JP Morgan Chase 2012 Annual Report Download - page 184

Notes to consolidated financial statements
194 JPMorgan Chase & Co./2012 Annual Report
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE’s
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE’s economic performance; and
second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE’s assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivative or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE’s capital
structure; and the reasons why the interests are held by the
Firm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIEs, based on certain
events, and therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm’s involvement with a VIE
cause the Firm’s consolidation conclusion to change.
In January 2010, the Financial Accounting Standards Board
(“FASB”) issued an amendment which deferred the
requirements of the accounting guidance for VIEs for
certain investment funds, including mutual funds, private
equity funds and hedge funds. For the funds to which the
deferral applies, the Firm continues to apply other existing
authoritative accounting guidance to determine whether
such funds should be consolidated.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated Balance Sheets.
Use of estimates in the preparation of consolidated
financial statements
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in other
comprehensive income/(loss) (“OCI”) within stockholders’
equity. Gains and losses relating to nonfunctional currency
transactions, including non-U.S. operations where the
functional currency is the U.S. dollar, are reported in the
Consolidated Statements of Income.
Statements of cash flows
For JPMorgan Chase’s Consolidated Statements of Cash
Flows, cash is defined as those amounts included in cash
and due from banks.
Significant accounting policies
The following table identifies JPMorgan Chase’s other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Business changes and developments Note 2 Page 195
Fair value measurement Note 3 Page 196
Fair value option Note 4 Page 214
Derivative instruments Note 6 Page 218
Noninterest revenue Note 7 Page 228
Interest income and interest expense Note 8 Page 230
Pension and other postretirement
employee benefit plans Note 9 Page 231
Employee stock-based incentives Note 10 Page 241
Securities Note 12 Page 244
Securities financing activities Note 13 Page 249
Loans Note 14 Page 250
Allowance for credit losses Note 15 Page 276
Variable interest entities Note 16 Page 280
Goodwill and other intangible assets Note 17 Page 291
Premises and equipment Note 18 Page 296
Long-term debt Note 21 Page 297
Income taxes Note 26 Page 303
Off–balance sheet lending-related
financial instruments, guarantees and
other commitments Note 29 Page 308
Litigation Note 31 Page 316