IFRS takes a bite out of HSBC

HSBC would have suffered a slump of nearly £300m in profits before tax under
IFRS, equating to a 2.5% fall, according to its restated figures.

The banking giant’s profit before tax (excluding goodwill amortisation) stood
at £11bn for 2004, but the new accounting treatments of pensions, goodwill
adjustments and share-base payments would have been the main contributors to
wiping £275m off profits.

However, this discounts a billion pound goodwill amortisation hit upon its UK
GAAP figures – it has traditionally excluded goodwill amortisation when
comparing returns on cash invested.

Including the hit would have seen profit before tax leap by £740m under IFRS,
as goodwill is no longer amortised under the new accounting standards.

HSBC group FD Douglas Flint was at pains to point out that the accounting
changes would not affect the cash flows, underlying economies or risk of its

It would not release numerical information around the treatment of IAS39,
IAS32 or IAS4, as amendments to the fair value treatment of financial
instruments had only recently been released by the IASB. But Flint expected the
effect to be ‘relatively modest’ and would ‘probably’ be measured in the ‘tens
of millions’ of dollars.

‘It’s hypothetical at the moment; we will have an element of reevaluation and
will highlight it,’ said Flint.

The return on average invested capital fell slightly under IFRS to 15%, from
15.2% under UK GAAP.

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Fiona Westwood of Smith and Williamson.