Morgan Stanley 2014 Annual Report Download - page 163

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For investments in entities in which the Company does not have a controlling financial interest but has
significant influence over operating and financial decisions, the Company generally applies the equity method of
accounting with net gains and losses recorded within Other revenues (see Note 22). Where the Company has
elected to measure certain eligible investments at fair value in accordance with the fair value option, net gains
and losses are recorded within Investments revenues (see Note 4).
Equity and partnership interests held by entities qualifying for accounting purposes as investment companies are
carried at fair value.
The Company’s significant regulated U.S. and international subsidiaries include Morgan Stanley & Co. LLC
(“MS&Co.”), Morgan Stanley Smith Barney LLC (“MSSB LLC”), Morgan Stanley & Co. International plc
(“MSIP”), Morgan Stanley MUFG Securities Co., Ltd. (“MSMS”), Morgan Stanley Bank, N.A. (“MSBNA”) and
Morgan Stanley Private Bank, National Association (“MSPBNA”).
Income Statement Presentation. The Company, through its subsidiaries and affiliates, provides a wide variety
of products and services to a large and diversified group of clients and customers, including corporations,
governments, financial institutions and individuals. In connection with the delivery of the various products and
services to clients, the Company manages its revenues and related expenses in the aggregate. As such, when
assessing the performance of its businesses, primarily in its Institutional Securities business segment, the
Company considers its trading, investment banking, commissions and fees, and interest income, along with the
associated interest expense, as one integrated activity.
2. Significant Accounting Policies.
Revenue Recognition.
Investment Banking. Underwriting revenues and advisory fees from mergers, acquisitions and restructuring
transactions are recorded when services for the transactions are determined to be substantially completed,
generally as set forth under the terms of the engagement. Transaction-related expenses, primarily consisting of
legal, travel and other costs directly associated with the transaction, are deferred and recognized in the same
period as the related investment banking transaction revenues. Underwriting revenues are presented net of related
expenses. Non-reimbursed expenses associated with advisory transactions are recorded within Non-interest
expenses.
Commissions and fees. Commission and fee revenues primarily arise from agency transactions in listed and
over-the-counter (“OTC”) equity securities; services related to sales and trading activities; and sales of mutual
funds, futures, insurance products and options. Commission and fee revenues are recognized in the accounts on
the trade date.
Asset Management, Distribution and Administration Fees. Asset management, distribution and administration
fees are recognized over the relevant contract period. Sales commissions paid by the Company in connection
with the sale of certain classes of shares of its open-end mutual fund products are accounted for as deferred
commission assets. The Company periodically tests the deferred commission assets for recoverability based on
cash flows expected to be received in future periods. In certain management fee arrangements, the Company is
entitled to receive performance-based fees (also referred to as incentive fees) when the return on assets under
management exceeds certain benchmark returns or other performance targets. In such arrangements, performance
fee revenues are accrued (or reversed) quarterly based on measuring account/fund performance to date versus the
performance benchmark stated in the investment management agreement. Performance-based fees are recorded
within Investments or Asset management, distribution and administration fees depending on the nature of the
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