Fannie Mae 2004 Annual Report Download - page 194

account for a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets
as a change in accounting estimate that is affected by a change in accounting principle. APB 20 previously
required that we report such a change as a change in accounting principle.
SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The adoption of SFAS 154 effective January 1, 2006 had no impact on the consolidated
financial statements.
SFAS 155, Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (an
amendment of SFAS 133 and SFAS 140) (“SFAS 155”). This statement: (i) clarifies which interest-only strips
and principal-only strips are not subject to SFAS 133; (ii) establishes a requirement to evaluate interests in
securitized financial instruments that contain an embedded derivative requiring bifurcation; (iii) clarifies that
concentration of credit risks in the form of subordination are not embedded derivatives; and (iv) permits fair
value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation.
SFAS 155 also amends Derivatives Implementation Group (“DIG”) Issue No. B39 relating to the application
of call options that are exercisable only by a debtor. In November 2006, DIG Issue No. B40 was proposed by
the FASB. The objective of the proposed guidance is to provide a narrow scope exception to certain provisions
of SFAS 133 for securitized interests that contain only an embedded derivative that is tied to the prepayment
risk of the underlying financial assets. Final guidance is expected to be issued in early 2007 with an effective
date that coincides with that of SFAS 155. SFAS 155 is effective for all financial instruments acquired or
issued after the beginning of the first fiscal year that begins after September 15, 2006. We intend to adopt
SFAS 155 effective January 1, 2007 and are evaluating the impact of its adoption on the consolidated financial
statements.
SFAS 156, Accounting for Servicing of Financial Assets
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets,an amendment
of FASB Statement No. 140 (“SFAS 156”). SFAS 156 modifies SFAS 140 by requiring that mortgage servicing
rights (“MSRs”) be initially recognized at fair value and by providing the option to either (i) carry MSRs at
fair value with changes in fair value recognized in earnings or (ii) continue recognizing periodic amortization
expense and assess the MSRs for impairment as was originally required by SFAS 140. This option is available
by class of servicing asset or liability. This statement also changes the calculation of the gain from the sale of
financial assets by requiring that the fair value of servicing rights be considered part of the proceeds received
in exchange for the sale of the assets.
SFAS 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the
beginning of a fiscal year that begins after September 15, 2006, with early adoption permitted. We intend to
adopt SFAS 156 effective January 1, 2007. We do not believe the adoption of SFAS 156 will have a material
effect on the consolidated financial statements.
FIN 48, Accounting for Uncertainty in Income Taxes
In July 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48
supplements SFAS 109 by defining a threshold for recognizing tax benefits in the consolidated financial
statements.
FIN 48 provides a two-step approach to recognizing and measuring tax benefits when a benefits realization is
uncertain. First, we must determine whether the benefit is to be recognized and then the amount to be
recognized. Income tax benefits should be recognized when, based on the technical merits of a tax position,
we believe that if upon examination, including resolution of any appeals or litigation process, it is more likely
than not (a probability of greater than 50%) that the tax position would be sustained as filed. The benefit
recognized for a tax position that meets the more-likely-than-not criterion is measured based on the largest
amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the taxing
authority, taking into consideration the amounts and probabilities of the outcomes upon settlement.
189