Morgan Stanley 2014 Annual Report Download - page 175

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
commitment. The liability is recorded in Other liabilities and accrued expenses in the Company’s consolidated
statements of financial condition, and the expense is recorded in Other non-interest expenses in the Company’s
consolidated statements of income. For more information regarding loan commitments, standby letters of credit
and financial guarantees, see Note 13.
Loans Held for Sale
Loans held for sale are measured at the lower of cost or fair value, with valuation changes recorded in Other
revenues. The Company determines the valuation allowance on an individual loan basis, except for residential
mortgage loans for which the valuation allowance is determined at the loan product level. Any decreases in fair
value below the initial carrying amount and any recoveries in fair value up to the initial carrying amount are
recorded in Other revenues. However, increases in fair value above initial carrying value are not recognized.
Interest income on loans held for sale is accrued and recognized based on the contractual rate of interest. Loan
origination fees or costs and purchase price discounts or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees and discounts or premiums are an adjustment to the basis of the loan and,
therefore, are included in the periodic determination of the lower of cost or fair value adjustments and/or the gain
or loss recognized at the time of sale.
Loans held for sale are subject to the nonaccrual policies described above. Because loans held for sale are
recognized at the lower of cost or fair value, the allowance for loan losses and charge-off policies does not apply
to these loans.
Loans at Fair Value
Loans for which the fair value option is elected are carried at fair value, with changes in fair value recognized in
earnings. Loans carried at fair value are not evaluated for purposes of recording an allowance for loan losses. For
further information on loans carried at fair value and classified as Trading assets and Trading liabilities,see Note 4.
For further information on loans, see Note 8.
Noncontrolling Interests.
For consolidated subsidiaries that are less than wholly owned, the third-party holdings of equity interests are
referred to as noncontrolling interests. Nonredeemable noncontrolling interests are presented as a component of
total equity in the Company’s consolidated statements of financial condition.
Accounting Standards Adopted.
Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the
Obligation Is Fixed at the Reporting Date. In February 2013, the Financial Accounting Standards Board (the
“FASB”) issued an accounting update that requires an entity to measure obligations resulting from joint and
several liability arrangements for which the total amount of the obligation is fixed at the reporting date, as the
sum of the amount the reporting entity agreed to pay and any additional amount the reporting entity expects to
pay on behalf of its co-obligors. This update also requires additional disclosures about those obligations. This
guidance became effective for the Company retrospectively beginning on January 1, 2014. The adoption of this
accounting guidance did not have a material impact on the Company’s consolidated financial statements.
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