HSBC 2010 Annual Report Download - page 253

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Overview Operating & Financial Review Governance Financial Statements Shareholder Information
Disclosures relating to HSBC’s securitisation activities and structured products have been included in the audited
section of ‘Report of the Directors: Risk’ on pages 86 to 176.
In accordance with HSBC’s policy to provide meaningful disclosures that help investors and other stakeholders
understand the Group’s performance, financial position and changes thereto, the information provided in the
Notes on the Financial Statements and the Report of the Directors goes beyond the minimum levels required by
accounting standards, statutory and regulatory requirements and listing rules. In particular, HSBC has adopted
the British Bankers’ Association Code for Financial Reporting Disclosure (‘the BBA Code’). The BBA Code
aims to increase the quality and comparability of banks’ disclosures and sets out five disclosure principles
together with supporting guidance. In line with the principles of the BBA Code, HSBC assesses good practice
recommendations issued from time to time by relevant regulators and standard setters and will assess the
applicability and relevance of such guidance, enhancing disclosures where appropriate.
In publishing the parent company financial statements here together with the Group financial statements, HSBC
Holdings has taken advantage of the exemption in section 408(3) of the Companies Act 2006 not to present its
individual income statement and related notes that form a part of these financial statements.
HSBC’s consolidated financial statements are presented in US dollars which is also HSBC Holdings’ functional
currency. HSBC Holdings’ functional currency is the US dollar because the US dollar and currencies linked to
it are the most significant currencies relevant to the underlying transactions, events and conditions of its
subsidiaries, as well as representing a significant proportion of its funds generated from financing activities.
HSBC uses the US dollar as its presentation currency in its consolidated financial statements because the US
dollar and currencies linked to it form the major currency bloc in which HSBC transacts and funds its business.
(d) Comparative information
As required by US public company reporting requirements, these consolidated financial statements include
two years of comparative information for the consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of cash flows, consolidated statement of changes in equity
and related Notes on the Financial Statements.
(e) Use of estimates and assumptions
The preparation of financial information requires the use of estimates and assumptions about future conditions.
The use of available information and the application of judgement are inherent in the formation of estimates;
actual results in the future may differ from estimates upon which financial information is prepared. Management
believes that HSBC’s critical accounting policies where judgement is necessarily applied are those which relate
to impairment of loans and advances, goodwill impairment, the valuation of financial instruments, the
impairment of available-for-sale financial assets and deferred tax assets (see ‘Critical Accounting Policies’
on pages 33 to 36, which form an integral part of these financial statements).
Further information about key assumptions concerning the future, and other key sources of estimation
uncertainty, are set out in the Notes on the Financial Statements.
(f) Consolidation
The consolidated financial statements of HSBC comprise the financial statements of HSBC Holdings and its
subsidiaries made up to 31 December, with the exception of the banking and insurance subsidiaries of HSBC
Bank Argentina, whose financial statements are made up to 30 June annually to comply with local regulations.
Accordingly, HSBC uses their audited interim financial statements, drawn up to 31 December annually.
Subsidiaries are consolidated from the date that HSBC gains control. The acquisition method of accounting is
used when subsidiaries are acquired by HSBC. The cost of an acquisition is measured at the fair value of the
consideration, including contingent consideration, given at the date of exchange. Acquisition-related costs are
recognised as an expense in the income statement in the period in which they are incurred. The acquired
identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of acquisition.
Goodwill is measured as the excess of the aggregate of the consideration transferred, the amount of non-
controlling interest and the fair value of HSBC’s previously held equity interest, if any, over the net of the
amounts of the identifiable assets acquired and the liabilities assumed. The amount of non-controlling interest is
measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable