Prudential 2006 Annual Report Download - page 110

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans” an amendment of FASB Statements No. 87, 88, 106 and 132(R). This statement requires an employer on a
prospective basis to recognize the overfunded or underfunded status of its defined benefit pension and postretirement plans as an
asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes
occur through other comprehensive income. The Company adopted this requirement, along with the required disclosures, on
December 31, 2006. See Note 16 for the effects of this adoption as well as the related required disclosures.
SFAS No. 158 also requires an employer on a prospective basis to measure the funded status of its plans as of its fiscal year-
end. This requirement is effective for fiscal years ending after December 15, 2008. The Company is currently assessing the impact
that changing from a September 30 measurement date to a December 31 measurement date will have on the Company’s
consolidated financial position and results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures
about fair value measurements. This statement does not require any new fair value measurements, but the application of this
statement could change current practices in determining fair value. The Company plans to adopt this guidance effective January 1,
2008. The Company is currently assessing the impact of SFAS No. 157 on the Company’s consolidated financial position and
results of operations.
In September 2006, the staff of the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”)
No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” The interpretations in this SAB express the staff’s views regarding the process of quantifying financial statement
misstatements. Specifically, the SEC staff believes that registrants must quantify the impact on current period financial statements
of correcting all misstatements, including both those occurring in the current period and the effect of reversing those that have
accumulated from prior periods. This SAB should be applied beginning with the first fiscal year ending after November 15, 2006,
with early adoption encouraged. Since the Company’s method for quantifying financial statement misstatements already considers
those occurring in the current period and the effect of reversing those that have accumulated from prior periods, the adoption of
SAB No. 108 had no effect to the financial position or results of operations of the Company.
In July 2006, the FASB issued FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” an
interpretation of FASB Statement No. 109. This interpretation prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to
take on a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company expects to
adopt FIN No. 48 on January 1, 2007. The Company’s adoption of this guidance will not have a material effect on the Company’s
consolidated financial position or results of operations.
In July 2006, the FASB issued FSP No. 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows
Relating to Income Taxes Generated by a Leveraged Lease Transaction” an amendment of FASB Statement No. 13. This Staff
Position indicates that a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged
lease would require a recalculation of cumulative and prospective income recognition associated with the transaction. The FSP is
effective for fiscal years beginning after December 15, 2006. The Company expects to adopt FSP No. 13-2 on January 1, 2007 and
estimates the impact to be a net after-tax reduction to retained earnings of $84 million, as of January 1, 2007.
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets.” This statement requires that
servicing assets or liabilities are to be initially measured at fair value, with subsequent changes in value reported based on either a
fair value or amortized cost approach. Under the previous guidance, such servicing assets or liabilities were initially measured at
historical cost and the amortized cost method was required for subsequent reporting. The Company expects to adopt this guidance
effective January 1, 2007, and has elected to continue reporting subsequent changes in value using the amortized cost approach. The
Company’s adoption of this guidance will not have a material effect on the Company’s consolidated financial position or results of
operations.
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments.” This statement provides an
election, on an instrument by instrument basis, to measure at fair value an entire hybrid financial instrument that contains an
embedded derivative requiring bifurcation, rather than measuring only the embedded derivative on a fair value basis. This statement
also eliminates an exception from the requirement to bifurcate an embedded derivative feature from beneficial interests in
securitized financial assets. The Company has used this exception for investments the Company has made in securitized financial
assets in the normal course of operations, and thus has not previously had to consider whether such investments contain an
embedded derivative. The new requirement to identify embedded derivatives in beneficial interests will be applied on a prospective
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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