Citibank 2010 Annual Report Download - page 161

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Citigroup
and its subsidiaries. The Company consolidates subsidiaries in which it
holds, directly or indirectly, more than 50% of the voting rights or where
it exercises control. Entities where the Company holds 20% to 50% of the
voting rights and/or has the ability to exercise significant influence, other
than investments of designated venture capital subsidiaries, or investments
accounted for at fair value under the fair value option, are accounted for
under the equity method, and the pro rata share of their income (loss) is
included in Other revenue. Income from investments in less than 20%-
owned companies is recognized when dividends are received. As discussed
below, Citigroup consolidates entities deemed to be variable interest entities
when Citigroup is determined to be the primary beneficiary. Gains and
losses on the disposition of branches, subsidiaries, affiliates, buildings, and
other investments and charges for management’s estimate of impairment in
their value that is other than temporary, such that recovery of the carrying
amount is deemed unlikely, are included in Other revenue.
Throughout these Notes, “Citigroup”, “Citi” and “the Company” refer to
Citigroup Inc. and its consolidated subsidiaries.
Certain reclassifications have been made to the prior-period’s financial
statements and notes to conform to the current period’s presentation.
Citibank, N.A.
Citibank, N.A. is a commercial bank and wholly owned subsidiary of
Citigroup Inc. Citibank’s principal offerings include Consumer finance,
mortgage lending, and retail banking products and services; investment
banking, commercial banking, cash management, trade finance
and e-commerce products and services; and private banking products
and services.
The Company includes a balance sheet and statement of changes in
stockholder’s equity for Citibank, N.A. to provide information about this
entity to shareholders and international regulatory agencies. (See Note 30
to the Consolidated Financial Statements for further discussion.)
Variable Interest Entities
An entity is referred to as a variable interest entity (VIE) if it meets the criteria
outlined in ASC 810, Consolidation (formerly FASB Interpretation No. 46(R),
Consolidation of Variable Interest Entities (revised December 2003) (FIN
46(R)) and SFAS No. 167, Amendments to FASB Interpretation No. 46(R)
(SFAS 167), which are: (1) the entity has equity that is insufficient to permit
the entity to finance its activities without additional subordinated financial
support from other parties, or (2) the entity has equity investors that cannot
make significant decisions about the entity’s operations or that do not absorb
their proportionate share of the expected losses or receive the expected returns
of the entity.
Prior to January 1, 2010, the Company consolidated a VIE if it had a
majority of the expected losses or a majority of the expected residual returns
or both. As of January 1, 2010, when the Company adopted SFAS 167’s
amendments to the VIE consolidation guidance, the Company consolidates a
VIE when it has both the power to direct the activities that most significantly
impact the VIE’s economic success and a right to receive benefits or absorb
losses of the entity that could be potentially significant to the VIE.
Along with the VIEs that are consolidated in accordance with these
guidelines, the Company has variable interests in other VIEs that are
not consolidated because the Company is not the primary beneficiary.
These include multi-seller finance companies, certain collateralized debt
obligations (CDOs), many structured finance transactions, and various
investment funds.
However, these VIEs as well as all other unconsolidated VIEs are
continually monitored by the Company to determine if any events have
occurred that could cause its primary beneficiary status to change. These
events include:
additional purchases or sales of variable interests by Citigroup or an •฀
unrelated third party, which cause Citigroup’s overall variable interest
ownership to change;
changes in contractual arrangements in a manner that reallocates •฀
expected losses and residual returns among the variable interest holders;
changes in the party that has power to direct activities of a VIE that most •฀
significantly impact the entity’s economic performance; and
providing support to an entity that results in an implicit variable interest. •฀
All other entities not deemed to be VIEs with which the Company has
involvement are evaluated for consolidation under other subtopics of ASC
810 (formerly Accounting Research Bulletin (ARB) No. 51, Consolidated
Financial Statements, SFAS No. 94, Consolidation of All Majority-Owned
Subsidiaries, and EITF Issue No. 04-5, “Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited Partnership
or Similar Entity When the Limited Partners Have Certain Rights”).
Foreign Currency Translation
Assets and liabilities of foreign operations are translated from their respective
functional currencies into U.S. dollars using period-end spot foreign-
exchange rates. Revenues and expenses of foreign operations are translated
monthly from their respective functional currencies into U.S. dollars at
amounts that approximate weighted average exchange rates. The effects
of those translation adjustments are reported in a separate component of
stockholders’ equity, along with related hedge and tax effects, until realized
upon sale or liquidation of the foreign operation.
For transactions whose terms are denominated in a currency other than
the functional currency, including transactions denominated in the local
currencies of foreign operations with the U.S. dollar as their functional
currency, the effects of changes in exchange rates are primarily included in
Other revenue, along with the related hedge effects. Instruments used to
hedge foreign currency exposures include foreign currency forward, option
and swap contracts and designated issues of non-U.S. dollar debt. Foreign
operations in countries with highly inflationary economies designate the U.S.
dollar as their functional currency, with the effects of changes in exchange
rates primarily included in Other revenue.