HSBC 2015 Annual Report Download - page 354

Notes on the Financial Statements (continued)
1 – Basis of preparation and significant accounting policies
HSBC HOLDINGS PLC
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more efficient. For smaller portfolios where less information is available, simplified approaches will be applied which will result
in more aggregated transfers between stages and ECL calculation. Such aggregation will affect the granularity of disclosure.
A new global committee, supported by Global Risk Strategy, internal economics experts and external economic forecasting
services, will be established to consider and approve the forward-looking macroeconomic assumptions that should be applied,
with the objective of developing unbiased internally coherent economic scenarios for each jurisdiction. This committee will
also be charged with ensuring that ECL allowance meets the IFRS 9 measurement principle for unbiased and probability-
weighted amounts derived by evaluating a range of possible outcomes. The calculation methodologies to meet this principle
and review and challenge structures are in the process of being developed. In addition, local risk committees will review and
challenge the impairment allowances recognised in the individual legal entity’s financial statements.
Fair value through other comprehensive income
For financial assets measured at FVOCI, impairment determined in accordance with the policies and processes outlined above
is recognised in profit or loss. The financial assets are recognised on the balance sheet at fair value so the amortised cost
impairment allowance balance is disclosed as a memorandum item.
IFRS 15 ‘Revenue from Contracts with Customers’
In May 2014, the IASB issued IFRS 15 ‘Revenue from Contracts with Customers’. The original effective date of IFRS 15 has been
delayed by one year and the standard is now effective for annual periods beginning on or after 1 January 2018 with early
application permitted. IFRS 15 provides a principles-based approach for revenue recognition, and introduces the concept of
recognising revenue for obligations as they are satisfied. The standard should be applied retrospectively, with certain practical
expedients available. HSBC has assessed the impact of IFRS 15 and it expects that the standard will have no significant effect,
when applied, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.
IFRS 16 ‘Leases’
In January 2016, the IASB issued IFRS 16 ‘Leases’ with an effective date of annual periods beginning on or after 1 January 2019.
IFRS 16 results in lessees accounting for most leases within the scope of the standard in a manner similar to the way in
which finance leases are currently accounted for under IAS 17 ‘Leases’. Lessees will recognise a ‘right of use’ asset and a
corresponding financial liability on the balance sheet. The asset will be amortised over the length of the lease and the financial
liability measured at amortised cost. Lessor accounting remains substantially the same as in IAS 17. HSBC is currently assessing
the impact of IFRS 16 and it is not practicable to quantify the effect as at the date of the publication of these financial
statements.
(d) Presentation of information
Disclosures under IFRS 4 ‘Insurance Contracts’ and IFRS 7 ‘Financial Instruments: Disclosures’ concerning the nature and extent
of risks relating to insurance contracts and financial instruments are included in the audited sections of the ‘Report of the
Directors: Risk’ on pages 101 to 226.
Capital disclosures under IAS 1 ‘Presentation of Financial Statements’ are included in the audited sections of ‘Report of
the Directors: Capital’ on pages 227 to 248.
Disclosures relating to HSBC’s securitisation activities and structured products are included in the audited section of ‘Report
of the Directors: Risk’ on pages 101 to 226.
In accordance with HSBC’s policy to provide 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 provides additional disclosures having regard to the recommendations of
the Enhanced Disclosures Task Force report ‘Enhancing the Risk Disclosures of Banks’ issued in October 2012 and ‘Impact of
Expected Credit Loss Approaches on Bank Risk Disclosures’ issued in December 2015. The report aims to help financial
institutions identify areas that investors had highlighted as needing better and more transparent information about banks’
risks, and how these risks relate to performance measurement and reporting. In addition, HSBC follows the British Bankers’
Association Code for Financial Reporting Disclosure (‘the BBA Code’). The BBA Code aims to increase the quality and
comparability of UK 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 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.
HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the
major currency bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency
because the US dollar and currencies linked to it are the most significant currencies relevant to the underlying transactions,