HSBC 2007 Annual Report Download - page 133

HSBC HOLDINGS PLC
Report of the Directors: Financial Review
Introduction
131
Page
Introduction ................................................... 131
Critical accounting policies ........................... 132
Financial summary ........................................ 135
Income statement ....................................... 135
Net interest income .................................... 138
Net fee income ........................................... 141
Net trading income .................................... 144
Net income from financial instruments
designated at fair value .......................... 146
Gains less losses from financial
investments ............................................. 148
Gains arising from dilution of interests in
associates ............................................... 148
Net earned insurance premiums ................ 149
Other operating income ............................. 150
Net insurance claims incurred and
movement in liabilities to policyholders . 152
Loan impairment charges and other
credit risk provisions .............................. 153
Operating expenses .................................... 156
Share of profit in associates and joint
ventures .................................................. 159
Asset deployment ....................................... 161
Trading assets, financial investments and
derivatives ............................................... 161
Funds under management .......................... 162
Assets held in custody and under
administration ........................................ 162
Economic profit ......................................... 163
Other financial information ........................... 164
Average balance sheet and net interest
income .................................................... 164
Analysis of changes in net interest
income .................................................... 171
Share capital and reserves ......................... 174
Short-term borrowings ............................... 177
Contractual obligations ............................. 178
Ratios of earnings to combined fixed
charges ................................................... 178
Loan maturity and interest sensitivity
analysis .................................................. 179
Deposits ..................................................... 180
Certificates of deposit and other time
deposits .................................................. 182
Off-balance sheet arrangements and special
purpose entities........................................... 183
Special purpose entities ............................. 183
Other off-balance sheet arrangements ....... 191
Introduction
The consolidated financial statements of HSBC and
the separate financial statements of HSBC Holdings
have been prepared in accordance with International
Financial Reporting Standards (‘IFRSs’) as endorsed
by the European Union (‘EU’). EU-endorsed IFRSs
may differ temporarily from IFRSs as published by
the International Accounting Standards Board
(‘IASB’) if, at any point in time, new or amended
IFRSs have not been endorsed by the EU. At
31 December 2007, there were no unendorsed
standards effective for the year ended 31 December
2007 affecting these consolidated and separate
financial statements, and there was no difference
between IFRSs endorsed by the EU and IFRSs
issued by the IASB in terms of their application to
HSBC. Accordingly, HSBC’s financial statements
for the year ended 31 December 2007 are prepared
in accordance with IFRSs as issued by the IASB.
Certain information for 2003 has been prepared
under UK Generally Accepted Accounting
Principles (‘UK GAAP’), which are not comparable
with IFRSs.
HSBC uses the US dollar as its presentation
currency because the US dollar and currencies linked
to it form the major currency bloc in which HSBC
transacts its business. Unless otherwise stated, the
accounting information presented in this document
has been prepared in accordance with IFRSs.
Constant currency
Constant currency comparatives for 2006 and 2005
used in the 2007 and 2006 commentaries,
respectively, are computed by retranslating into US
dollars, for non-US dollar branches, subsidiaries,
joint ventures and associates:
• the income statements for 2006 and 2005 at the
average rates of exchange for 2007 and 2006,
respectively; and
• the balance sheets at 31 December 2006 and
2005 at the prevailing rates of exchange on
31 December 2007 and 2006, respectively.
No adjustment has been made to the exchange
rates used to translate foreign currency denominated
assets and liabilities into the functional currencies of
any HSBC branches, subsidiaries, joint ventures or
associates. When reference is made to ‘constant
currency’ in tables or commentaries, comparative
data reported in the functional currencies of HSBC’s
operations have been translated at the appropriate
exchange rates applied in the current period on the
basis described above.