Freddie Mac 2006 Annual Report Download - page 124

Recently Issued Accounting Standards, Not Yet Adopted
Accounting for Certain Hybrid Instruments Ì In February 2006, the FASB issued SFAS No. 155, ""Accounting for
Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140,'' or SFAS 155, with further
guidance provided in Derivatives Implementation Group (DIG) Issue B-40 ""Embedded Derivatives: Application of
Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets,'' or DIG B-40. These statements amend
SFAS 133 and SFAS 140. The objective of these statements is to simplify the accounting for certain hybrid Ñnancial
instruments, permitting fair value measurement for any hybrid Ñnancial instrument with an embedded derivative that
otherwise would require bifurcation. In addition, these statements establish a requirement to evaluate interests in securitized
Ñnancial assets to identify instruments that are freestanding derivatives or that are hybrid Ñnancial instruments that contain
an embedded derivative requiring bifurcation. SFAS 155 is eÅective for all Ñnancial instruments acquired or issued after
the beginning of an entity's Ñrst Ñscal year that begins after September 15, 2006. Because SFAS 155 is to be adopted
prospectively, it will not result in a cumulative eÅect of a change in accounting principle. In connection with the adoption of
this accounting standard, we will elect to measure, at fair value, newly acquired interests in securitized Ñnancial assets that
contain embedded derivatives requiring bifurcation with periodic market adjustments reÖected in the income statement.
We expect the amount of our securities that will be impacted by SFAS 155 will be minimal.
Fair Value Measurements Ì In September 2006, the FASB issued SFAS No. 157, ""Fair Value Measurements,'' or
SFAS 157. This statement deÑnes fair value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit
fair value measurements but does not change existing guidance as to whether or not a Ñnancial asset or liability is carried at
fair value. SFAS 157 is eÅective for Ñnancial statements issued for Ñscal years beginning after November 15, 2007 with
earlier adoption permitted. We do not plan to elect early adoption and are currently evaluating the eÅect of SFAS 157 on our
Ñnancial position and results of operations. We do not believe the implementation will likely result in a material diÅerence
to our fair value measurements.
The Fair Value Option for Financial Assets and Financial Liabilities Ì In February 2007, the FASB issued
SFAS No. 159, ""The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB
Statement No. 115,'' or SFAS 159. This statement permits companies to choose to measure certain Ñnancial assets and
liabilities at fair value with changes in fair value recognized in earnings as they occur. The objective is to improve Ñnancial
reporting by providing entities with the opportunity to measure both assets and liabilities at fair value without having to
apply complex hedge accounting provisions. SFAS 159 is eÅective as of the beginning of an entity's Ñrst Ñscal year beginning
after November 15, 2007, with earlier adoption permitted. We do not plan to elect early adoption and are still evaluating
how we will adopt SFAS 159. We have not yet determined the impact, if any, on our consolidated Ñnancial statements of
adopting this standard.
Accounting for Uncertainty in Income Taxes Ì In June 2006, the Financial Accounting Standards Board, or FASB,
issued Interpretation No. 48, ""Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,''
or FIN 48. FIN 48 provides a single model to address accounting for uncertainty in tax positions and clariÑes the
accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being
recognized in the Ñnancial statements. FIN 48 also provides guidance on derecognition, measurement, classiÑcation,
interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is eÅective for Ñscal years beginning
after December 15, 2006. We will adopt FIN 48 as of January 1, 2007, as required. The cumulative eÅect of adopting
FIN 48 will be recorded to retained earnings. We do not anticipate this interpretation will have a material impact on our
retained earnings. We have determined that adoption of FIN 48 will result in an overall increase to our retained earnings
primarily as a result of a gain contingency for which we have not recognized a Ñnancial statement beneÑt.
112 Freddie Mac