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66 G O L D M A N SA CH S 2002 AN N UA L R EPO RT
N O T E 1
DESCRIPTION OF BUSINESS
The Goldman Sachs Group, Inc. (Group Inc.), a
Delaware corporation, together with its consolidated
subsidiaries (collectively, the firm), is a leading global
investment banking, securities and investment manage-
ment firm that provides a wide range of services world-
wide to a substantial and diversified client base that
includes corporations, financial institutions, governments
and high-net-worth individuals.
The firm’s activities are divided into three segments:
•I N V E ST M E N T B A N KI N G –This segment comprises
Financial Advisory and Underwriting;
•T R A D I N G A N D P R I N C I P A L I N VE S T M E N T S –This seg-
ment comprises Fixed Income, Currency and
Commodities (FICC), Equities and Principal
Investments (Principal Investments primarily repre-
sents net revenues from the firm’s merchant bank-
ing investments); and
•AS S E T M A N A G E M E N T A N D S E C U R I T I E S S E R V I C E S –
This segment comprises Asset Management,
Securities Services and Commissions.
N O T E 2
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the
accounts of Group, Inc. and all other entities in which the
firm has a controlling financial interest. All material inter-
company transactions and balances have been eliminated.
The usual condition for a controlling financial interest in
an entity is ownership of a majority of the voting interest.
Accordingly, the firm consolidates entities in which it has
all, or a majority of, the voting interest. A controlling
financial interest can also exist in entities whose activities
are predetermined or significantly limited, or whose inde-
pendent equity investors do not hold an equity invest-
ment with substantive risks and rewards. These types of
entities are commonly referred to as special-purpose
entities (SPEs).
The firm consolidates all SPEs it controls and those in
which it holds a majority of the SPE’s substantive risks
and rewards. The firm also consolidates all SPEs to which
it has transferred assets unless independent investors have
made a substantive majority equity investment in legal
form or the transferred assets are financial instruments
and the SPE is a qualifying SPE as defined in Statement of
Financial Accounting Standards (SFAS) No. 140,
“Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities.” The firm’s
financial interests in, and derivative transactions with,
non-consolidated SPEs are accounted for at fair value, in
the same manner as other financial instruments. As
of November 2002, the firm had no material additional
financial commitments or guarantees in respect of these
entities.
When the firm does not have a controlling financial inter-
est in an entity but exerts significant influence over the
entity’s operating and financial policies (generally defined
as owning a voting or economic interest of 20% to 50% ),
the firm accounts for its investment in accordance with
the equity method of accounting as prescribed by
Accounting Principles Board (APB) Opinion No. 18,
“The Equity Method of Accounting for Investments in
Common Stock.”
If the firm does not have a controlling financial interest
in, or exert significant influence over, the entity, the firm
accounts for its investment at fair value.
The firm also has formed numerous non-consolidated
private investment funds with third-party investors that
are typically organized as limited partnerships. The firm
acts as general partner and also holds limited partnership
interests in the funds. The firm does not hold a majority
of the residual interests in any of the funds. The firm’s
investments in these funds are included in “Financial
instruments owned, at fair value” in the consolidated
statements of financial condition. As of September 30,
2002 (the latest investment fund reporting date), the
funds’ total assets were approximately $11.85 billion.
The firm’s principal U.S. and international subsidiaries
include Goldman, Sachs & Co. (GS& Co.), J. Aron &
Company and Spear, Leeds & Kellogg, L.P. in New York,
Goldman Sachs International (GSI) in London and
Goldman Sachs (Japan) Ltd. (GSJL) in Tokyo.
These consolidated financial statements have been pre-
pared in accordance with generally accepted accounting
principles that require management to make estimates
and assumptions regarding trading inventory valuations,
N otes to Consolidated Financial Statem ents