The Hartford 2008 Annual Report Download - page 346

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation and Accounting Policies (continued)
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,
Including an amendment of FASB Statement No. 115” (“SFAS 159”). The objective of SFAS 159 is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported net income caused by measuring related
assets and liabilities differently. This statement permits entities to choose, at specified election dates, to measure certain
eligible items at fair value (i.e., the fair value option). SFAS 159 is effective as of the beginning of an entity’s first fiscal
year that begins after November 15, 2007. On January 1, 2008, the Company did not elect to apply the provisions of SFAS
159 to financial assets and liabilities.
Amendment of FASB Interpretation No. 39
In April 2007, the FASB issued FASB Staff Position No. FIN 39-1, “Amendment of FASB Interpretation No. 39” (“FSP
FIN 39-1”). FSP FIN 39-1 amends FIN 39, “Offsetting of Amounts Related to Certain Contacts”, by permitting a reporting
entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return
cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same
counterparty under the same master netting arrangement that have been offset in the statement of financial position in
accordance with FIN 39. FSP FIN 39-1 also amends FIN 39 by modifying certain terms. FSP FIN 39-1 is effective for
reporting periods beginning after November 15, 2007, with early application permitted. The Company early adopted FSP
FIN 39-1 on December 31, 2007, by electing to offset cash collateral against amounts recognized for derivative instruments
under the same master netting arrangements. The Company recorded the effect of adopting FSP FIN 39-1 as a change in
accounting principle through retrospective application. See Note 5 for further discussions on the adoption of FSP FIN 39-1.
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109
The FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109” (“FIN 48”), dated June 2006. FIN 48 requires companies to recognize the tax benefits of uncertain tax positions
only when the position is “more likely than not” to be sustained assuming examination by tax authorities. The amount
recognized represents the largest amount of tax benefit that is greater than 50% likely of being realized. A liability is
recognized for any benefit claimed, or expected to be claimed, in a tax return in excess of the benefit recorded in the
financial statements, along with any interest and penalty (if applicable) on the excess.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the adoption, the Company recognized a
$12 decrease in the liability for unrecognized tax benefits and a corresponding increase in the January 1, 2007 balance of
retained earnings. The total amount of unrecognized tax benefits as of January 1, 2007 was $8 including an immaterial
amount for interest. If these unrecognized tax benefits were recognized, they would have an immaterial effect on the
Company’s effective tax rate. The Company does not believe it would be subject to any penalties in any open tax years and,
therefore, has not booked any such amounts. The Company classifies interest and penalties (if applicable) as income tax
expense in the financial statements.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state and foreign
jurisdictions. The Company’s federal income tax returns are routinely audited by the Internal Revenue Service (“IRS”).
During 2008, the IRS completed its examination of the Company’s U.S. income tax returns for 2002 through 2003. The
Company received notification of the approval by the Joint Committee on Taxation of the results of the examination
subsequent to December 31, 2008. The examination will not have a material effect on the Company’s net income or
financial position. The 2004 through 2006 examination began during 2008, and is expected to close by the end of 2010. In
addition, the Company is working with the IRS on a possible settlement of an issue related to prior periods which, if settled,
may result in the booking of tax benefits in 2009. Such benefits are not expected to be material to the Company’s net income
or financial position. Management believes that adequate provision has been made in the financial statements for any
potential assessments that may result from tax examinations and other tax-related matters for all open tax years.
F-9
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009