JP Morgan Chase 2008 Annual Report Download - page 126

Management’s discussion and analysis
124 JPMorgan Chase & Co./ 2008 Annual Report
SFAS 141R will generally only impact the accounting for future busi-
ness combinations and will impact certain aspects of business combi-
nation accounting, such as transaction costs and certain merger-
related restructuring reserves, as well as the accounting for partial
acquisitions where control is obtained by JPMorgan Chase. One
exception to the prospective application of SFAS 141R relates to
accounting for income taxes associated with business combinations
that closed prior to January 1, 2009. Once the purchase accounting
measurement period closes for these acquisitions, any further adjust-
ments to income taxes recorded as part of these business combina-
tions will impact income tax expense. Previously, further adjustments
were predominately recorded as adjustments to Goodwill. JPMorgan
Chase will continue to evaluate the impact that SFAS 141R will have
on its consolidated financial statements.
SFAS 160 requires that noncontrolling interests be accounted for and
presented as equity, rather than as a liability or mezzanine equity.
Changes to how the income statement is presented will also result.
SFAS 160 presentation and disclosure requirements are to be applied
retrospectively. The adoption of this pronouncement is not expected
to have a material impact on the Firm’s Consolidated Balance Sheets,
results of operations or ratios.
Accounting for transfers of financial assets and repurchase
financing transactions
In February 2008, the FASB issued FSP FAS 140-3, which requires an
initial transfer of a financial asset and a repurchase financing that
was entered into contemporaneously with, or in contemplation of,
the initial transfer to be evaluated together as a linked transaction
under SFAS 140, unless certain criteria are met. The Firm adopted
FSP FAS 140-3 on January 1, 2009, for new transactions entered into
after the date of adoption. The adoption of FSP FAS 140-3 is not
expected to have a material impact on the Consolidated Balance
Sheets or results of operations.
Disclosures about derivative instruments and hedging activ-
ities – FASB Statement No. 161
In March 2008, the FASB issued SFAS 161, which amends the disclo-
sure requirements of SFAS 133. SFAS 161 requires increased disclo-
sures about derivative instruments and hedging activities and their
effects on an entity’s financial position, financial performance and
cash flows. SFAS 161 is effective for fiscal years beginning after
November 15, 2008, with early adoption permitted. SFAS 161 will
only affect JPMorgan Chase’s disclosures of derivative instruments
and related hedging activities, and not its Consolidated Balance
Sheets, Consolidated Statements of Income or Consolidated
Statements of Cash Flows.
Determining whether instruments granted in share-based
payment transactions are participating securities
In June 2008, the FASB issued FSP EITF 03-6-1, which addresses
whether instruments granted in share-based payment transactions
are participating securities prior to vesting and, therefore, need to be
included in the earnings allocation in computing earnings per share
under the two-class method. FSP EITF 03-6-1 is effective for financial
statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years. Adoption of FSP EITF
03-6-1 does not affect net income or results of operations but may
result in a reduction of basic and/or diluted earnings per share in
certain periods.
Disclosures about credit derivatives and certain guarantees
In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4. The
FSP requires enhanced disclosures about credit derivatives and guar-
antees to address the potential adverse effects of changes in credit
risk on the financial position, financial performance and cash flows
of the sellers of these instruments. The FSP is effective for reporting
periods ending after November 15, 2008, with earlier application
permitted. The disclosures required by this FSP are incorporated in
this Annual Report. FSP FAS 133-1 and FIN 45-4 only affects
JPMorgan Chase’s disclosures of credit derivatives and guarantees
and not its Consolidated Balance Sheets, Consolidated Statements of
Income or Consolidated Statements of Cash Flows.
Determining whether an instrument (or embedded feature)
is indexed to an entity’s own stock
In September 2008, the EITF issued EITF 07-5, which establishes a
two-step process for evaluating whether equity-linked financial
instruments and embedded features are indexed to a company’s own
stock for purposes of determining whether the derivative scope
exception in SFAS 133 should be applied. EITF 07-5 is effective for
fiscal years beginning after December 2008. The adoption of this
EITF is not expected to have a material impact on the Firm’s
Consolidated Balance Sheets or results of operations.
Accounting for transfers of financial assets and consolida-
tion of variable interest entities
The FASB has been deliberating certain amendments to both SFAS
140 and FIN 46R that may impact the accounting for transactions
that involve QSPEs and VIEs. Among other things, the FASB is pro-
posing to eliminate the concept of QSPEs from both SFAS 140 and
FIN 46R and make key changes to the consolidation model of FIN
46R that will change the method of determining which party to a VIE
should consolidate the VIE. A final standard is expected to be issued
in the second quarter of 2009, with an