HSBC 2015 Annual Report Download - page 360

Notes on the Financial Statements (continued)
1 – Significant accounting policies / 2 – Net income from financial instruments at FV / 3 – Net insurance premium income
HSBC HOLDINGS PLC
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flows of the financial asset. Where there is no further objective evidence of impairment, the decline in the fair value of the
financial asset is recognised in other comprehensive income. If the fair value of a debt security increases in a subsequent
period, and the increase can be objectively related to an event occurring after the impairment loss was recognised in the
income statement, or the instrument is no longer impaired, the impairment loss is reversed through the income statement;
• for an available-for-sale equity security, all subsequent increases in the fair value of the instrument are treated as a
revaluation and are recognised in other comprehensive income. Impairment losses recognised on the equity security are
not reversed through the income statement. Subsequent decreases in the fair value of the available-for-sale equity security
are recognised in the income statement to the extent that further cumulative impairment losses have been incurred.
(k) Non-trading reverse repurchase and repurchase agreements
When securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the
balance sheet and a liability is recorded in respect of the consideration received. Securities purchased under commitments to
resell (‘reverse repos’) are not recognised on the balance sheet and an asset is recorded in respect of the initial consideration
paid.
Non-trading repos and reverse repos are measured at amortised cost. The difference between the sale and repurchase price
or between the purchase and resale price is treated as interest and recognised in net interest income over the life of the
agreement.
(l) Operating income
Interest income and expense
Interest income and expense for all financial instruments except for those classified as held for trading or designated at fair
value (except for debt securities issued by HSBC and derivatives managed in conjunction with those debt securities) are
recognised in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. The
effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life
of the financial instrument or, where appropriate, a shorter period, to the net carrying amount of the financial asset or
financial liability.
Interest on impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
Non-interest income and expense
Fee income is earned from a diverse range of services provided by HSBC to its customers. Fee income is accounted for as
follows:
• income earned on the execution of a significant act is recognised as revenue when the act is completed (for example, fees
arising from negotiating or participating in the negotiation of a transaction for a third party, such as an arrangement for the
acquisition of shares or other securities);
• income earned from the provision of services is recognised as revenue as the services are provided (for example, asset
management, portfolio and other management advisory and service fees); and
• income which forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment
to the effective interest rate (for example, certain loan commitment fees) and recorded in ‘Interest income’.
Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities held
for trading, together with the related interest income, expense and dividends.
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 approve the dividend for unlisted equity securities.
The accounting policies for net income/(expense) from financial instruments designated at fair value and for net insurance
premium income are disclosed in Note 2 and Note 3.