HSBC 2009 Annual Report Download - page 369

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(f) Consolidation
The consolidated financial statements of HSBC comprise the financial statements of HSBC Holdings and its
subsidiaries made up to 31 December, with the exception of the banking and insurance subsidiaries of HSBC
Bank Argentina, whose financial statements are made up to 30 June annually to comply with local regulations.
Accordingly, HSBC uses their audited interim financial statements, drawn up to 31 December annually.
Subsidiaries are consolidated from the date that HSBC gains control. The purchase method of accounting is used
to account for the acquisition of subsidiaries by HSBC. The cost of an acquisition is measured at the fair value of
the consideration given at the date of exchange, together with costs directly attributable to that acquisition. The
acquired identifiable assets, liabilities and contingent liabilities are measured at their fair values at the date of
acquisition. Any excess of the cost of acquisition over the fair value of HSBC’s share of the identifiable assets,
liabilities and contingent liabilities acquired is recorded as goodwill. If the cost of acquisition is less than the fair
value of HSBC’s share of the identifiable assets, liabilities and contingent liabilities of the business acquired, the
difference is recognised immediately in the income statement.
Entities that are controlled by HSBC are consolidated until the date that control ceases.
In the context of Special Purpose Entities (‘SPE’s), the following circumstances may indicate a relationship in
which, in substance, HSBC controls and consequently consolidates an SPE:
– the activities of the SPE are being conducted on behalf of HSBC according to its specific business needs so
that HSBC obtains benefits from the SPE’s operation;
– HSBC has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or,
by setting up an ‘autopilot’ mechanism, HSBC has delegated these decision-making powers;
– HSBC has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks
incident to the activities of the SPE; or
– HSBC retains the majority of the residual or ownership risks related to the SPE or its assets in order to
obtain benefits from its activities.
HSBC performs a re-assessment of consolidation whenever there is a change in the substance of the relationship
between HSBC and an SPE.
All intra-HSBC transactions are eliminated on consolidation.
The consolidated financial statements of HSBC also include the attributable share of the results and reserves of
joint ventures and associates. These are based on financial statements made up to 31 December, with the
exception of the Bank of Communications, Ping An Insurance and Industrial Bank which are included on the
basis of financial statements made up for the twelve months to 30 September. These are equity accounted three
months in arrears in order to meet the requirements of the Group’s reporting timetable. HSBC has taken into
account the effect of significant transactions or events that occur between the period from 1 October to
31 December that would have a material effect on its results.
(g) Future accounting developments
At 31 December 2009, a number of standards and interpretations, and amendments thereto, had been issued by
the IASB, which are not effective for HSBC’s consolidated financial statements or the separate financial
statements of HSBC Holdings as at 31 December 2009. Those which are expected to have a significant effect on
HSBC’s consolidated financial statements and the separate financial statements of HSBC Holdings are discussed
below.
Standards and Interpretations issued by the IASB and endorsed by the EU
A revised IFRS 3 ‘Business Combinations’ and amendments to IAS 27 ‘Consolidated and Separate Financial
Statements’ were issued on 10 January 2008. The revisions and amendments to the standards apply prospectively
to business combinations for which the acquisition date is on or after the beginning of the first annual financial
reporting period beginning on or after 1 July 2009. The main changes under the standards are that:
– acquisition-related costs are recognised as an expense in the income statement in the period in which they
are incurred;