Ally Bank 2014 Annual Report Download - page 86

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
74
Legal and Regulatory Reserves
Our legal and regulatory reserves reflect management's best estimate of probable losses on legal and regulatory matters. As a legal or
regulatory matter develops, management, in conjunction with internal and external counsel handling the matter, evaluates on an ongoing basis
whether the matter presents a loss contingency that is both probable and estimable. If, at the time of evaluation, the loss contingency related to
a legal or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would
make the loss contingency both probable and estimable.When the loss contingency related to a legal or regulatory matter is deemed to be
both probable and estimable, we will establish a liability with respect to the loss contingency and record a corresponding expense amount. To
estimate the probable loss, we evaluate the individual facts and circumstances of the case including information learned through the discovery
process, rulings on dispositive motions, settlement discussions, our prior history with similar matters and other rulings by courts, arbitrators or
others. The reserves are continuously monitored and updated to reflect the most recent information related to each matter.
Additionally, in matters for which a loss event is not deemed probable, but rather reasonably possible to occur, we would attempt to
estimate a loss or range of loss related to that event, if possible. For these matters, we do not record a liability. However, if we are able to
estimate a loss or range of loss, we would disclose this loss, if it is material to our financial statements. To estimate a range of probable or
reasonably possible loss, we evaluate each individual case in the manner described above. We do not accrue for or disclose matters for which
a loss event is deemed remote.
For details regarding the nature of all material contingencies, refer to Note 30 to the Consolidated Financial Statements.
Determination of Provision for Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management's best
assessment of estimated current and future taxes to be paid. We are subject to income taxes predominantly in the United States. Significant
judgments and estimates are required in determining 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 results of operations. In projecting future taxable
income, we begin with historical results adjusted for the results of discontinued operations and incorporate assumptions about the amount of
future state, federal, and foreign pretax operating income. These assumptions about future taxable income require significant judgment and
are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that
historical results provide, we consider three years of cumulative operating income (loss).
As of each reporting date, we consider existing evidence, both positive and negative, that could impact our view with regard to future
realization of deferred tax assets. We continue to believe it is more likely than not that the benefit for certain capital loss, foreign tax credit
and state net operating loss carryforwards will not be realized. In recognition of this risk, we continue to provide a partial valuation allowance
on the deferred tax assets relating to these carryforwards.
For additional information regarding our provision for income taxes, refer to Note 23 to the Consolidated Financial Statements.
Recently Issued Accounting Standards
Refer to Note 1 to the Consolidated Financial Statements for further information related to recently adopted and recently issued
accounting standards.