Freddie Mac 2009 Annual Report Download - page 231

results, promotes uniformity in the accounting model for the credit risk retained in our primary credit guarantee business,
better aligns revenue recognition to the release from economic risk of loss under our guarantee, and increases comparability
with other similar financial institutions. Comparative financial statements of prior periods have been adjusted to apply the
new methods, retrospectively. The changes in accounting principles resulted in an increase to our total equity (deficit) of
$1.1 billion at December 31, 2007.
On October 1, 2007, we adopted a modification to the accounting standards on derivatives and hedging with regard to
offsetting amounts related to derivatives, which permits a reporting entity to offset fair value amounts recognized for the
right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative
instruments executed with the same counterparty under a master netting agreement. We elected to reclassify net derivative
interest receivable or payable and cash collateral held or posted, on our consolidated balance sheets, to derivative assets, net
and derivative liability, net, as applicable. Prior to reclassification, these amounts were recorded on our consolidated balance
sheets in accounts and other receivables, net, accrued interest payable, other assets and short-term debt, as applicable. The
change resulted in a decrease to total assets and total liabilities of $8.7 billion at the date of adoption, October 1, 2007, and
$7.2 billion at December 31, 2007. The adoption of this modification had no effect on our consolidated statements of
operations.
On January 1, 2007, we adopted an amendment to the accounting standards for income taxes, which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This amendment provides a
single model to account for uncertain tax positions and clarifies accounting for income taxes by prescribing a minimum
threshold that a tax position is required to meet before being recognized in the financial statements. This amendment also
provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. As a result of adoption, we recorded a $181 million increase to retained earnings (accumulated
deficit) at January 1, 2007. See “NOTE 15: INCOME TAXES” for additional information.
On January 1, 2007, we adopted an amendment to the accounting standards for derivatives and hedging for certain
hybrid financial instruments. This amendment permits the fair value measurement for any hybrid financial instrument with
an embedded derivative that otherwise would require bifurcation. In addition, this statement requires an evaluation of
interests in securitized financial assets to identify instruments that are freestanding derivatives or that are hybrid financial
instruments containing an embedded derivative requiring bifurcation. We adopted this amendment prospectively, and,
therefore, there was no cumulative effect of a change in accounting principle. In connection with the adoption of this
amendment on January 1, 2007, we elected to measure newly acquired interests in securitized financial assets that contain
embedded derivatives requiring bifurcation at fair value, with changes in fair value reflected in our consolidated statements
of operations. See “NOTE 6: INVESTMENTS IN SECURITIES” for additional information.
Recently Issued Accounting Standards, Not Yet Adopted Within These Consolidated Financial Statements
Accounting for Multiple-Deliverable Arrangements
In October 2009, the FASB issued an amendment to the accounting standards on revenue recognition for multiple-
deliverable revenue arrangements. This amendment changes the criteria for separating consideration in multiple-deliverable
arrangements and establishes a selling price hierarchy for determining the selling price of a deliverable. It eliminates the
residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to
all deliverables using the relative selling price method. This amendment is effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. We
do not expect the adoption of this amendment will have a material impact on our consolidated financial statements.
Accounting for Transfers of Financial Assets and Consolidation of VIEs
In June 2009, the FASB issued two new accounting standards that amend guidance applicable to the accounting for
transfers of financial assets and the consolidation of VIEs. The guidance in these standards is effective for fiscal years
beginning after November 15, 2009. The accounting standard for transfers of financial assets is applicable on a prospective
basis, while the accounting standard relating to consolidation of VIEs must be applied to all entities within its scope as of
the date of adoption.
We use separate securitization trusts in our securities issuance process for the purpose of managing the receipts and
payments of cash flow of our PCs and Structured Securities. Prior to January 1, 2010, these trusts met the definition of
QSPEs and were not subject to consolidation analysis. Effective January 1, 2010, the concept of a QSPE was removed from
GAAP and entities previously considered QSPEs are now required to be evaluated for consolidation. Based on our
evaluation, we determined that, under the new consolidation guidance, we are the primary beneficiary of our single-family
PC trusts and certain Structured Transactions. Therefore, effective January 1, 2010, we consolidated on our balance sheet the
assets and liabilities of these trusts at their unpaid principal balances. As such, we will prospectively recognize on our
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