Freddie Mac 2004 Annual Report Download - page 38

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The notes to the consolidated Ñnancial statements contain a summary of our signiÑcant accounting
policies, including a discussion of recently issued accounting pronouncements. Certain of these policies, as
well as estimates we make, are critical to the presentation of our Ñnancial condition since they are particularly
sensitive to our judgment and are highly complex in nature. Some of these policies and estimates relate to
matters that are inherently uncertain. Actual results could diÅer from our estimates and it is possible that such
diÅerences could have a material impact on the consolidated Ñnancial statements. We have included here a
discussion of our accounting policies that we have identiÑed as being particularly critical to understanding our
consolidated Ñnancial statements. For additional information about these and other accounting policies, see
""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES'' to the consolidated Ñnancial
statements. We have discussed each of these critical accounting policies and the signiÑcant related estimates
with the Audit Committee of the Board of Directors.
Fair Value Measurement
The measurement of fair value is fundamental to the presentation of our Ñnancial condition and results of
operations in our consolidated Ñnancial statements. Fair value is deÑned under GAAP as the amount at which
an instrument could be exchanged in a current transaction between willing parties, other than in a forced or
liquidation sale. We record many of our Ñnancial instruments at fair value in the consolidated balance sheets,
with changes in these fair values recognized as gains and losses in the consolidated statements of income or
deferred, net of tax, in AOCI. We also prepare fair value-based consolidated balance sheets, which present our
assets and liabilities at fair value (including instruments such as debt, which are presented at amortized cost in
the GAAP-basis consolidated Ñnancial statements). Our consolidated fair value balance sheets satisfy our
disclosure requirements under SFAS No. 107, ""Disclosures about Fair Values of Financial Instruments,'' or
SFAS 107, and are a tool to communicate our Ñnancial position and results on a fair value basis. See
""CONSOLIDATED FAIR VALUE BALANCE SHEETS'' and ""NOTE 16: FAIR VALUE DISCLO-
SURES'' to the consolidated Ñnancial statements for more information.
Freddie Mac
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