HSBC 2001 Annual Report Download - page 81

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FRS 17 prescribes the following:
• the accounting for defined contribution schemes
remains unchanged;
• in respect of defined benefit schemes, financial
statements reflect at fair value the assets and, at
actuarial valuation using the projected unit
method, the liabilities arising from an
employer’ s retirement benefit obligations and
any related funding;
• in respect of defined benefit schemes, the
operating costs of providing retirement benefits
to employees are recognised in the accounting
period(s) in which the benefits are earned by the
employees, and the related finance costs and any
other changes in value of the assets and
liabilities are recognised in the accounting
periods in which they arise; and
• the financial statements contain adequate
disclosure of the cost of providing retirement
benefits and the related gains, losses, assets and
liabilities.
FRS 17 requires additional disclosure in HSBC’s
2001 year-end financial statements with regard to the
closing balance sheet position under the standard.
Additional disclosure required in HSBC’s 2002 year-
end financial statements relates to the opening and
closing balance sheet position under FRS 17 together
with the performance statement items. The profit and
loss account items comprise the current service cost,
expected rate of return on assets and interest cost.
Actuarial gains and losses will be recognised in
reserves through the Statement of Total Consolidated
Recognised Gains and Losses. The primary
statement impact will be recognised initially from 1
January 2003.
FRS 19 ‘Deferred tax’ was issued in December
2000 and will be effective for HSBC’s 2002 financial
statements. FRS 19 replaces SSAP 15 ‘Accounting
for deferred tax’ and there are some amendments to
other accounting standards.
The objective of FRS 19 is to ensure that future
tax consequences of past transactions and events are
recognised as liabilities or assets in the financial
statements and that the financial statements disclose
any other special circumstances that may have an
effect on future tax charges.
In practice deferred tax will generally be
provided in the accounts for all timing differences,
subject to recoverability of deferred tax assets.
Currently deferred tax assets and liabilities are
recognised only to the extent they are expected to
crystallise.
The adoption of FRS 19 represents a change of
accounting policy. Therefore, a prior year adjustment
will be required in the 2002 financial statements to
restate the comparative figures as if FRS 19 had
always been applicable. The effect on the balance
sheet as at 31 December 2001 and 2000 will be as
follows:
2001
US$m
2000
US$
m
Assets and liabilities
To increase deferred tax assets by ......... 535 501
To (increase)/decrease deferred tax
liabilities by...................................... (36 ) 505
To decrease net deferred tax liabilities by
......................................................... 499 1,006
Reserves
To increase profit and loss account by... 290 797
To decrease goodwill by ....................... 209 209
499 1,006
The effect on the profit and loss account for the
years ended 31 December 2001 and 31 December
2000 will be as follows:
2001
US$m
2000
US$
m
To increase the taxation charge by ........ 507 106
The effect on goodwill amortisation is
immaterial.
The increase in HSBC’s tax charge for 2001 as
restated above can be explained as follows:
• reversal of a benefit taken in 2001 under SSAP
15 in respect of deferred tax assets attributable
to prior years under FRS19;
• reversal of a benefit taken in 2001 under SSAP
15 in respect of the release of a provision for
additional UK tax on remittances from overseas
attributable to prior years under FRS 19; and
• establishment of a provision required under
FRS19 in respect of a possible clawback of
capital allowances.
US GAAP
SFAS 141 ‘Business Combinations’ requires that
all business combinations initiated after 30 June
2001 be accounted for under the purchase method
of accounting; the use of the pooling-of-interests
method of accounting is eliminated. SFAS 141