Freddie Mac 2015 Annual Report Download - page 213

Financial Statements Notes to the Consolidated Financial Statements | Note 1
Freddie Mac 2015 Form 10-K 211
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Freddie Mac is a GSE chartered by Congress in 1970. Our public mission is to provide liquidity, stability,
and affordability to the U.S. housing market. We are regulated by FHFA, the SEC, HUD, and Treasury,
and are currently operating under the conservatorship of FHFA. For more information on the roles of
FHFA and Treasury, see Note 2. Throughout our consolidated financial statements and related notes, we
use certain acronyms and terms which are defined in the “GLOSSARY.”
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with GAAP and
include our accounts as well as the accounts of other entities in which we have a controlling financial
interest. All intercompany balances and transactions have been eliminated.
We are operating under the basis that we will realize assets and satisfy liabilities in the normal course of
business as a going concern and in accordance with the delegation of authority from FHFA to our Board
of Directors and management. Certain amounts in prior periods’ consolidated financial statements have
been reclassified to conform to the current presentation.
We evaluate the materiality of identified errors in the financial statements using both an income
statement, or “rollover,” and a balance sheet, or “iron curtain,” approach, based on relevant quantitative
and qualitative factors. Net income includes certain adjustments to correct immaterial errors related to
previously reported periods.
Beginning in the first quarter of 2014, we reclassified net discounts paid on retirements of other debt and
net premiums received from issuance of debt securities of consolidated trusts and other debt from cash
flows from operating activities to cash flows from financing activities on our consolidated statements of
cash flows. This reclassification resulted in a decrease of $2.0 billion to net cash provided by operating
activities, and an increase of $2.0 billion to net cash used in financing activities for 2013.
USE OF ESTIMATES
The preparation of financial statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses and gains and losses
during the reporting period. Management has made significant estimates in preparing the financial
statements for establishing the allowance for loan losses and reserve for guarantee losses, valuing
financial instruments and other assets and liabilities, and assessing impairments on investments. Actual
results could be different from these estimates.