Goldman Sachs 2002 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 of the 2002 Goldman Sachs annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 105

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105

Income Taxes
Deferred tax assets and liabilities are recognized for tem-
porary differences between the financial reporting and
tax bases of the firm’s assets and liabilities. Valuation
allowances are established to reduce deferred tax assets
to the amount that more likely than not will be realized.
The firm’s tax assets and liabilities are presented as a
component of “Other assets” and “Other liabilities and
accrued expenses,” respectively, in the consolidated state-
ments of financial condition.
Foreign Currency Translation
Assets and liabilities denominated in non-U.S. currencies
are translated at rates of exchange prevailing on the date
of the consolidated statement of financial condition, and
revenues and expenses are translated at average rates of
exchange for the fiscal year. Gains or losses on translation
of the financial statements of a non-U.S. operation, when
the functional currency is other than the U.S. dollar, are
reflected, net of hedges, as a separate component of
equity and included in the consolidated statements of
comprehensive income. Gains or losses on foreign cur-
rency transactions are included in the consolidated state-
ments of earnings.
Recent Accounting Developments
In June 2002, the FASB issued SFAS No. 146,
“Accounting for Costs Associated with Exit or Disposal
Activities.” The statement specifies the accounting for
certain employee termination benefits, contract termina-
tion costs and costs to consolidate facilities or relocate
employees and is effective for exit and disposal activities
initiated after December 31, 2002. Management does not
expect the statement to have a material effect on the
firm’s financial condition or results of operations.
In November 2002, the FASB issued FASB Interpretation
(FIN) No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.” FIN No. 45
specifies the disclosures to be made about obligations
under certain issued guarantees and requires a liability to
be recognized for the fair value of a guarantee obligation.
The recognition and measurement provisions of the inter-
pretation apply prospectively to guarantees issued after
December 31, 2002. The disclosure provisions are effec-
tive beginning with the firm’s first fiscal quarter in 2003.
Adoption of the recognition and measurement provisions
will not have a material effect on the firm’s financial con-
dition or results of operations.
In January 2003, the FASB issued FIN No. 46,
“Consolidation of Variable Interest Entities.” FIN No. 46
requires a company to consolidate a variable interest
entity (VIE) if the company has variable interests that
give it a majority of the expected losses or a majority of
the expected residual returns of the entity. Prior to FIN
No. 46, VIEs were commonly referred to as SPEs. FIN
No. 46 is effective immediately for VIEs created after
January 31, 2003. The firm must apply FIN No. 46 to
VIEs created before February 1, 2003 as of the beginning
of the fiscal 2003 fourth quarter. Management is evalu-
ating the impact of adoption but does not expect it to
have a material effect on the firm’s financial condition or
results of operations.
In November 2002, the Emerging Issues Task Force
(EITF) reached a consensus on Issue No. 00-21,
“Accounting for Revenue Arrangements with Multiple
Deliverables.” EITF Issue No. 00-21 addresses the
accounting for arrangements under which a vendor will
perform multiple revenue-generating activities. EITF
Issue No. 00-21 is effective for revenue arrangements
entered into beginning with the firm’s fourth quarter in
fiscal 2003. Management does not expect it to have a
material effect on the firm’s financial condition or results
of operations.
In November 2002, the EITF reached a consensus on
EITF Issue No. 02-3, “Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and
Contracts Involved in Energy Trading and Risk
Management Activities.” EITF Issue No. 02-3 precludes
mark-to-market accounting for energy-trading contracts
that are not derivatives pursuant to SFAS No. 133,
“Accounting for Derivative Instruments and Hedging
Activities.” The firm has adopted the provisions of EITF
Issue No. 02-3 related to energy-trading contracts as of
the beginning of the fiscal 2003 first quarter and the
effect of adoption was not material to the firm’s financial
condition or results of operations. EITF Issue No. 02-3
also communicates the FASB staff’s belief that the trans-
action price for a derivative contract is the best informa-
tion available with which to estimate fair value at the
inception of a contract when the estimate is not based on
other observable market data. Management is currently
evaluating the impact of the FASB staff’s view on the
firm’s financial condition and results of operations.
N otes to Consolidated Financial Statem ents
70 G O L D M A N SA CH S 2002 AN N UA L R EPO RT