HSBC 2003 Annual Report Download - page 124

HSBC HOLDINGS PLC
Financial Review (continued)
122
31 January 2003. As a foreign private issuer that
does not file quarterly accounts, HSBC is permitted
to defer adoption of FIN 46 for entities created
before 1 February 2003 until 2004.
A modified version of FIN 46 was issued in
December 2003 by the FASB (‘FIN 46R’ ). FIN 46R
addresses certain implementation issues that arose
under FIN 46 and changes some of the criteria used
to determine whether HSBC is the primary
beneficiary of an entity. HSBC has applied FIN 46R
to its assessment of certain entities where the impact
of the modifications in FIN 46R is known. However,
HSBC is still assessing the impact of FIN 46R on
other entities. HSBC is required to adopt FIN 46R
for all interests in VIEs for accounting periods
ending after 15 March 2004.
Further information regarding HSBC’ s interest
in VIEs under FIN 46 is provided in Note 50 of the
‘Notes on the Financial Statements’ .
The American Institute of Certified Public
Accountants (‘AICPAs’ ) Accounting Standards
Executive Committee issued Statement of Position
(‘SOP’) 03-1, ‘Accounting and Reporting by
Insurance Enterprises for Certain Nontraditional
Long-Duration Contracts and for Separate Accounts’
on 7 July 2003. The SOP provides guidance on
accounting and reporting by insurance enterprises for
certain non-traditional long-duration contracts and
for separate accounts. SOP 03-1 is effective for
financial statements occurring in fiscal years
beginning after 15 December 2003. Restatement of
previously issued annual financial statements is not
permitted. HSBC is still assessing the impact of this
SOP on its US GAAP financial statements.
In December 2003, the AICPA released SOP 03-
3, Accounting for Certain Loans or Debt Securities
Acquired in a Transfer: The SOP addresses
accounting for differences between contractual cash
flows and cash flows expected to be collected from
an investor’s initial investment in loans or debt
securities acquired in a transfer if those differences
are attributable to credit quality. This SOP is
effective for loans acquired in accounting periods
beginning after 15 December 2004. HSBC is still
assessing the impact of this SOP on its US GAAP
financial statements.
Transition to International Financial
Reporting Standards (‘IFRS’)
HSBC has established a project steering committee
to co-ordinate the transition to IFRS and since 2002
has been following a transition plan that has three
phases: preliminary assessment, detailed impact
study and implementation.
i. Preliminary assessment – this phase began in
2002 and was completed in early 2003. It
involved identification of GAAP differences and
areas where business practices are affected
giving rise to significant systems implications.
ii. Detailed impact study – this phase began at the
end of 2002 and is currently ongoing as new
standards and amendments to existing standards
evolve. The publication of IAS 32
‘Financial Instruments: Disclosure and
Presentation’ and IAS 39 ‘Financial Instruments:
Recognition and Measurement’ (except for the
proposals regarding fair value hedge accounting
for a portfolio hedge of interest rate risk) in
December 2003 enables a significant proportion
of the work in this phase to be progressed
towards completion.
iii. Implementation process – this phase began early
in 2004 and will include the running of a
separate IFRS financial reporting consolidation
system and amendments to systems within key
business areas.
Towards the end of 2004, HSBC intends to file
with the US Securities and Exchange Commission a
summary of the applicable significant differences
between UK GAAP and IFRS. In May 2005, HSBC
intends to file all restated comparative data under
IFRS.