Morgan Stanley 2010 Annual Report Download - page 146

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 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 provided additional application guidance in determining fair values when there is
no active market or where the price inputs being used represent distressed sales. It reaffirmed 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 reaffirmed the need to use judgment to ascertain if a formerly active market has become inactive
and to determine 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
allowed companies to determine the fair value of such investments using net asset value (“NAV”) as a practical
expedient and also required 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
Company’s 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 that changed the way entities account for
securitizations and special purpose entities (“SPE”). The accounting guidance amended the accounting for
transfers of financial assets and required additional disclosures about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the risks related to transferred
financial assets. This guidance eliminated the concept of a QSPE and changed the requirements for
derecognizing financial assets.
The accounting guidance also amended the accounting for consolidation and changed how a reporting entity
determines when a VIE that is insufficiently capitalized or is not controlled through voting (or similar rights)
should be consolidated. The determination of whether a reporting entity is required to consolidate a VIE is based
on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the
activities of the other entity that most significantly impact the other entity’s economic performance. In February
2010, the FASB finalized a deferral of these accounting changes, effective January 1, 2010, for certain interests
in money market funds, in investment companies or in entities qualifying for accounting purposes as investment
companies (the “Deferral”). The Company will continue to analyze consolidation under other existing
authoritative guidance for entities subject to the Deferral. The adoption of this accounting guidance on January 1,
2010 did not have a material impact on the Company’s consolidated statements of financial condition.
Scope Exception Related to Embedded Credit Derivatives. In March 2010, the FASB issued accounting
guidance that changed the accounting for credit derivatives embedded in beneficial interests in securitized
financial assets. The guidance eliminated the scope exception for embedded credit derivatives unless they are
created solely by subordination of one financial instrument to another. Bifurcation and separate recognition may
be required for certain beneficial interests that are currently not accounted for at fair value through earnings. The
adoption of this accounting guidance on July 1, 2010 did not have a material impact on the Company’s
consolidated financial statements.
140