Goldman Sachs 2007 Annual Report Download - page 98

Notes to Consolidated Financial Statements
No. 144. An impairment loss, calculated as the difference
between the estimated fair value and the carrying value of an
asset or asset group, is recognized if the sum of the expected
undiscounted cash flows relating to the asset or asset group is
less than the corresponding carrying value.
The firm’s operating leases include space held in excess of
current requirements. Rent expense relating to space held
for growth is included in “Occupancy” in the consolidated
statements of earnings. In accordance with SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal
Activities,” the firm records a liability, based on the fair value
of the remaining lease rentals reduced by any potential or
existing sublease rentals, for leases where the firm has ceased
using the space and management has concluded that the firm
will not derive any future economic benefits. Costs to terminate
a lease before the end of its term are recognized and measured
at fair value upon termination.
Foreign Currency Translation
Assets and liabilities denominated in non-U.S. currencies are
translated at rates of exchange prevailing on the date of the
consolidated statement of financial condition, and revenues
and expenses are translated at average rates of exchange
for the year. Gains or losses on translation of the financial
statements of a non-U.S. operation, when the functional
currency is other than the U.S. dollar, are included, net
of hedges and taxes, in the consolidated statements of
comprehensive income. The firm seeks to reduce its net
investment exposure to fluctuations in foreign exchange rates
through the use of foreign currency forward contracts and
foreign currency-denominated debt. For foreign currency
forward contracts, hedge effectiveness is assessed based on
changes in forward exchange rates; accordingly, forward points
are reflected as a component of the currency translation
adjustment in the consolidated statements of comprehensive
income. For foreign currency-denominated debt, hedge
effectiveness is assessed based on changes in spot rates. Foreign
currency remeasurement gains or losses on transactions in
nonfunctional currencies are included in the consolidated
statements of earnings.
Income Taxes
Deferred tax assets and liabilities are recognized for temporary
differences between the financial reporting and tax bases of
the firm’s assets and liabilities. Valuation allowances are
established to reduce deferred tax assets to the amount that
more likely than not will be realized. The firm’s tax assets and
liabilities are presented as a component of “Other assets” and
“Other liabilities and accrued expenses,” respectively, in the
consolidated statements of financial condition. Tax provisions
are computed in accordance with SFAS No. 109, “Accounting
for Income Taxes.” Contingent liabilities related to income
taxes are recorded when the criteria for loss recognition under
In certain cases, primarily related to the death of an employee
or conflicted employment (as outlined in the applicable award
agreements), the firm may cash settle share-based compensation
awards. For awards accounted for as equity instruments,
“Additional paid-in capital” is adjusted to the extent of the
difference between the current value of the award and the
grant-date value of the award.
Goodwill
Goodwill is the cost of acquired companies in excess of the fair
value of identifiable net assets at acquisition date. In accordance
with SFAS No. 142, “Goodwill and Other Intangible Assets,”
goodwill is tested at least annually for impairment. An
impairment loss is triggered if the estimated fair value of
an operating segment, which is a component one level below
the firm’s three business segments, is less than its estimated net
book value. Such loss is calculated as the difference between
the estimated fair value of goodwill and its carrying value.
Identifiable Intangible Assets
Identifiable intangible assets, which consist primarily of
customer lists, specialist rights and the value of business
acquired (VOBA) and deferred acquisition costs (DAC) in the
firm’s insurance subsidiaries, are amortized over their estimated
useful lives in accordance with SFAS No. 142. Identifiable
intangible assets are tested for potential impairment whenever
events or changes in circumstances suggest that an asset’s or
asset group’s carrying value may not be fully recoverable in
accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.” An impairment
loss, calculated as the difference between the estimated fair value
and the carrying value of an asset or asset group, is recognized if
the sum of the estimated undiscounted cash flows relating to the
asset or asset group is less than the corresponding carrying value.
Property, Leasehold Improvements
and Equipment
Property, leasehold improvements and equipment, net of
accumulated depreciation and amortization, are included in
“Other assets” in the consolidated statements of financial
condition.
Substantially all property and equipment are depreciated on a
straight-line basis over the useful life of the asset. Leasehold
improvements are amortized on a straight-line basis over
the useful life of the improvement or the term of the lease,
whichever is shorter. Certain costs of software developed or
obtained for internal use are capitalized and amortized on a
straight-line basis over the useful life of the software.
Property, leasehold improvements and equipment are tested
for potential impairment whenever events or changes in
circumstances suggest that an asset’s or asset group’s carrying
value may not be fully recoverable in accordance with SFAS
96 Goldman Sachs 2007 Annual Report