Freddie Mac 2012 Annual Report Download - page 81

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 governs 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 net worth and result in
or contribute to the need for additional draws under the Purchase Agreement.
FHFA may require us to change our accounting policies, including 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. For example, in April
2012, FHFA issued an advisory bulletin that could have an effect on our provision for credit losses in the future. The
accounting methods outlined in FHFA’s advisory bulletin are significantly different from our current methods of accounting
for single-family loans that are 180 days or more delinquent. For more information, see “BUSINESS — Regulation and
Supervision — Legislative and Regulatory Developments —FHFA Advisory Bulletin.”
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 service and
interact with our customers or counterparties may deteriorate and we may not be able to successfully implement contingency
plans that allow us to carry out critical business functions at an acceptable level.
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