HSBC 2001 Annual Report Download - page 248
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HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
246
UK GAAP US GAAP
This value includes a prudent valuation of the
discounted future earnings expected to emerge from
business currently in force, taking into account factors
such as recent experience and general economic
conditions, together with the surplus retained in the
long-term assurance funds. These are determined
annually in consultation with independent actuaries and
are included in ‘Other assets’ .
Pension costs
Pension costs, based on actuarial assumptions and
methods, are charged so as to allocate the cost of
providing benefits over the average remaining service
lives of employees.
SFAS 87 ‘Employers’ Accounting for Pensions’
prescribes a similar method of actuarial valuation but
requires assets to be assessed at fair value and the
assessment of liabilities to be based on current
settlement rates. Certain variations from regular cost
are allocated in equal amounts over the average
remaining service lives of current employees.
Share compensation schemes
For executive share option schemes, such options are
granted at fair value and no compensation costs are
recognised under the ‘intrinsic value method’ .
For Save-As-You-Earn schemes, employees are
granted shares at a 20 per cent (15 per cent until 31
December 2000) discount to fair value at the date of
grant. No compensation cost is recognised for such
awards.
SFAS 123 ‘Accounting for Stock Based
Compensation’ encourages a fair value based method
of accounting for stock-based compensation plans.
Under the fair value method, compensation cost is
measured at date of grant based on the value of the
award and its recognised over the service period, which
is usually the vesting period.
For longer term and other restricted share award
schemes, the fair value of the shares awarded is
charged to compensation cost over the period in respect
of which performance conditions apply. To the extent
the award is adjusted by virtue of performance
conditions being met or not, the compensation cost is
adjusted in line with this.