Morgan Stanley 2009 Annual Report Download - page 135

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Instruments Indexed to an Entity’s Own Stock. In June 2008, the FASB ratified the consensus reached for
determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own
stock. The accounting guidance applies to any freestanding financial instrument or embedded feature that has all
of the characteristics of a derivative or freestanding instrument that is potentially settled in an entity’s own stock
with certain exceptions. To meet the definition of “indexed to own stock,” an instrument’s contingent exercise
provisions must not be based on (a) an observable market, other than the market for the issuer’s stock (if
applicable), or (b) an observable index, other than an index calculated or measured solely by reference to the
issuer’s own operations, and the variables that could affect the settlement amount must be inputs to the fair value
of a “fixed-for-fixed” forward or option on equity shares. The adoption of the guidance on January 1, 2009 did
not change the classification or measurement of the Company’s financial instruments.
Subsequent Events. In May 2009, the FASB issued accounting guidance to establish 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 Company’s adoption of this guidance in the quarter ended June 30, 2009
did not have a material impact on the Company’s consolidated financial statements.
Fair Value Measurements. In October 2008, the FASB issued accounting guidance that clarifies the
determination of fair value in a market that is not active and provides an example to illustrate key considerations
in determining the fair value of a financial instrument when the market for that financial asset is not active. The
adoption of the guidance in fiscal 2008 did not have a material impact on the Company’s consolidated financial
statements.
In April 2009, the FASB issued guidance on determining fair value when the volume and level of activity for the
asset or liability have significantly decreased and identifying transactions that are not orderly. The guidance
provides additional application guidance in determining fair values when there is no active market or where the
price inputs being used represent distressed sales. It reaffirms the objective of fair value measurement—to reflect
how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction)
at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use
judgment to ascertain if a formerly active market has become inactive and in determining fair values when
markets have become inactive. The adoption of the guidance in the second quarter of 2009 did not have a
material impact on the Company’s consolidated financial statements.
In August 2009, the FASB issued guidance about measuring liabilities at fair value. The adoption of the
guidance on October 1, 2009 did not have a material impact on the Company’s consolidated financial statements.
In September 2009, the FASB issued additional guidance about measuring the fair value of certain alternative
investments, such as hedge funds, private equity funds, real estate funds and venture capital funds. The guidance
allows companies to determine the fair value of such investments using net asset value (“NAV”) as a practical
expedient and also requires disclosures of the nature and risks of the investments by major category of alternative
investments. The Company’s adoption on December 31, 2009 did not have a material impact on the consolidated
financial statements.
Transfers of Financial Assets and Extinguishments of Liabilities and Consolidation of Variable Interest
Entities. In June 2009, the FASB issued accounting guidance which changes the way entities account for
securitizations and special-purpose entities. The accounting guidance amends the accounting for transfers of
financial assets and will require additional disclosures about transfers of financial assets, including securitization
transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It
eliminates the concept of a QSPE and changes the requirements for derecognizing financial assets.
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