JP Morgan Chase 2010 Annual Report Download - page 155

JPMorgan Chase & Co./2010 Annual Report 155
ACCOUNTING AND REPORTING DEVELOPMENTS
Accounting for transfers of financial assets and
consolidation of variable interest entities
Effective January 1, 2010, the Firm implemented new accounting
guidance that amends the accounting for the transfers of financial
assets and the consolidation of VIEs. Upon adoption of the new
guidance, the Firm consolidated its Firm-sponsored credit card securi-
tization trusts, Firm-administered multi-seller conduits, and certain
mortgage and other consumer loan securitization entities. The Finan-
cial Accounting Standards Board (“FASB”) deferred the requirements
of the new accounting guidance for VIEs for certain investment funds,
including mutual funds, private equity funds and hedge funds, until
the FASB reconsiders the appropriate accounting guidance for these
funds. For additional information about the impact of the adoption
of the new accounting guidance on January 1, 2010, see Note 16 on
pages 244–259 of this Annual Report.
Fair value measurements and disclosures
In January 2010, the FASB issued guidance that requires new
disclosures, and clarifies existing disclosure requirements, about fair
value measurements. The clarifications and the requirement to
separately disclose transfers of instruments between level 1 and
level 2 of the fair value hierarchy are effective for interim reporting
periods beginning after December 15, 2009; the Firm adopted this
guidance in the first quarter of 2010. For additional information
about the impact of the adoption of the new fair value measure-
ments guidance, see Note 3 on pages 170–187 of this Annual
Report. In addition, a new requirement to provide purchases, sales,
issuances and settlements in the level 3 rollforward on a gross basis
is effective for fiscal years beginning after December 15, 2010.
Subsequent events
In May 2009, the FASB issued guidance that established general
standards of accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are
issued or are available to be issued. The guidance was effective for
interim or annual financial periods ending after June 15, 2009. In
February 2010, the FASB amended the guidance by eliminating the
requirement for SEC filers to disclose the date through which it
evaluated subsequent events. The Firm adopted the amended
guidance in the first quarter of 2010. The application of the guid-
ance had no effect on the Firm’s Consolidated Balance Sheets or
results of operations.
Accounting for certain embedded credit derivatives
In March 2010, the FASB issued guidance clarifying the circum-
stances in which a credit derivative embedded in beneficial interests
in securitized financial assets is required to be separately accounted
for as a derivative instrument. The guidance is effective for the first
fiscal quarter beginning after June 15, 2010, with early adoption
permitted. Upon adoption, the new guidance permits the election
of the fair value option for beneficial interests in securitized finan-
cial assets. The Firm adopted the new guidance prospectively,
effective July 1, 2010. The adoption of the guidance did not have a
material impact on the Firm’s Consolidated Balance Sheets or
results of operations. For additional information about the impact
of the adoption of the new guidance, see Note 6 on pages 191–
199 of this Annual Report.
Accounting for troubled debt restructurings of purchased
credit-impaired loans that are part of a pool
In April 2010, the FASB issued guidance that amends the account-
ing for troubled debt restructurings (“TDRs”) of PCI loans ac-
counted for within a pool. The guidance clarifies that modified PCI
loans should not be removed from a pool even if the modification
would otherwise be considered a TDR. Additionally, the guidance
clarifies that the impact of modifications should be included in
evaluating whether a pool of loans is impaired. The guidance was
effective for the Firm beginning in the third quarter of 2010, and is
to be applied prospectively. The guidance is consistent with the
Firm’s previously existing accounting practice and, therefore, had
no impact on the Firm’s Consolidated Balance Sheets or results of
operations.
Disclosures about the credit quality of financing
receivables and the allowance for credit losses
In July 2010, the FASB issued guidance that requires enhanced
disclosures surrounding the credit characteristics of the Firm’s
loan portfolio. Under the new guidance, the Firm is required to
disclose its accounting policies, the methods it uses to determine
the components of the allowance for credit losses, and qualitative
and quantitative information about the credit risk inherent in the
loan portfolio, including additional information on certain types
of loan modifications. For the Firm, the new disclosures became
effective for the 2010 Annual Report. For additional information,
see Notes 14 and 15 on pages 220–243 of this Annual Report.
The adoption of this guidance only affects JPMorgan Chase’s
disclosures of financing receivables and not its Consolidated
Balance Sheets or results of operations. In January 2011, the
FASB issued guidance that deferred the effective date of certain
disclosures in this guidance regarding TDRs, pending resolution
on the FASB’s project to amend the scope of TDR guidance.