HSBC 2015 Annual Report Download - page 66

Report of the Directors: Financial summary / Global businesses
Reconciliation of RoRWA / Critical estimates and judgements / Summary
HSBC HOLDINGS PLC
64
Reconciliation of RoRWA
measures
Performance Management
During 2015, we targeted a return on average ordinary
shareholders’ equity of 10%. For internal management purposes
we monitor global businesses and geographical regions by pre-
tax return on average risk-weighted assets. This metric is
calibrated against return on equity (‘RoE’) and capital
requirements to ensure that we are best placed to achieve
capital strength and business profitability combined with
regulatory capital efficiency objectives. We targeted a return on
average RWAs of 2.3% in 2015.
In addition to the return on average risk-weighted assets
(‘RoRWA’) we measure our performance internally using
the non-GAAP measure of adjusted RoRWA, which is
adjusted profit before tax as a percentage of average risk-
weighted assets adjusted for the effects of foreign currency
translation differences and significant items. Excluded from
adjusted RoRWA are certain items which distort year-on-
year performance as explained on page 48.
We also present the non-GAAP measure of adjusted
RoRWA excluding run-off portfolios.
Reconciliation of adjusted RoRWA (excluding run-off portfolios)
2015 2014
Pre-tax
return
Average
RWAs25 RoRWA24
Pre-tax
return
Average
RWAs25 RoRWA24
$m $bn %$m $bn %
Reported 18,867 1,174 1.6 18,680 1,209 1.5
Adjusted 20,418 1,171 1.7 21,976 1,150 1.9
Run-off portfolios 447 84 0.5 847 115 0.7
Legacy credit in GB&M (5) 35
–
149 48 0.3
US CML and other26 452 49 0.9 698 67 1.0
Adjusted (excluding run-off portfolios) 19,971 1,087 1.8 21,129 1,035 2.0
Reconciliation of reported and adjusted average risk-weighted assets
Year ended 31 December
2015 2014 Change
$bn $bn %
Average reported RWAs25 1,174 1,209 (2.9)
Currency translation adjustment27
–
(50)
Significant items (3) (9)
Average adjusted RWAs25 1,171 1,150 1.8
For footnotes, see page 99.
Critical accounting
estimates and judgements
The results of HSBC reflect the choice of accounting
policies, assumptions and estimates that underlie the
preparation of HSBC’s consolidated financial statements.
The significant accounting policies, including the policies
which include critical accounting estimates and judgements,
are described in Note 1 and in the individual Notes on the
Financial Statements. The accounting policies listed below
are highlighted as they involve a high degree of judgement
and estimation uncertainty and have a material impact on
the financial statements:
• Impairment of loans and advances: Note 1(j) on
page 354;
• Deferred tax assets: Note 8 on page 370;
• Valuation of financial instruments: Note 13 on page 378;
• Impairment of interests in associates: Note 19 on
page 402;
• Goodwill impairment: Note 20 on page 406; and
• Provisions: Note 29 on page 421.
In view of the inherent uncertainties and the high level of
subjectivity involved in the recognition or measurement
of the items above, it is possible that the outcomes in
the next financial year could differ from those on which
management’s estimates are based, resulting in the
recognition and measurement of materially different
amounts from those estimated by management in the
2015 Financial Statements.