American Express 2015 Annual Report Download - page 117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
American Express Company (the Company) is a global services company that provides customers with access to
products, insights and experiences that enrich lives and build business success. The Company’s principal products
and services are charge and credit payment card products and travel-related services offered to consumers and
businesses around the world. Business travel-related services are offered through the non-consolidated joint venture,
American Express Global Business Travel (GBT JV). Prior to July 1, 2014, these business travel operations were wholly
owned. The Company’s various products and services are sold globally to diverse customer groups, including
consumers, small businesses, mid-sized companies and large corporations. These products and services are sold
through various channels, including direct mail, online applications, in-house and third-party sales forces and direct
response advertising.
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP). Significant intercompany transactions are eliminated.
The Company consolidates entities in which it holds a “controlling financial interest.” For voting interest entities,
the Company is considered to hold a controlling financial interest when it is able to exercise control over the investees’
operating and financial decisions. For variable interest entities (VIEs), the Company is considered to hold a controlling
financial interest when it is determined to be the primary beneficiary. A primary beneficiary is the party that has both:
(1) the power to direct the activities that most significantly impact that entity’s economic performance, and (2) the
obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the
VIE. The determination of whether an entity is a VIE is based on the amount and characteristics of the entity’s equity.
Entities in which the Company’s voting interest in common equity does not provide it with control, but allows the
Company to exert significant influence over the operating and financial decisions, are accounted for under the equity
method. All other investments in equity securities, to the extent they are not considered marketable securities, are
accounted for under the cost method.
FOREIGN CURRENCY
Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates
prevailing at the end of the reporting period. The resulting translation adjustments, along with any related qualifying
hedge and tax effects, are included in accumulated other comprehensive income (loss) (AOCI), a component of
shareholders’ equity. Translation adjustments, including qualifying hedge and tax effects, are reclassified to earnings
upon the sale or substantial liquidation of investments in foreign operations. Revenues and expenses are translated at
the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other
than the functional currency are reported net in the Company’s Consolidated Statements of Income, in other non-
interest revenue, interest income, interest expense, or other expenses, depending on the nature of the activity. Net
foreign currency transaction gains amounted to approximately $68 million, $44 million and $108 million in 2015, 2014
and 2013, respectively.
AMOUNTS BASED ON ESTIMATES AND ASSUMPTIONS
Accounting estimates are an integral part of the Consolidated Financial Statements. These estimates are based, in
part, on management’s assumptions concerning future events. Among the more significant assumptions are those
that relate to reserves for Card Member losses on loans and receivables, the proprietary point liability for Membership
Rewards costs, fair value measurement, goodwill and income taxes. These accounting estimates reflect the best
judgment of management, but actual results could differ.
106