Goldman Sachs 2012 Annual Report Download - page 197

Notes to Consolidated Financial Statements
Regulatory Tax Examinations
The firm is subject to examination by the U.S. Internal
Revenue Service (IRS) and other taxing authorities in
jurisdictions where the firm has significant business
operations, such as the United Kingdom, Japan, Hong
Kong, Korea and various states, such as New York. The tax
years under examination vary by jurisdiction. The firm
believes that during 2013, certain audits have a reasonable
possibility of being completed. The firm does not expect
completion of these audits to have a material impact on the
firm’s financial condition but it may be material to
operating results for a particular period, depending, in part,
on the operating results for that period.
The table below presents the earliest tax years that remain
subject to examination by major jurisdiction.
Jurisdiction
As of
December 2012
U.S. Federal 12005
New York State and City 22004
United Kingdom 2007
Japan 32008
Hong Kong 2005
Korea 2008
1. IRS examination of fiscal 2008 through calendar 2010 began during 2011. IRS
examination of fiscal 2005, 2006 and 2007 began during 2008. IRS
examination of fiscal 2003 and 2004 has been completed, but the liabilities
for those years are not yet final. The firm anticipates that the audits of fiscal
2005 through calendar 2010 should be completed during 2013, and the
audits of 2011 through 2012 should begin in 2013.
2. New York State and City examination of fiscal 2004, 2005 and 2006 began
in 2008.
3. Japan National Tax Agency examination of fiscal 2005 through 2009 began in
2010. The examinations have been completed, but the liabilities for 2008 and
2009 are not yet final.
All years subsequent to the above remain open to
examination by the taxing authorities. The firm believes
that the liability for unrecognized tax benefits it has
established is adequate in relation to the potential for
additional assessments.
In January 2013, the firm was accepted into the
Compliance Assurance Process program by the IRS. This
program will allow the firm to work with the IRS to
identify and resolve potential U.S. federal tax issues before
the filing of tax returns. The 2013 tax year will be the first
year examined under the program.
Note 25.
Business Segments
The firm reports its activities in the following four business
segments: Investment Banking, Institutional Client Services,
Investing & Lending and Investment Management.
Basis of Presentation
In reporting segments, certain of the firm’s business lines
have been aggregated where they have similar economic
characteristics and are similar in each of the following
areas: (i) the nature of the services they provide, (ii) their
methods of distribution, (iii) the types of clients they serve
and (iv) the regulatory environments in which they operate.
The cost drivers of the firm taken as a whole —
compensation, headcount and levels of business activity —
are broadly similar in each of the firm’s business segments.
Compensation and benefits expenses in the firm’s segments
reflect, among other factors, the overall performance of the
firm as well as the performance of individual businesses.
Consequently, pre-tax margins in one segment of the firm’s
business may be significantly affected by the performance
of the firm’s other business segments.
The firm allocates assets (including allocations of excess
liquidity and cash, secured client financing and other
assets), revenues and expenses among the four reportable
business segments. Due to the integrated nature of these
segments, estimates and judgments are made in allocating
certain assets, revenues and expenses. Transactions
between segments are based on specific criteria or
approximate third-party rates. Total operating expenses
include corporate items that have not been allocated to
individual business segments. The allocation process is
based on the manner in which management currently views
the performance of the segments.
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