Ameriprise 2007 Annual Report Download - page 67

2. Summary of Significant Accounting
Policies
Principles of Consolidation
The Company consolidates all entities in which it holds a greater
than 50% voting interest, or when certain conditions are met for
VIEs and limited partnerships, except for immaterial seed money
investments in mutual and hedge funds, which are accounted for as
trading securities. Entities in which the Company holds a greater
than 20% but less than 50% voting interest are accounted for under
the equity method. Additionally, other investments in hedge funds in
which the Company holds an interest that is less than 50% are
accounted for under the equity method. All other investments are
accounted for under the cost method where the Company owns less
than a 20% voting interest and does not exercise significant influ-
ence, or as Available-for-Sale or trading securities, as applicable.
The Company also consolidates all VIEs for which it is considered to
be the primary beneficiary. The determination as to whether an entity
is a VIE is based on the amount and characteristics of the entity’s
equity. The determination as to whether the Company is considered
to be the primary beneficiary is based on whether the Company will
absorb a majority of the VIE’s expected losses, receive a majority of
the VIE’s expected residual return, or both.
Beginning January 1, 2006, the Company consolidates certain
limited partnerships that are not VIEs, for which the Company is the
general partner and is determined to control the limited partnership.
As a general partner, the Company is presumed to control the limited
partnership unless the limited partners have the ability to dissolve the
partnership or have substantive participating rights.
All material intercompany transactions and balances between or
among Ameriprise Financial and its subsidiaries and affiliates have
been eliminated in consolidation.
Segment Reporting
On December 3, 2007, the Company announced a change in its
reportable segments. The revised presentation of previously reported
segment data has been applied retroactively to all periods presented in
these financial statements. During the fourth quarter of 2007, the
Company completed the implementation of an enhanced transfer
pricing methodology and expanded its segment presentation from
three to five segments to better align with the way the Chief
Operating Decision Maker views the business. This facilitates greater
transparency of the relationships between the businesses and better
comparison to other industry participants in the retail advisor distri-
bution, asset management, insurance and annuity industries. A
narrative description of our enhanced transfer pricing methodology is
presented in Note 26.
The Company’s five segments are Advice & Wealth Management,
Asset Management, Annuities, Protection and Corporate & Other.
Prior to this change, the Company reported results for three
segments: Asset Accumulation and Income, Protection and Corpo-
rate & Other. The change from three segments to five was primarily
the division of the former Asset Accumulation and Income segment
into the Advice & Wealth Management, Asset Management and
Annuities segments. The accounting policies of the segments are the
same as those of the Company, except for the method of capital
allocation and the accounting for gains (losses) from intercompany
revenues and expenses, which are eliminated in consolidation.
Foreign Currency Translation
Net assets of foreign subsidiaries, whose functional currency is other
than the U.S. dollar, are translated into U.S. dollars based upon
exchange rates prevailing at the end of each year. The resulting trans-
lation adjustment, along with any related hedge and tax effects, are
included in accumulated other comprehensive income (loss).
Revenues and expenses are translated at average exchange rates during
the year.
Amounts Based on Estimates and Assumptions
Accounting estimates are an integral part of the Consolidated Financial
Statements. In part, they are based upon assumptions concerning future
events. Among the more significant are those that relate to investment
securities valuation and recognition of other-than-temporary impair-
ments, valuation of deferred acquisition costs (“DAC”) and the
corresponding recognition of DAC amortization, derivative financial
instruments and hedging activities, litigation and claims reserves and
income taxes and the recognition of deferred tax assets and liabilities.
These accounting estimates reflect the best judgment of management
and actual results could differ.
Revenues
The Company generates revenue from a wide range of investment
and insurance products. Principal sources of revenue include manage-
ment and financial advice fees, distribution fees, net investment
income and premiums.
Management and Financial Advice Fees
Management and financial advice fees relate primarily to fees earned
from managing mutual funds, separate account and wrap account
assets, institutional investments including structured investments, as
well as fees earned from providing financial advice and administrative
services (including transfer agent, administration and custodial fees
earned from providing services to retail mutual funds). Management
and financial advice fees also include mortality and expense risk fees
earned on separate account assets. Prior to the sale of the Company’s
defined recordkeeping business in the second quarter of 2006,
management and financial advice fees included 401(k) administra-
tion fees. The Company’s management and risk fees are generally
computed as a contractual rate applied to the underlying asset values
and are generally accrued daily and collected monthly. Many of the
Company’s mutual funds have a performance incentive adjustment
(“PIA”). The PIA increases or decreases the level of management fees
received based on the specific fund’s relative performance as measured
against a designated external index. The Company recognizes PIA fee
revenue on a 12 month rolling performance basis. Employee benefit
plan and institutional investment management and administration
services fees are negotiated and are also generally based on underlying
asset values. The Company may receive performance-based incentive
fees from structured investments and hedge funds that it manages,
which are recognized as revenue at the end of the performance
period. Fees from financial planning and advice services are recog-
nized when the financial plan is delivered.
Ameriprise Financial 2007 Annual Report 65