HSBC 2010 Annual Report Download - page 254

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
1 – Basis of preparation / 2 – Summary of significant accounting policies
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net assets. In a business combination achieved in stages, the previously held equity interest is remeasured at the
acquisition-date fair value with the resulting gain or loss recognised in the income statement. In the event that the
amounts of net assets acquired is in excess of the aggregate of the consideration transferred, the amount of non-
controlling interest and the fair value of HSBC’s previously held equity interest, the difference is recognised
immediately in the income statement.
Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are treated as
transactions between equity holders and are reported in equity.
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
incidental 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 2010, 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 2010. 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 but not endorsed by the EU
In November 2009, the IASB issued IFRS 9 ‘Financial Instruments’ (‘IFRS 9’) which introduced new
requirements for the classification and measurement of financial assets. In October 2010, the IASB issued
additions to IFRS 9 relating to financial liabilities. Together, these changes represent the first phase in the
IASB’s planned replacement of IAS 39 ‘Financial Instruments: Recognition and Measurement’ (‘IAS 39’)
with a less complex and improved standard for financial instruments.
The standard is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted.
IFRS 9 is required to be applied retrospectively. If the standard is adopted prior to 1 January 2012, an entity
will be exempt from the requirement to restate prior period comparative information. IFRS 9 is subject to EU
endorsement, the timing of which is uncertain. Accordingly, HSBC is unable to provide a date by which it plans
to apply IFRS 9.
The main changes to the requirements of IAS 39 are summarised below.