HSBC 2012 Annual Report Download - page 390

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
2 – Summary of significant accounting policies
388
Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for
listed equity securities, and usually the date when shareholders have approved the dividend for unlisted equity
securities.
(c) Operating segments
Due to the nature of the Group, HSBC’s chief operating decision-maker regularly reviews operating activity on
a number of bases, including by geographical region and by global business. HSBC considers that geographical
operating segments represent the most appropriate information for the users of the financial statements to best
evaluate the nature and financial effects of the business activities in which HSBC engages, and the economic
environments in which it operates. This reflects the importance of geographic factors on business strategy and
performance, the allocation of capital resources, and the role of geographical regional management in executing
strategy. As a result, HSBC’s operating segments are considered to be geographical regions.
Measurement of segmental assets, liabilities, income and expenses is in accordance with the Group’s accounting
policies. Segmental income and expenses include transfers between segments and these transfers are conducted
on arm’s length terms and conditions. Shared costs are included in segments on the basis of the actual recharges
made. The expense of the UK bank levy is included in the Europe geographical region as HSBC regards the levy
as a cost of being headquartered in the UK.
(d) Valuation of financial instruments
All financial instruments are recognised initially at fair value. In the normal course of business, the fair value of
a financial instrument on initial recognition is the transaction price (that is, the fair value of the consideration
given or received). In certain circumstances, however, the fair value will be based on other observable current
market transactions in the same instrument, without modification or repackaging, or on a valuation technique
whose variables include only data from observable markets, such as interest rate yield curves, option volatilities
and currency rates. When such evidence exists, HSBC recognises a trading gain or loss on inception of the
financial instrument, being the difference between the transaction price and the fair value. When unobservable
market data have a significant impact on the valuation of financial instruments, the entire initial difference in
fair value from the transaction price as indicated by the valuation model is not recognised immediately in the
income statement. Instead, it is recognised over the life of the transaction on an appropriate basis, when the
inputs become observable, the transaction matures or is closed out, or when HSBC enters into an offsetting
transaction.
Subsequent to initial recognition, the fair values of financial instruments measured at fair value are measured in
accordance with HSBC’s valuation methodologies, which are described in Notes 15 and 16.
(e) Reclassification of financial assets
Non-derivative financial assets (other than those designated at fair value through profit or loss upon initial
recognition) may be reclassified out of the fair value through profit or loss category in the following
circumstances:
− financial assets that would have met the definition of loans and receivables at initial recognition (if the
financial asset had not been required to be classified as held for trading) may be reclassified out of the fair
value through profit or loss category if there is the intention and ability to hold the financial asset for the
foreseeable future or until maturity; and
− financial assets (except financial assets that would have met the definition of loans and receivables at initial
recognition) may be reclassified out of the fair value through profit or loss category and into another
category in rare circumstances.
When a financial asset is reclassified as described in the above circumstances, the financial asset is reclassified at
its fair value on the date of reclassification. Any gain or loss already recognised in the income statement is not
reversed. The fair value of the financial asset on the date of reclassification becomes its new cost or amortised
cost, as applicable.