HSBC 2006 Annual Report Download - page 112

HSBC HOLDINGS PLC
Report of the Directors: Financial Review
Introduction / Critical accounting policies
110
Page
Introduction ................................................... 110
Critical accounting policies ........................... 111
Key performance indicators .......................... 115
Financial summary ........................................ 119
Income statement ....................................... 119
Net interest income .................................... 122
Net fee income ........................................... 125
Net trading income .................................... 128
Net income from financial instruments
designated at fair value .......................... 129
Gains less losses from financial
investments ............................................. 131
Net earned insurance premiums ................ 132
Other operating income ............................. 133
Net insurance claims incurred and
movement in policyholders’ liabilities ... 135
Loan impairment charges and other
credit risk provisions .............................. 136
Operating expenses .................................... 139
Share of profit in associates and joint
ventures .................................................. 142
Asset deployment ....................................... 144
Trading assets and financial
investments ............................................ 144
Funds under management .......................... 145
Assets in custody and under
administration ........................................ 145
Economic profit ......................................... 146
Other financial information ........................... 147
Average balance sheet and net interest
income .................................................... 147
Analysis of changes in net interest
income .................................................... 154
Share capital and reserves ......................... 157
Short-term borrowings ............................... 158
Contractual obligations ............................. 158
Loan maturity and interest sensitivity
analysis .................................................. 159
Deposits ..................................................... 160
Certificates of deposit and other time
deposits .................................................. 162
Off-balance sheet arrangements ................ 163
Introduction
The consolidated financial statements of HSBC and
the separate financial statements of HSBC Holdings
have been prepared in accordance with International
Financial Reporting Standards (‘IFRSs’) as endorsed
by the European Union (‘EU’). EU-endorsed IFRSs
may differ temporarily from IFRSs as published by
the International Accounting Standards Board
(‘IASB’) if, at any point in time, new or amended
IFRSs have not been endorsed by the EU. At
31 December 2006, there were no unendorsed
standards, effective for the year ended 31 December
2006, affecting these consolidated and separate
financial statements, and there was no difference in
application to HSBC between IFRSs endorsed by the
EU and IFRSs issued by the IASB.
Certain information for years prior to 2004 has
been prepared under UK Generally Accepted
Accounting Principles (‘UK GAAP’), which are not
comparable with IFRSs.
HSBC uses the US dollar as its presentation
currency because the US dollar and currencies linked
to it form the major currency bloc in which HSBC
transacts its business. Unless otherwise stated, the
accounting information presented in this document
has been prepared in accordance with IFRSs.
IFRSs compared with US GAAP
2006 2005 2004
US$m US$m US$m
Net income
US GAAP ................. 16,358 14,703 12,506
IFRSs ........................ 15,789 15,081 12,918
Shareholders’ equity
US GAAP ................. 108,540 93,524 90,082
IFRSs ........................ 108,352 92,432 85,522
HSBC provides details of its net income and
shareholders’ equity calculated in accordance with
US GAAP, which differs in certain respects from
IFRSs. Differences in net income and shareholders’
equity are explained in Note 47 on the Financial
Statements on pages 403 to 434.
Constant currency
Constant currency comparatives in respect of 2005
and 2004 used in the 2006 and 2005 commentaries
respectively are computed by retranslating into US
dollars:
• the income statements for 2005 and 2004 of
non-US dollar branches, subsidiaries, joint
ventures and associates at the average rates of
exchange for 2006 and 2005 respectively; and