Ally Bank 2012 Annual Report Download - page 124

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for a net investment hedge continues to remain in accumulated other comprehensive income until earnings are impacted by sale or liquidation
of the associated foreign operation. In all instances, after hedge accounting is no longer applied, any subsequent changes in fair value of the
derivative instrument will be recorded into earnings.
Changes in the fair value of derivative financial instruments held for risk management purposes that are not designated for hedge
accounting under GAAP and changes in the fair value of derivative financial instruments held for trading purposes are reported in current
period earnings.
Loan Commitments
We enter into commitments to purchase and make loans whereby the interest rate on the loans is set prior to funding (i.e., interest rate
lock commitments). Interest rate lock commitments for mortgage loans to be originated for sale and all purchase commitments are derivative
financial instruments carried at fair value in accordance with applicable accounting standards with changes in fair value included within
current period earnings. The fair value of purchase and interest rate lock commitments include expected net future cash flows related to the
associated servicing of the loan. Servicing assets are recognized as distinct assets once they are contractually separated from the underlying
loan by sale or securitization. Day-one gains or losses on derivative interest rate lock commitments are recognized when applicable.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best
assessment of estimated future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions.
Significant judgments and estimates are required in determining the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In
evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and
negative evidence including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent
financial operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations
and changes in accounting policies and incorporate assumptions including the amount of future state, federal and foreign pretax operating
income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. For additional
information regarding our provision for income taxes, refer to Note 23.
We recognize the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical
merits, that the position will be sustained upon examination. Also, we recognize accrued interest and penalties related to uncertain income tax
positions in interest expense and other operating expenses, respectively.
Share-based Compensation
Under accounting guidance for share-based compensation, compensation cost recognized includes cost for share-based awards. For
certain share-based awards compensation cost is ratably charged to expense over the applicable service periods. For other share-based awards,
the awards require liability treatment and are remeasured quarterly at fair value until they are paid, with changes in fair value charged to
compensation expense in the period in which the change occurs. Refer to Note 24 for a discussion of our share-based compensation plans.
Foreign Exchange
Foreign-denominated assets and liabilities resulting from foreign-currency transactions are valued using period-end foreign-exchange
rates and the results of operations and cash flows are determined using approximate weighted average exchange rates for the period.
Translation adjustments are related to foreign subsidiaries using local currency as their functional currency and are reported as a separate
component of accumulated other comprehensive income. We may elect to enter into foreign-currency derivatives to mitigate our exposure to
changes in foreign-exchange rates. Refer to Derivative Instruments and Hedging Activities above for a discussion of our hedging activities of
the foreign-currency exposure of a net investment in a foreign operation.
Recently Adopted Accounting Standards
Financial Services - Insurance - Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
(ASU 2010-26)
As of January 1, 2012, we adopted Accounting Standards Update (ASU) 2010-26, which amends ASC 944, Financial Services -
Insurance. The amendments in this ASU specify which costs incurred in the acquisition of new and renewal insurance contracts should be
capitalized. All other acquisition-related costs should be expensed as incurred. If the initial application of the amendments in this ASU results
in the capitalization of acquisition costs that had not been previously capitalized, an entity may elect not to capitalize those types of costs.
Both retrospective application and early adoption was permitted. We elected prospective application and did not early adopt the ASU. The
adoption did not have a material impact to our consolidated financial condition or results of operations.
Fair Value Measurement - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and IFRSs (ASU 2011-04)
As of January 1, 2012, we adopted ASU 2011-04, which amends ASC 820, Fair Value Measurements. The amendments in this ASU
clarify how to measure fair value and it contains new disclosure requirements to provide more transparency into Level 3 fair value
measurements. It is intended to improve the comparability of fair value measurements presented and disclosed in financial statements
Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K