HSBC 2015 Annual Report Download - page 349

Notes on the Financial Statements
1 – Basis of preparation and significant accounting policies
HSBC HOLDINGS PLC
347
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
1 Basis of preparation and significant accounting policies
(a) Compliance with International Financial Reporting Standards
International Financial Reporting Standards (‘IFRSs’) comprise accounting standards issued or adopted by the International
Accounting Standards Board (‘IASB’) and interpretations issued or adopted by the IFRS Interpretations Committee (‘IFRS IC’).
The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings have been prepared in
accordance with IFRSs as issued by the IASB and as endorsed by the European Union (‘EU’). EU-endorsed IFRSs could differ
from IFRSs as issued by the IASB if, at any point in time, new or amended IFRSs were not to be endorsed by the EU.
At 31 December 2015, there were no unendorsed standards effective for the year ended 31 December 2015 affecting these
consolidated and separate financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs
issued by the IASB in terms of their application to HSBC. Accordingly, HSBC’s financial statements for the year ended 31
December 2015 are prepared in accordance with IFRSs as issued by the IASB.
Standards adopted during the year ended 31 December 2015
There were no new standards applied during the year ended 31 December 2015.
During 2015, HSBC adopted a number of interpretations and amendments to standards which had an insignificant effect on
the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
(b) Differences between IFRSs and Hong Kong Financial Reporting Standards
There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application
to HSBC and consequently there would be no significant differences had the financial statements been prepared in accordance
with Hong Kong Financial Reporting Standards. The Notes on the Financial Statements, taken together with the Report of the
Directors, include the aggregate of all disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.
(c) Future accounting developments
In addition to completing its projects on financial instrument accounting, revenue recognition and leasing, discussed below,
the IASB is working on a project on insurance accounting which could represent significant changes to accounting
requirements in the future.
Minor amendments to IFRSs
The IASB has published a number of minor amendments to IFRSs through the Annual Improvements to IFRSs 2012–2014 cycle
and in a series of stand-alone amendments, one of which has not yet been endorsed for use in the EU. HSBC has not early
applied any of the amendments effective after 31 December 2015 and it expects they will have an insignificant effect, when
applied, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
Major new IFRSs
The IASB has published IFRS 9 ‘Financial Instruments’, IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’.
None of these IFRSs have yet been endorsed for use in the EU.
IFRS 9 ‘Financial Instruments’
In July 2014, the IASB issued IFRS 9 ‘Financial Instruments’, which is the comprehensive standard to replace IAS 39 ‘Financial
Instruments: Recognition and Measurement’, and includes requirements for classification and measurement of financial assets
and liabilities, impairment of financial assets and hedge accounting.
Classification and measurement
The classification and measurement of financial assets will depend on how these are managed (the entity’s business model)
and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at
amortised cost, fair value through other comprehensive income (‘FVOCI’) or fair value through profit or loss (‘FVPL’). In many
instances, the classification and measurement outcomes will be similar to IAS 39, although differences will arise. For example,
under IFRS 9, embedded derivatives are not separated from host financial assets and equity securities are measured at FVPL
or, in limited circumstances, fair value movements will be shown in OCI. The combined effect of the application of the business
model and the contractual cash flow characteristics tests may result in some differences in the population of financial assets
measured at amortised cost or fair value compared with IAS 39. The classification of financial liabilities is essentially unchanged.
For certain liabilities measured at fair value, gains or losses relating to changes in the entity’s own credit risk are to be included
in other comprehensive income.
HSBC conducted an assessment of potential classification and measurement changes to financial assets based on the
composition of the balance sheet as at 31 December 2014. This may not be fully representative of the impact as at 1 January
2018 because IFRS 9 requires that business models be assessed based on the facts and circumstances from the date of initial
application. In addition, the contractual terms and conditions of the financial assets assessed as at 31 December 2014 may
not reflect the contractual terms and conditions of HSBC’s financial assets at transition. However, based on the assessment