HSBC 2005 Annual Report Download - page 357

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(e) Key impact analysis of adopting IAS 32, IAS 39 and IFRS 4 on the opening balance sheet as at
1 January 2005
HSBC’s consolidated balance sheet at 1 January 2005 differed from the closing balance sheet dated
31 December 2004 as the former reflected the first-time adoption of IAS 32 ‘Financial Instruments: Presentation’
(‘IAS 32’), IAS 39 ‘Financial Instruments: Recognition and Measurement’ (‘IAS 39’) and IFRS 4 ‘Insurance
Contracts’ (‘IFRS 4’).
For a summary of the principal accounting policies followed in preparing the 2004 comparative information, see
Note 2 and (g) below.
Reconciliation of previously reported shareholders’ funds under UK GAAP to total shareholders’ equity
under IFRSs at 1 January 2005
At
1 January
2005
US$m
Shareholders’ funds as previously reported under UK GAAP ................................................................................. 86,623
Non IAS 32, IAS 39 and IFRS 4 adjustments ......................................................................................................... (1,101)
Total shareholders’ equity under IFRSs excluding IAS 32, IAS 39 and IFRS 4....................................................... 85,522
IAS 32, IAS 39 and IFRS 4 adjustments
Derivatives and hedge accounting ........................................................................................................................... (59)
Investment securities ............................................................................................................................................... 2,026
Fair value option ..................................................................................................................................................... (812)
Fee income .............................................................................................................................................................. (151)
Loan impairment ..................................................................................................................................................... 138
Insurance ................................................................................................................................................................. (192)
Other ....................................................................................................................................................................... 303
Total shareholders’ equity under IFRSs .................................................................................................................. 86,775
Explanation of differences
Derivatives and hedge accounting
Under UK GAAP derivatives were classified as trading or non-trading. Trading derivatives were reported at
market value in the balance sheet, with movements in market value recognised immediately in the income
statement. Non-trading derivatives, which were transacted for hedging and risk management purposes, were
accounted for on an accruals basis, equivalent to the assets, liabilities or net positions being hedged.
IAS 39 requires that all derivatives be recognised at fair value in the balance sheet as assets or liabilities. The
accounting for changes in the fair value of a derivative depends on the intended use of the derivative and its
resulting designation, as described in Note 2(k).
The application of IAS 39 as at 1 January 2005 resulted in the recognition of additional assets of US$346 million
and additional liabilities of US$49 million relating to the fair values of derivatives at that date which were
previously accounted for on an accruals basis. In addition, the carrying values of non-derivative financial
instruments subject to fair value hedges were adjusted by US$743 million at 1 January 2005 in relation to the fair
value attributable to the hedged risks of those financial instruments. The combined impact on shareholders’
equity at 1 January 2005 was US$59 million, of which US$410 million was taken to the cash flow hedging
reserve.
Investment securities
Debt securities and equity shares intended to be held on a continuing basis under UK GAAP were disclosed as
investment securities and included in the balance sheet at cost less provision for any permanent diminution in
value. Other debt securities and equity shares held for trading purposes were included in the balance sheet at
market value.
Under IAS 39, all investment securities (debt securities and equity shares) are classified and disclosed within one
of the following three categories: ‘held-to-maturity’; ‘available-for-sale’; or ‘at fair value through profit or loss’.