SunTrust 2006 Annual Report Download - page 96

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SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Benefit Plans”, to the Consolidated Financial Statements. Effective January 1, 2006, the Company
adopted SFAS No. 123 (Revised) Share-Based Payment, (“SFAS No. 123(R)”), using the modified
prospective application method. The modified prospective application method was applied to new
awards, to any outstanding liability awards, and to awards modified, repurchased, or cancelled after
January 1, 2006. For all awards granted prior to January 1, 2006, compensation cost has been recognized
on the portion of awards for which service has been rendered. Additionally, rather than recognizing
forfeitures as they occur, beginning January 1, 2006, the Company began estimating the number of
awards for which it is probable that service will be rendered and adjusted compensation cost
accordingly. Estimated forfeitures are subsequently adjusted to reflect actual forfeitures.
Foreign Currency Transactions
Foreign denominated assets and liabilities resulting from foreign currency transactions are valued using
period end foreign exchange rates and the associated interest income or expense are valued using
approximate weighted average exchange rates for the period. The Company may elect to enter into
foreign currency derivatives to mitigate its exposure to changes in foreign exchange rates. The
derivative contracts are valued at fair value. Gains and losses resulting from such valuations are
included as noninterest income in the Consolidated Statements of Income.
Accounting Policies Recently Adopted and Pending Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R). This
Statement replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes
Accounting Practice Bulletin (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.”
SFAS No. 123(R) clarifies and expands the guidance of SFAS No. 123 in several areas, including
measuring fair value, classifying an award as equity or as a liability, accounting for non-substantive
vesting provisions, and accounting for forfeitures. Under the provisions of SFAS No. 123(R), the
alternative to use APB Opinion No. 25’s intrinsic value method of accounting that was provided in
SFAS No. 123, as originally issued, is eliminated, and entities are required to measure and record
compensation expense in share-based payment transactions at fair value, reduced by expected
forfeitures. In accordance with SFAS No. 123(R), the Company changed its policy of recognizing
forfeitures as they occur and began estimating the number of awards for which it is probable service will
be rendered. The estimate of forfeitures adjusts the initial recognition of compensation expense and the
estimated forfeitures are subsequently adjusted through compensation expense to reflect actual
forfeitures. In conjunction with the adoption of SFAS No. 123(R), the Company refined its
measurement of the expected stock price volatility calculation by using a daily average calculation. The
adoption of this standard did not have a material impact on the Company’s financial position or results
of operations.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a
replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 changes the
requirements for reporting and accounting for a change in accounting principle. This statement requires
retrospective application to prior period financial statements for changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the cumulative effect of the change.
The provisions of APB Opinion No. 20, “Accounting Changes,” that relate to reporting the correction of
an error in previously issued financial statements and a change in accounting estimate are carried
forward in SFAS No. 154. SFAS No. 154 also carries forward the provisions of SFAS No. 3, “Reporting
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