Freddie Mac 2010 Annual Report Download - page 62

impact on our consolidated financial statements. 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” and “NOTE 2: CHANGE IN
ACCOUNTING PRINCIPLES” for more information.
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, errors in our financial statements, disruption of our business, liability to customers, further legislative or regulatory
intervention or reputational damage. We experienced a number of operational problems in 2010 related to inadequately
designed or improperly executed systems. Servicing and loss mitigation processes are currently under considerable stress,
which increases the risk that we may experience further operational problems in the future. Corporate reorganizations,
inability to retain key staff members, and our efforts to reduce administrative expenses may increase the stress on existing
processes.
Our business is highly dependent on our ability to process a large number of transactions on a daily basis and manage
and analyze significant amounts of information, much of which is provided by third parties. The transactions we process are
complex and are subject to various legal, accounting and regulatory standards. The types of transactions we process and the
standards relating to those transactions can change rapidly in response to external events, such as the implementation of
government-mandated programs and changes in market conditions. Our financial, accounting, data processing or other
operating systems and facilities may fail to operate properly or become disabled, adversely affecting our ability to process
these transactions. The information provided by third parties may be incorrect, or we may fail to properly manage or
analyze it. Our core systems and technical architecture include many legacy systems and applications that lack scalability
and flexibility, which increases the risk of system failure. The inability of our systems to accommodate an increasing volume
of transactions or new types of transactions or products could constrain our ability to pursue new business initiatives. We are
investing considerable resources in a long-term project to improve our existing systems infrastructure. There can be no
assurance that we will be able to complete this project successfully, or that it will reduce our operational risk. In the past, we
have had difficulty in conducting similar large-scale infrastructure improvement projects.
Our employees could act improperly for their own gain and cause unexpected losses or reputational damage. While we
have processes and systems in place to prevent and detect fraud, there can be no assurance that such processes and systems
will be successful.
We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearinghouses or
other financial intermediaries we use to facilitate our securities and derivatives transactions. Any such failure or termination
could adversely affect our ability to effect transactions, service our customers and manage our exposure to risk.
Most of our key business activities are conducted in our principal offices located in McLean, Virginia. Despite the
contingency plans and facilities we have in place, our ability to conduct business may be adversely impacted by a disruption
in the infrastructure that supports our business and the communities in which we are located. Potential disruptions may
include those involving electrical, communications, transportation or other services we use or that are provided to us. If a
disruption occurs and our employees are unable to occupy our offices or communicate with or travel to other locations, our
ability to service and interact with our customers or counterparties may suffer and we may not be able to successfully
implement contingency plans that depend on communication or travel.
We are exposed to the risk that a catastrophic event, such as a terrorist event or natural disaster, could result in a
significant business disruption and an inability to process transactions through normal business processes. Any measures we
take to mitigate this risk may not be sufficient to respond to the full range of catastrophic events that may occur.
We may not be able to protect the confidentiality of our information.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our
computer systems and networks. Our computer systems, software and networks may be vulnerable to unauthorized access,
computer viruses or other malicious code and other events that could have a security impact. If one or more of such events
occur, this potentially could jeopardize confidential and other information, including nonpublic personal information and
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