Freddie Mac 2009 Annual Report Download - page 52

The valuations, risk metrics, amortization results, loan loss reserve estimations and security impairment charges
produced by our internal models may be different from actual results, which could adversely affect our business results, cash
flows, fair value of net assets, business prospects and future financial results. Changes in any of our models or in any of the
assumptions, judgments or estimates used in the models may cause the results generated by the model to be materially
different. The different results could cause a revision of previously reported financial condition or results of operations,
depending on when the change to the model, assumption, judgment or estimate is implemented. Any such changes may also
cause difficulties in comparisons of the financial condition or results of operations of prior or future periods.
Due to increased uncertainty about model results, we also face increased risk that we could make poor business
decisions in areas where model results are an important factor, including loan purchases, management and guarantee fee
pricing and asset and liability management. Furthermore, any strategies we employ to attempt to manage the risks associated
with our use of models may not be effective. See “MD&A — CRITICAL ACCOUNTING POLICIES AND ESTIMATES —
Valuation of a Significant Portion of Assets and Liabilities” and “QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK — Interest-Rate Risk and Other Market Risks” for more information on our use of models.
Changes in our accounting policies, as well as estimates we make, could materially affect how we report our financial
condition or results of operations.
Our accounting policies are fundamental to understanding our financial condition and results of operations. Certain of
our accounting policies and estimates are “critical” as they are both important to the presentation of our financial condition
and results of operations and they require management to make particularly subjective or complex judgments about matters
that are inherently uncertain and for which materially different amounts could be recorded using different assumptions or
estimates. For a description of our critical accounting policies, see “MD&A — CRITICAL ACCOUNTING POLICIES AND
ESTIMATES.”
From time to time, the FASB and the SEC change the financial accounting and reporting standards that govern the
preparation of our financial statements. These changes are beyond our control, can be difficult to predict and could
materially impact how we report our financial condition and results of operations. We could be required to apply a new or
revised standard retrospectively, which may result in the revision of prior period financial statements by material amounts.
The implementation of new or revised accounting standards could result in material adverse effects to our stockholders’
equity (deficit) and result in or contribute to the need for additional draws under the Purchase Agreement.
See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” to our consolidated financial statements for
more information.
We face additional risks related to our adoption of changes in accounting standards related to securitization entities.
Historically, our PCs, Structured Securities and other securitization entities were generally considered off-balance sheet
arrangements. However, effective January 1, 2010, because of changes to the accounting standards for transfers of financial
assets and consolidation of VIEs, we consolidated our single-family PC trusts and certain of our Structured Transactions on
our consolidated balance sheets. The cumulative effect of these changes in accounting principles as of January 1, 2010 is a
net decrease of approximately $11.7 billion to total equity (deficit), which includes the changes to the opening balances of
AOCI and retained earnings (accumulated deficit). This will increase the likelihood that we will require a draw from
Treasury under the Purchase Agreement for the first quarter of 2010.
Implementation of these accounting changes has required us to make significant process and systems changes. Given the
magnitude of these changes, the risk that new control weaknesses may be identified has increased. We have devoted
significant resources and management attention to complete these changes. This has had, and may continue to have, an
adverse affect on our ability to devote resources to other systems, controls and business related initiatives. For example, we
may be required to delay the implementation of, or divert resources from, other initiatives, including efforts to remedy
previously identified control weaknesses.
For additional information, see “MD&A — EXECUTIVE SUMMARY” and “NOTE 1: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES — Recently Issued Accounting Standards, Not Yet Adopted Within These Consolidated Financial
Statements — Accounting for Transfers of Financial Assets and Consolidation of VIEs” to our consolidated financial
statements.
A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our
business, damage our reputation and cause losses.
Shortcomings or failures in our internal processes, people or systems could lead to impairment of our liquidity, financial
loss, disruption of our business, liability to customers, further legislative or regulatory intervention or reputational damage.
For example, our business is highly dependent on our ability to process a large number of transactions on a daily basis. The
transactions we process are complex and are subject to various legal, accounting and regulatory standards. Our financial,
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