Goldman Sachs 2009 Annual Report Download - page 93

Goldman Sachs 2009 Annual Report
91
Notes to Consolidated Financial Statements
NOTE 1
Description of Business
The GoldmanSachs Group, Inc. (Group Inc.), a Delaware
corporation, together with its consolidated subsidiaries
(collectively, the  rm), is a leading global investment banking,
securities and investment management  rm that provides a
wide range of  nancial services to a substantial and diversi ed
client base that includes corporations,  nancial institutions,
governments and high-net-worth individuals. Founded
in1869, the  rm is headquartered in NewYork and maintains
of ces in London, Frankfurt, Tokyo, HongKong and other
major  nancial centers around the world.
The  rm’s activities are divided into three segments:
▪
Investment Banking. The  rm provides a broad range
of investment banking services to a diverse group of
corporations,  nancial institutions, investment funds,
governments and individuals.
▪
Trading and Principal Investments. The  rm facilitates
client transactions with a diverse group of corporations,
 nancial institutions, investment funds, governments and
individuals through market making in, trading of and
investing in  xed income and equity products, currencies,
commodities and derivatives on these products. The  rm
also takes proprietary positions on certain of these products.
In addition, the  rm engages in market-making activities on
equities and options exchanges, and the  rm clears client
transactions on major stock, options and futures exchanges
worldwide. In connection with the  rm’s merchant banking
and other investing activities, the  rm makes principal
investments directly and through funds that the  rm raises
and manages.
▪
Asset Management and Securities Services. The  rm
provides investment and wealth advisory services and offers
investment products (primarily through separately managed
accounts and commingled vehicles, such as mutual funds
and private investment funds) across all major asset classes
to a diverse group of institutions and individuals worldwide
and provides prime brokerage services,  nancing services
and securities lending services to institutional clients,
including hedge funds, mutual funds, pension funds and
foundations, and to high-net-worth individuals worldwide.
NOTE 2
Signi cant Accounting Policies
Basis of Presentation
These consolidated  nancial statements include the accounts
of Group Inc. and all other entities in which the  rm has
a controlling  nancial interest. All material intercompany
transactions and balances have been eliminated.
The  rm determines whether it has a controlling  nancial
interest in an entity by  rst evaluating whether the entity is
a voting interest entity, a variable interest entity (VIE) or a
qualifying special-purpose entity (QSPE) under generally
accepted accounting principles (GAAP).
▪
Voting Interest Entities. Voting interest entities are entities
in which (i)the total equity investment at risk is suf cient to
enable the entity to  nance its activities independently and
(ii)the equity holders have the obligation to absorb losses,
the right to receive residual returns and the right to make
decisions about the entity’s activities. The usual condition
for a controlling  nancial interest in a voting interest entity
is ownership of a majority voting interest. Accordingly, the
 rm consolidates voting interest entities in which it has a
majority voting interest.
▪
Variable Interest Entities. VIEs are entities that lack one
or more of the characteristics of a voting interest entity.
A controlling  nancial interest in a VIE is present when
an enterprise has a variable interest, or a combination of
variable interests, that will absorb a majority of the VIE’s
expected losses, receive a majority of the VIE’s expected
residual returns, or both. The enterprise with a controlling
 nancial interest, known as the primary bene ciary,
consolidates the VIE. The  rm determines whether it
is the primary bene ciary of a VIE by  rst performing
a qualitative analysis of the VIE’s expected losses and
expected residual returns. This analysis includes a review of,
among other factors, the VIE’s capital structure, contractual
terms, which interests create or absorb variability, related
party relationships and the design of the VIE. Where
qualitative analysis is not conclusive, the  rm performs a
quantitative analysis. For purposes of allocating a VIE’s
expected losses and expected residual returns to its variable
interest holders, the  rm utilizes the “top down” method.