Citibank 2014 Annual Report Download - page 158

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Throughout these Notes, “Citigroup,” “Citi” and the “Company” refer to
Citigroup Inc. and its consolidated subsidiaries.
Certain reclassifications have been made to the prior periods’ financial
statements and notes to conform to the current period’s presentation.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Citigroup
and its subsidiaries prepared in accordance with U.S. Generally Accepted
Accounting Principles (GAAP). 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 in more
detail in Note 22 to the Consolidated Financial Statements, Citigroup also
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 are
included in Other revenue.
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 and trade finance; and
private banking products and services.
Variable Interest Entities
An entity is referred to as a variable interest entity (VIE) if it meets the
criteria outlined in Accounting Standards Codification (ASC) Topic 810,
Consolidation, which are: (i) the entity has equity that is insufficient to
permit the entity to finance its activities without additional subordinated
financial support from other parties; or (ii) 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 entity’s expected losses or
expected returns.
The Company consolidates a VIE when it has both the power to direct the
activities that most significantly impact the VIE’s economic performance
and a right to receive benefits or the obligation to absorb losses of the
entity that could be potentially significant to the VIE (that is, Citi is the
primary beneficiary).
In addition to variable interests held in consolidated VIEs, 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
and all other unconsolidated VIEs are monitored by the Company to assess
whether any events have occurred to cause its primary beneficiary status to
change. These events include:
•฀ 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 that reallocate expected losses and
residual returns among the variable interest holders;
•฀ changes in the party that has power to direct the activities of a VIE that
most significantly impact the entity’s economic performance; and
•฀ providing financial 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.
Foreign Currency Translation
Assets and liabilities of Citi’s foreign operations are translated from their
respective functional currencies into U.S. dollars using period-end spot
foreign-exchange rates. The effects of those translation adjustments are
reported in Accumulated other comprehensive income (loss), a component
of stockholders’ equity, along with any related hedge and tax effects, until
realized upon sale or substantial liquidation of the foreign operation.
Revenues and expenses of Citi’s foreign operations are translated monthly
from their respective functional currencies into U.S. dollars at amounts that
approximate weighted average exchange rates.
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 Principal transactions, along with the related effects of any economic
hedges. Instruments used to hedge foreign currency exposures include
foreign currency forward, option and swap contracts and in certain instances,
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.