Citibank 2009 Annual Report Download - page 150

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Accounting for Defensive Intangible Assets
In November 2008, the FASB ratified the consensus reached by the EITF on
Issue 08-7, “Accounting for Defensive Intangible Assets” (Issue 08-7) (now
ASC 350-30-25-5, Intangibles — Goodwill and Other: Defensive Intangible
Assets). An acquired defensive asset shall be accounted for as a separate unit
of accounting (i.e., an asset separate from other assets of the acquirer).
The useful life assigned to an acquired defensive asset shall be based on the
period during which the asset would diminish in value. Issue 08-7 states that
it would be rare for a defensive intangible asset to have an indefinite life.
Issue 08-7 is effective for Citigroup on January 1, 2009, and did not have a
material impact.
CVA Accounting Misstatement
The Company determined that an error existed in the process used to value
certain liabilities for which the Company elected the fair value option (FVO).
The error related to a calculation intended to measure the impact on the
liability’s fair value attributable to Citigroup’s credit spreads. Because of
the error in the process, both an initial Citi contractual credit spread and
an initial own-credit valuation adjustment were being included at the time
of issuance of new Citi FVO debt. The own-credit valuation adjustment was
properly included; therefore, the initial Citi contractual credit spread should
have been excluded. (See Note 27 for a description of own-credit valuation
adjustments.) The cumulative effect of this error from January 1, 2007 (the
date that FAS 157 (ASC 820), requiring the valuation of own-credit for FVO
liabilities, was adopted) through December 31, 2008 was to overstate income
and retained earnings by $204 million ($330 million on a pretax basis).
The impact of this adjustment was determined not to be material to the
Company’s results of operations and financial position for any previously
reported period. Consequently, in the accompanying financial statements,
the cumulative effect through December 31, 2008 is recorded in 2009.
The table below summarizes the previously reported impact of CVA income
for debt on which the FVO was elected and the related adjustments to correct
the process error for the impacted reporting periods.
In millions of dollars 2008 2007
Pretax gain (loss) from the change in the CVA
reserve on FVO debt that would have been
recorded in the income statement:
Previously reported $4,558 $888
Corrected amount adjusted for removal of the error 4,352 764
Difference $ 206 $124
In millions of dollars 2008 2007
Year-end CVA reserve reported as a contra-liability
on FVO debt:
Previously reported $5,446 $888
Corrected amount adjusted for removal of the error 5,116 764
Difference $ 330 $124
See also Note 34 to the Consolidated Financial Statements.