HSBC 2015 Annual Report Download - page 355

HSBC HOLDINGS PLC
353
Strategic Report Financial Review Corporate Governance Financial Statements Shareholder Information
events and conditions of its subsidiaries, as well as representing a significant proportion of its funds generated from financing
activities.
(e) Critical accounting estimates and judgements
The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the
inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of items listed below, it is
possible that the outcomes in the next financial year could differ from those on which management’s estimates are based,
resulting in materially different conclusions from those reached by management for the purposes of the 2015 Financial
Statements. Management’s selection of HSBC’s accounting policies which contain critical estimates and judgements is listed
below; it reflects the materiality of the items to which the policies are applied and the high degree of judgement and
estimation uncertainty involved:
• Impairment of loans and advances: Note 1(j);
• Deferred tax assets: Note 8;
• Valuation of financial instruments: Note 13;
• Impairment of interests in associates: Note 19;
• Goodwill impairment: Note 20;
• Provisions: Note 29.
(f) Going concern
The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent
company have the resources to continue in business for the foreseeable future. In making this assessment, the Directors have
considered a wide range of information relating to present and future conditions, including future projections of profitability,
cash flows and capital resources.
(g) Consolidation and related disclosures
HSBC controls and consequently consolidates an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. Control is initially
assessed based on consideration of all facts and circumstances, and is subsequently reassessed when there are significant
changes to the initial setup.
Where an entity is governed by voting rights, HSBC would consolidate when it holds, directly or indirectly, the necessary voting
rights to pass resolutions by the governing body. In all other cases, the assessment of control is more complex and requires
judgement of other factors, including having exposure to variability of returns, power over relevant activities or holding the
power as agent or principal.
Business combinations are accounted for using the acquisition method. 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 generally 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 net assets. For acquisitions achieved in stages, the previously held equity
interest is remeasured at the acquisition-date fair value with the resulting gain or loss recognised in the income statement.
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, based on either financial statements made up to 31 December or pro-rated amounts adjusted for any material
transactions or events occurring between the date of financial statements available and 31 December.
(h) Foreign currencies
Transactions in foreign currencies are recorded in the functional currency at the rate of exchange prevailing on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at
the rate of exchange at the balance sheet date. Any resulting exchange differences are included in the income statement.
Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated into the functional
currency using the rate of exchange at the date of the initial transaction. Non-monetary assets and liabilities measured at fair
value in a foreign currency are translated into the functional currency using the rate of exchange at the date the fair value
was determined. Any foreign exchange component of a gain or loss on a non-monetary item is recognised either in other
comprehensive income or in the income statement depending on where the gain or loss on the underlying non-monetary item
is recognised.