Goldman Sachs 2001 Annual Report Download - page 54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE1DESCRIPTION OF BUSINESS
The Goldman Sachs Group, Inc. (Group Inc.), a Delaware
corporation, together with its consolidated subsidiaries (collec-
tively, the firm), is a global investment banking and securities
firm that provides a wide range of financial services worldwide
to a substantial and diversified client base. On May 7, 1999, the
firm converted from a partnership to a corporation and com-
pleted its initial public offering.
The firm’s activities are divided into two segments:
Global Capital Markets–This segment comprises Investment
Banking, which includes Financial Advisory and Underwriting,
and Trading and Principal Investments, which includes Fixed
Income, Currency and Commodities (FICC), Equities and
Principal Investments (Principal Investments primarily represents
net revenues from the firm’s merchant banking investments); and
Asset Management and Securities Services–This segment com-
prises Asset Management, Securities Services and Commissions.
NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of
Group Inc., its wholly-owned subsidiaries and other entities in
which the firm has a controlling financial interest. In determin-
ing whether to consolidate an entity, management considers,
among other factors, the nature and extent of the firm’s owner-
ship and financial interests and other attributes of control.
The firm’s principal U.S. and international subsidiaries include
Goldman, Sachs & Co. (GS&Co.), J. Aron & Company and
Spear, Leeds & Kellogg, L.P. in New York, Goldman Sachs
International (GSI) in London and Goldman Sachs (Japan) Ltd.
(GSJL) in Tokyo. All material intercompany transactions and
balances have been eliminated.
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles that
require management to make estimates and assumptions regarding
trading inventory valuations, the outcome of pending litigation,
and other matters that affect the consolidated financial statements
and related disclosures. These estimates and assumptions are based
on judgment and available information and, consequently, actual
results could be materially different from these estimates.
Unless otherwise stated herein, all references to 2001, 2000 and
1999 refer to the firm’s fiscal year ended, or the date, as the con-
text requires, November 30, 2001, November 24, 2000 and
November 26, 1999, respectively. Certain reclassifications have
been made to prior-year amounts to conform to the current-year
presentation.
Cash and Cash Equivalents
The firm defines cash equivalents as highly liquid overnight
deposits held in the ordinary course of business.
Transfers of Financial Assets
The firm accounts for transfers of financial assets in accordance
with Statement of Financial Accounting Standards (SFAS)
No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities—a replacement of
FASB Statement No. 125.” In general, transfers are accounted
for as sales under SFAS No. 140 when the firm has relinquished
control over the transferred assets. Transfers that are not
accounted for as sales are accounted for as repurchase agree-
ments and collateralized financing arrangements.
Repurchase Agreements and
Collateralized Financing Arrangements
Securities purchased under agreements to resell and securities
sold under agreements to repurchase, principally U.S. govern-
ment, federal agency and investment-grade non-U.S. sovereign
obligations, represent short-term collateralized financing
transactions and are carried at their contractual amounts
plus accrued interest. These amounts are presented on a net-
by-counterparty basis when the applicable requirements of
Financial Accounting Standards Board Interpretation No. 41 are
satisfied. The firm takes possession of securities purchased under
agreements to resell, monitors the market value of these securities
on a daily basis and obtains additional collateral as appropriate.
Securities borrowed and loaned are recorded on the statements
of financial condition based on the amount of cash collateral
advanced or received. These transactions are generally collater-
alized by either cash, securities or letters of credit. The firm takes
possession of securities borrowed, monitors the market value of
securities loaned and obtains additional collateral as appropri-
ate. Income or expense is recognized as interest over the life of
the transaction.
GOLDMAN SACHS ANNUAL REPORT 2001 page 52