionment of overheads, are amortised to the income statement account over the life of the loan as an
adjustment to interest income (SFAS 91, ‘Accounting for Non-refundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases’.)
Impact
• More costs are deferred and amortised under US GAAP, such as an apportionment of base salaries, than under
IFRSs. Base salaries are neither incremental nor directly attributable to a specific loan origination, and so are
written off in the period they are incurred under IFRSs. This difference in treatment results in increased net