JP Morgan Chase 2009 Annual Report Download - page 142

Management’s discussion and analysis
JPMorgan Chase & Co./2009 Annual Report
140
ACCOUNTING AND REPORTING DEVELOPMENTS
FASB Accounting Standards Codification
In July 2009, the FASB implemented the FASB Accounting Stan-
dards Codification (the “Codification”) as the single source of
authoritative U.S. generally accepted accounting principles. The
Codification simplifies the classification of accounting standards
into one online database under a common referencing system,
organized into eight areas, ranging from industry-specific to general
financial statement matters. Use of the Codification is effective for
interim and annual periods ending after September 15, 2009. The
Firm began to use the Codification on the effective date, and it had
no impact on the Firm’s Consolidated Financial Statements. How-
ever, throughout this Annual Report, all references to prior FASB,
AICPA and EITF accounting pronouncements have been removed,
and all non-SEC accounting guidance is referred to in terms of the
applicable subject matter.
Business combinations/noncontrolling interests in consoli-
dated financial statements
In December 2007, the FASB issued guidance which amended the
accounting and reporting of business combinations, as well as
noncontrolling (i.e., minority) interests. For JPMorgan Chase, the
guidance became effective for business combinations that close on
or after January 1, 2009. The guidance for noncontrolling interests,
as amended, became effective for JPMorgan Chase for fiscal peri-
ods beginning January 1, 2009. In April 2009, the FASB issued
additional guidance, which amends the accounting for contingen-
cies acquired in a business combination.
The amended guidance for business combinations generally only
impacts the accounting for transactions that closed after December
31, 2008, and generally only impacts certain aspects of business
combination accounting, such as the accounting for 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
the business-combination guidance relates to accounting for in-
come taxes associated with transactions that closed prior to Janu-
ary 1, 2009. Once the purchase accounting measurement period
closes for these acquisitions, any further adjustments to income
taxes recorded as part of these business combinations will impact
income tax expense. Previously, these adjustments were predomi-
nantly recorded as adjustments to goodwill.
The guidance for noncontrolling interests, as amended, requires
that they be accounted for and presented as equity if material,
rather than as a liability or mezzanine equity. The presentation and
disclosure requirements for noncontrolling interests are to be ap-
plied retrospectively. The adoption of the reporting requirements for
noncontrolling interests was not material to the Firm’s Consoli-
dated Balance Sheets or results of operations.
Accounting for transfers of financial assets and repurchase
financing transactions
In February 2008, the FASB issued guidance 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,
unless certain criteria are met. The Firm adopted the guidance on
January 1, 2009, for transactions entered into after the date of
adoption. The adoption of the guidance did not have a material
impact on the Firm’s Consolidated Balance Sheets or results of
operations.
Disclosures about derivative instruments and hedging
activities
In March 2008, the FASB issued guidance which amends the prior
disclosure requirements for derivatives. The guidance, which is
effective for fiscal years beginning after November 15, 2008, re-
quires increased disclosures about derivative instruments and
hedging activities and their effects on an entity’s financial position,
financial performance and cash flows. The Firm adopted the guid-
ance on January 1, 2009, and it only affected JPMorgan Chase’s
disclosures of derivative instruments and related hedging activities,
and not its Consolidated Balance Sheets or results of operations.
Determining whether instruments granted in share-based
payment transactions are participating securities
In June 2008, the FASB issued guidance for participating securities,
which clarifies that unvested stock-based compensation awards
containing nonforfeitable rights to dividends or dividend equiva-
lents (collectively, “dividends”), are considered participating securi-
ties and therefore included in the two-class method calculation of
EPS. Under this method, all earnings (distributed and undistributed)
are allocated to common shares and participating securities based
on their respective rights to receive dividends. The guidance is
effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those years.
The Firm adopted the guidance retrospectively effective January 1,
2009, and EPS data for all prior periods have been revised. Adop-
tion of the guidance did not affect the Firm’s results of operations,
but basic and diluted EPS were reduced as disclosed in Note 25 on
page 232 of this Annual Report.
Determining whether an instrument (or embedded
feature) is indexed to an entity’s own stock
In June 2008, the FASB issued guidance which establishes a two-
step process for evaluating whether equity-linked financial instru-
ments and embedded features are indexed to a company’s own
stock for purposes of determining whether the derivative scope
exception should be applied. The guidance is effective for fiscal
years beginning after December 2008. The adoption of this guid-
ance on January 1, 2009, did not have an impact on the Firm’s
Consolidated Balance Sheets or results of operations.