HSBC 2012 Annual Report Download - page 387

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Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
immediately in the income statement.
Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are treated as
transactions between equity holders and are reported in equity.
Entities that are controlled by HSBC are consolidated until the date that control ceases.
In the context of Special Purpose Entities (‘SPE’s), the following circumstances may indicate a relationship in
which, in substance, HSBC controls and consequently consolidates an SPE:
• the activities of the SPE are being conducted on behalf of HSBC according to its specific business needs so
that HSBC obtains benefits from the SPE’s operation;
• HSBC has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or,
by setting up an ‘autopilot’ mechanism, HSBC has delegated these decision-making powers;
• HSBC has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks
incidental to the activities of the SPE; or
• HSBC retains the majority of the residual or ownership risks related to the SPE or its assets in order to
obtain benefits from its activities.
HSBC performs a re-assessment of consolidation whenever there is a change in the substance of the relationship
between HSBC and an SPE.
All intra-HSBC transactions are eliminated on consolidation.
The consolidated financial statements of HSBC also include the attributable share of the results and reserves
of joint ventures and associates. These are based on financial statements made up to 31 December, with the
exception of BoCom, Ping An and Industrial Bank which are included on the basis of financial statements
made up for the twelve months to 30 September. These are equity accounted three months in arrears in order
to meet the requirements of the Group’s reporting timetable. HSBC takes into account the effect of significant
transactions or events that occur between the period from 1 October to 31 December that would have a material
effect on its results. As discussed further in Note 26, HSBC announced disposal of its entire shareholding in Ping
An. As a result of the disposal of the first tranche of shares on 7 December 2012, HSBC no longer had
significant influence over Ping An at 31 December 2012 and ceased to account for it as an associate.
(f) Future accounting developments
At 31 December 2012, a number of standards and amendments to standards had been issued by the IASB which
are not effective for these consolidated financial statements. In addition to the projects to complete financial
instrument accounting, the IASB is continuing to work on projects on insurance, revenue recognition and lease
accounting which, together with the standards described below, could represent significant changes to
accounting requirements in the future.
Amendments issued by the IASB
Standards applicable in 2013
In May 2011, the IASB issued IFRS 10 ‘Consolidated Financial Statements,’ IFRS 11 ‘Joint Arrangements’ and
IFRS 12 ‘Disclosure of Interests in Other Entities.’ In June 2012, the IASB issued amendments to IFRS 10, IFRS
11 and IFRS 12 ‘Transition Guidance’. The standards and amendments are effective for annual periods
beginning on or after 1 January 2013 with early adoption permitted. IFRSs 10 and 11 are required to be applied
retrospectively.
Under IFRS 10, there is one approach for determining consolidation for all entities, based on the concept
of power, variability of returns and their linkage. This replaced the approach which applies to these financial
statements which emphasises legal control or exposure to risks and rewards, depending on the nature of the
entity. IFRS 11 places more focus on the investors’ rights and obligations than on the structure of the
arrangement, and introduces the concept of a joint operation. IFRS 12 is a comprehensive standard on disclosure
requirements for all forms of interests in other entities, including for unconsolidated structured entities.
We do not expect the overall effect of IFRS 10 and IFRS 11 on the financial statements to be material.