Goldman Sachs 2009 Annual Report Download - page 94

Goldman Sachs 2009 Annual Report
92
Notes to Consolidated Financial Statements
Under this method, the  rm calculates its share of the VIE’s
expected losses and expected residual returns using the
speci c cash  ows that would be allocated to it, based on
contractual arrangements and/or the  rm’s position in the
capital structure of the VIE, under various probability-
weighted scenarios. The  rm reassesses its initial evaluation
of an entity as a VIE and its initial determination of whether
the  rm is the primary bene ciary of a VIE upon the
occurrence of certain reconsideration events. See “— Recent
Accounting Developments” below for information regarding
amendments to accounting for VIEs.
▪
QSPEs. QSPEs are passive entities that are commonly
used in mortgage and other securitization transactions.
To be considered a QSPE, an entity must satisfy certain
criteria. These criteria include the types of assets a QSPE
may hold, limits on asset sales, the use of derivatives and
 nancial guarantees, and the level of discretion a servicer
may exercise in attempting to collect receivables. These
criteria may require management to make judgments
about complex matters, such as whether a derivative is
considered passive and the level of discretion a servicer may
exercise, including, for example, determining when default
is reasonably foreseeable. The  rm does not consolidate
QSPEs. See“— Recent Accounting Developments” below
for information regarding amendments to accounting
forQSPEs.
▪
Equity-Method Investments. When the  rm does not
have a controlling  nancial interest in an entity but exerts
signi cant in uence over the entity’s operating and  nancial
policies (generally de ned as owning a voting interest of
20% to 50%) and has an investment in common stock
or in-substance common stock, the  rm accounts for its
investment either under the equity method of accounting or
at fair value pursuant to the fair value option available under
Financial Accounting Standards Board (FASB) Accounting
Standards Codi cation (ASC) 825-10. In general, the
 rm accounts for investments acquired subsequent to
November24, 2006, when the fair value option became
available, at fair value. In certain cases, the  rm applies the
equity method of accounting to new investments that are
strategic in nature or closely related to the  rm’s principal
business activities, where the  rm has a signi cant degree of
involvement in the cash  ows or operations of the investee,
or where cost-bene t considerations are less signi cant.
See “— Revenue Recognition — Other Financial Assets and
Financial Liabilities at Fair Value” below for a discussion of
the  rm’s application of the fair value option.
▪
Other. If the  rm does not consolidate an entity or apply
the equity method of accounting, the  rm accounts for its
investment at fair value. The  rm also has formed numerous
nonconsolidated investment funds with third-party investors
that are typically organized as limited partnerships. The  rm
acts as general partner for these funds and generally does
not hold a majority of the economic interests in these funds.
The  rm has generally provided the third-party investors
with rights to terminate the funds or to remove the  rm as
the general partner. As a result, the  rm does not consolidate
these funds. These fund investments are included in “Trading
assets, at fair value” in the consolidated statements of
 nancial condition.
In connection with becoming a bank holding company,
the  rm was required to change its  scal year-end from
Novemberto December. This change in the  rm’s  scal year-
end resulted in a one-month transition period that began on
November29, 2008 and ended on December26, 2008. In
April2009, the Board of Directors of Group Inc. (the Board)
approved a change in the  rm’s  scal year-end from the last
Friday of December to December31. Fiscal 2009 began on
December27, 2008 and ended on December31, 2009.
All references to 2009, 2008 and 2007, unless speci cally
stated otherwise, refer to the  rm’s  scal years ended, or
the dates, as the context requires, December31, 2009,
November28, 2008 and November30, 2007, respectively,
and any reference to a future year refers to a  scal year
ending on December31 of that year. All references to
December2008, unless speci cally stated otherwise, refer to
the  rm’s  scal one month ended, or the date, as the context
requires, December26, 2008. Certain reclassi cations have
been made to previously reported amounts to conform to the
currentpresentation.
Use of Estimates
These consolidated  nancial statements have been prepared
in accordance with generally accepted accounting principles
that require management to make certain estimates and
assumptions. The most important of these estimates