Freddie Mac 2011 Annual Report Download - page 77

Changes in our accounting policies, as well as estimates we make, could materially affect how we report our financial
condition or results of operations.
Our accounting policies are fundamental to understanding our financial condition and results of operations. Certain of
our accounting policies, as well as estimates we make, are “critical,” as they are both important to the presentation of our
financial condition and results of operations and they require management to make particularly difficult, complex or
subjective judgments and estimates, often regarding matters that are inherently uncertain. Actual results could differ from
our estimates and the use of different judgments and assumptions related to these policies and estimates could have a
material impact on our consolidated financial statements. For a description of our critical accounting policies, see
“MD&A — CRITICAL ACCOUNTING POLICIES AND ESTIMATES.”
From time to time, the FASB and the SEC change the financial accounting and reporting guidance that govern the
preparation of our financial statements. These changes are beyond our control, can be difficult to predict and could
materially impact how we report our financial condition and results of operations. We could be required to apply new or
revised guidance retrospectively, which may result in the revision of prior period financial statements by material
amounts. The implementation of new or revised accounting guidance could result in material adverse effects to our
stockholders’ equity (deficit) and result in or contribute to the need for additional draws under the Purchase Agreement.
FHFA may require us to change our accounting policies to align more closely with those of Fannie Mae. FHFA may
also require us and Fannie Mae to have the same independent public accounting firm. Either of these events could
significantly increase our expenses and require a substantial time commitment of management.
See “NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” for more information.
A failure in our operational systems or infrastructure, or those of third parties, could impair our liquidity, disrupt our
business, damage our reputation, and cause losses.
Shortcomings or failures in our internal processes, people, or systems could lead to impairment of our liquidity,
financial loss, errors in our financial statements, disruption of our business, liability to customers, further legislative or
regulatory intervention, or reputational damage. Servicing and loss mitigation processes are currently under considerable
stress, which increases the risk that we may experience further operational problems in the future. Our core systems and
technical architecture include many legacy systems and applications that lack scalability and flexibility, which increases
the risk of system failure. While we are working to enhance the quality of our infrastructure, we have had difficulty in the
past conducting large-scale infrastructure improvement projects.
Our business is highly dependent on our ability to process a large number of transactions on a daily basis and
manage and analyze significant amounts of information, much of which is provided by third parties. The transactions we
process are complex and are subject to various legal, accounting, and regulatory standards. The types of transactions we
process and the standards relating to those transactions can change rapidly in response to external events, such as the
implementation of government-mandated programs and changes in market conditions. Our financial, accounting, data
processing, or other operating systems and facilities may fail to operate properly or become disabled, adversely affecting
our ability to process these transactions. The information provided by third parties may be incorrect, or we may fail to
properly manage or analyze it. The inability of our systems to accommodate an increasing volume of transactions or new
types of transactions or products could constrain our ability to pursue new business initiatives or change or improve
existing business activities.
Our employees could act improperly for their own gain and cause unexpected losses or reputational damage. While
we have processes and systems in place designed to prevent and detect fraud, there can be no assurance that such
processes and systems will be successful.
We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearinghouses, or
other financial intermediaries we use to facilitate our securities and derivatives transactions. Any such failure or
termination could adversely affect our ability to effect transactions, service our customers, and manage our exposure to
risk.
Most of our key business activities are conducted in our principal offices located in McLean, Virginia and represent a
concentrated risk of people, technology, and facilities. Despite the contingency plans and local recovery facilities we have
in place, our ability to conduct business would be adversely impacted by a disruption in the infrastructure that supports
our business and the geographical area in which we are located. Potential disruptions may include outages or disruptions
to electrical, communications, transportation, or other services we use or that are provided to us. If a disruption occurs
and our employees are unable to occupy our offices or communicate with or travel to other locations, our ability to
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