HSBC 2003 Annual Report Download - page 328

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
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50 Differences between UK GAAP and US GAAP
The consolidated financial statements of HSBC are prepared in accordance with UK generally accepted accounting
principles (‘GAAP’ ) which differ in certain significant respects from US GAAP. The following is a summary of the
significant differences applicable to HSBC:
Leasing
UK GAAP
• Finance lease income is recognised so as to give a constant rate of return on the net cash investment in the lease,
taking into account tax payments and receipts associated with the lease.
• Leases are categorised as finance leases when the substance of the agreement is that of a financing transaction
and the lessee assumes substantially all of the risks and benefits relating to the asset. All other leases are
categorised as operating leases.
• Operating leased assets are depreciated over their useful lives so that, for each asset, rentals less depreciation are
recognised at a constant periodic rate of return on the net cash invested in that asset. Rentals receivable under
operating leases are accounted for on a straight-line basis over the lease term.
US GAAP
• Unearned income on finance leases is taken to income at a rate calculated to give a constant rate of return on the
investment in the lease, but generally no account is taken of the tax flows generated by the lease.
• Leases are classified as capital leases when any of the criteria outlined under Statement of Financial Accounting
Standards (‘SFAS’ ) 13 ‘Accounting for leases’ are met.
• Operating leased assets are depreciated so that in each period the depreciation charge is at least equal to that
which would have arisen on a straight line basis.
Debt swaps
UK GAAP
• Assets acquired in exchange for other advances in order to achieve an orderly realisation are reported as
advances. The assets acquired are recorded at the carrying value of the advances disposed of at the date of the
exchange, with any loan loss provision having been duly updated. Any subsequent deterioration in their value
will be recorded as an additional loan loss provision.
US GAAP
• Under SFAS 15 ‘Debtors and Creditors for Troubled Debt Restructurings’, debt securities and equity shares
acquired in exchange for advances in order to achieve an orderly realisation are required to be accounted for at
their fair value, usually their secondary market value, at the date of exchange. Under SFAS 115 ‘Accounting for
Certain Investments in Debt and Equity Securities’ , certain of these debt swaps qualify as securities and
accordingly are classified as available-for-sale.
Shareholders’ interest in the long-term assurance fund
UK GAAP
• The value placed on HSBC’ s interest in long-term assurance business includes a valuation of the discounted
future earnings expected to emerge from business currently in force, taking into account factors such as recent
experience and general economic conditions, together with the surplus retained in the long-term assurance
funds. These are determined annually in consultation with independent actuaries and are included in ‘Other
assets’ .