HSBC 2013 Annual Report Download - page 28

Given the uncertainty and subjective nature of
valuing financial instruments at fair value, it is possible
that the outcomes in the next financial year could differ
from the assumptions used, and this could result in a
material adjustment to the carrying amount of financial
instruments measured at fair value.
Deferred tax assets
Our accounting policy for the recognition of deferred
tax assets is described in note 2(r). The recognition
of a deferred tax asset relies on an assessment of the
probability and sufficiency of future taxable profits,
future reversals of existing taxable temporary differences
and ongoing tax planning strategies.
Defined benefit obligations
Our accounting policy for the recognition of defined
benefit obligations is described in note 2(s). As part
of employee compensation, the bank provides certain
employees with pension and other post-retirement
benefits under defined benefit plans. In consultation
with our actuaries, we make certain assumptions in
measuring the bank’s obligations under its defined
benefit plans as presented in note 4.
It is possible that the outcomes within the next
financial year could differ from the actuarial assumptions
applied, and this could result in a material adjustment to
other comprehensive income.
Changes in accounting policy during 2013
On 1 January 2013, the bank adopted the following new
or amended IFRS including International Accounting
Standards (‘IAS’) retrospectively, with the exception of
IFRS 13 which was applied prospectively:
Amendments to IAS 1 ‘Items of Other
Comprehensive Income’ (‘IAS 1’)
As a result of the adoption of changes within IAS 1,
items presented within the consolidated statement of
comprehensive income are grouped into those that will and
those that will not be subsequently reclassified to income.
Amendments to IAS 19 ‘Employee Benefits’
(‘IAS 19 revised’)
IAS 19 revised replaces the interest cost on the plan
liability and the expected return on plan assets with
a finance cost comprising the net interest on the net
defined benefit liability or asset. This finance cost
is determined by applying to the net defined benefit
liability or asset the same discount rate used to measure
the defined benefit obligation. The difference between
the actual return on plan assets and the return included
in the finance cost component in the income statement
is presented in other comprehensive income. The effect
of this change is to increase or decrease the pension
expense by the difference between the current expected
return on plan assets and the return calculated by
applying the relevant discount rate.
In addition, unvested amounts related to past
service events are no longer amortized and recognized
in the income statement over the vesting period, but
recognized in full on the date of the past service event
as a charge or a credit to income. Refer to note 1(e)
for further information related to the restatement of
comparative information.
Amendments to IFRS 7 ‘Disclosures – Offsetting
Financial Assets and Financial Liabilities’ (‘IFRS 7’)
IFRS 7 requires disclosure of the effect or potential
effects of netting arrangements on an entity’s financial
position. The amendment requires disclosure of
recognized financial instruments that are subject to
an enforceable master netting arrangement or similar
agreement. Disclosures are provided in note 32.
IFRS 10 ‘Consolidated Financial Statements’
(‘IFRS 10’)
Under IFRS 10, there is one approach for determining
if an investor controls an investee for all entities, based
on the concept of power, variability of returns and their
linkage. This replaced the previous approach which
emphasizes legal control or exposure to risks and
rewards, depending on the nature of the entity. The bank
controls and consequently consolidates an entity when
it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect
those returns through its power over the entity.
In accordance with the transitional provisions of
IFRS 10, we reviewed the population of investments
in entities as at 1 January 2013 to determine whether
entities previously consolidated or unconsolidated in
accordance with IAS 27 ‘Consolidated and Separate
Financial Statements’ and SIC 12 ‘Consolidation –
Special Purpose Entities’ changed their consolidation
status as a result of applying IFRS 10. The result of this
review was that the effect of applying the requirements
of IFRS 10 did not have a material effect on these
consolidated financial statements.
HSBC BANK CANADA
Management’s Discussion and Analysis (continued)
26