MoneyGram 2009 Annual Report Download - page 59

Table of Contents
direct responsibility for identifying, controlling and monitoring operational risks within their business. Business managers maintain a
system of controls to provide transaction authorization and execution, safeguarding of assets from misuse or theft, and to ensure the
quality of financial and other data. Our Business Resiliency group works with each business function to develop plans to support business
resumption activities including technology, networks and data centers. Our internal audit function tests the system of internal controls
through risk-based audit procedures and reports on the effectiveness of internal controls to executive management and the Audit
Committee of the Board of Directors.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosures in the Consolidated Financial Statements. Actual results could differ from
those estimates. On a regular basis, management reviews its accounting policies, assumptions and estimates to ensure that our financial
statements are presented fairly and in accordance with GAAP. See Note 3 — Summary of Significant Accounting Policies of the Notes to
Consolidated Financial Statements for a comprehensive list of our accounting policies.
Critical accounting policies are those policies that management believes are most important to the portrayal of our financial position and
results of operations, and that require management to make estimates that are difficult, subjective or complex. Based on these criteria,
management has identified and discussed with the Audit Committee the following critical accounting policies and estimates, including
the methodology and disclosures related to those estimates.
Fair Value of Investment Securities — We hold investment securities classified as trading and available-for-sale. Trading securities are
recorded at fair value, with unrealized gains and losses reported in the Consolidated Statements of Loss. Available-for-sale securities are
also recorded at fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss in stockholders' deficit.
We measure fair value as an "exit price," or the exchange price that would be received for an asset in an orderly transaction between
market participants on the measurement date. A three-level hierarchy has been established for fair value measurements based upon the
observability of the inputs to the valuation of an asset or liability, and requires that the use of observable inputs be maximized and the use
of unobservable inputs be minimized. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs.
The degree of management judgment involved in determining the fair value of an investment is dependent upon the availability of quoted
market prices or observable market parameters. Fair value for the majority of our investments is estimated using quoted market prices in
active markets for similar securities, broker quotes or industry-standard models that utilize independently sourced market parameters.
We receive prices from an independent pricing service for the vast majority of the fair value of our investment securities. We verify these
prices through periodic internal valuations, as well as through comparison to comparable securities, any broker quotes received and
liquidation prices. The independent pricing service will only provide a price for an investment if there is sufficient observable market
information to obtain objective pricing. We receive prices from an independent pricing service for all investments classified as residential
mortgage-backed securities and United States government agencies, as well as certain other asset-backed securities.
For investments that are not actively traded, or for which there is not sufficient observable market information, we estimate fair value
using broker quotes when available. When such quotes are not available, and to verify broker quotes received, we estimate fair value
using industry-standard pricing models that utilize independently sourced market observable parameters, discount margins for
comparable securities adjusted for differences in our security, risk and liquidity premiums observed in the market place, default rates,
prepayment speeds, loss severity and information specific to the underlying collateral to the investment. We maximize the use of market
observable information to the extent possible, and make our best estimate of the assumptions that a similar market participant would
make. Our other asset-backed securities are primarily valued through the use of broker quotes or internal valuations.
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