HSBC 2002 Annual Report Download - page 203

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For UK defined benefit schemes annual contributions are made, on the advice of qualified actuaries, for funding
of retirement benefits in order to build up reserves for each scheme member during the employee’ s working life
and used to pay a pension to the employee or dependant after retirement. The costs of providing these benefits
are charged to the profit and loss account on a regular basis.
Arrangements for staff retirement benefits in overseas locations vary from country to country and are made in
accordance with local regulations and custom. The pension cost of the major overseas schemes is assessed in
accordance with the advice of qualified actuaries so as to recognise the cost of pensions on a systematic basis
over employees’ service lives.
Since 1 January 1993, the cost of providing post-retirement health-care benefits, which is assessed in
accordance with the advice of qualified actuaries, has been recognised on a systematic basis over employees'
service lives. At 1 January 1993, there was an accumulated obligation in respect of these benefits relating to
current and retired employees which is being charged to the profit and loss account in equal instalments over 20
years.
(i) Foreign currencies
(i) Assets and liabilities denominated in foreign currencies are translated into US dollars at the rates of
exchange ruling at the year-end. The results of branches, subsidiary undertakings, joint ventures and
associates not reporting in US dollars are translated into US dollars at the average rates of exchange for the
year. Further information on the translation of assets and liabilities in Argentina is set out in Note 6.
(ii) Exchange differences arising from the retranslation of opening foreign currency net investments and the
related cost of hedging and exchange differences arising from retranslation of the result for the year from
the average rate to the exchange rate ruling at the year-end are accounted for in reserves.
(iii) Other exchange differences are recognised in the profit and loss account.
(j) Off-balance-sheet financial instruments
Off-balance-sheet financial instruments comprise futures, forward, swap and option transactions undertaken by
HSBC in the foreign exchange, interest rate, equity and credit derivative markets. Netting is applied where a
legal right of set-off exists. Mark-to-market assets and liabilities are presented gross, with netting shown
separately.
Accounting for these instruments is dependent upon whether the transactions are undertaken for trading or non-
trading purposes.
Trading transactions
Trading transactions include transactions undertaken for market-making, to service customers’ needs and for
proprietary purposes, as well as any related hedges.
Transactions undertaken for trading purposes are marked-to-market and the net present value of any gain or loss
arising is recognised in the profit and loss account as ‘Dealing profits’ , after appropriate deferrals for unearned
credit margin and future servicing costs. Off-balance-sheet trading transactions are valued by reference to an
independent liquid price where this is available. For those transactions where there are no readily quoted prices,
which predominantly relates to over the counter transactions, market values are determined by reference to
independently sourced rates, using valuation models. Adjustments are made for illiquid positions where
appropriate.
Assets, including gains, resulting from off-balance-sheet exchange rate, interest rate, equities and credit
derivative contracts which are marked-to-market are included in ‘Other assets’ . Liabilities, including losses,
resulting from such contracts, are included in ‘Other liabilities’ .