Bank of America 2012 Annual Report Download - page 160

158 Bank of America 2012
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 Summary of Significant Accounting
Principles
Bank of America Corporation (together with its consolidated
subsidiaries, the Corporation), a bank holding company (BHC) and
a financial holding company, provides a diverse range of financial
services and products throughout the U.S. and in certain
international markets. The term “the Corporation” as used herein
may refer to Bank of America Corporation individually, Bank of
America Corporation and its subsidiaries, or certain of Bank of
America Corporation’s subsidiaries or affiliates.
The Corporation conducts its activities through banking and
nonbanking subsidiaries. The Corporation operates its banking
activities primarily under two charters: Bank of America, National
Association (Bank of America, N.A. or BANA) and FIA Card Services,
National Association (FIA Card Services, N.A. or FIA).
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of
the Corporation and its majority-owned subsidiaries, and those
variable interest entities (VIEs) where the Corporation is the
primary beneficiary. Intercompany accounts and transactions have
been eliminated. Results of operations of acquired companies are
included from the dates of acquisition and for VIEs, from the dates
that the Corporation became the primary beneficiary. Assets held
in an agency or fiduciary capacity are not included in the
Consolidated Financial Statements. The Corporation accounts for
investments in companies for which it owns a voting interest and
for which it has the ability to exercise significant influence over
operating and financing decisions using the equity method of
accounting or at fair value under the fair value option. These
investments are included in other assets. Equity method
investments are subject to impairment testing and the
Corporation’s proportionate share of income or loss is included in
equity investment income.
The preparation of the Consolidated Financial Statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect reported amounts and disclosures.
Realized results could differ from those estimates and
assumptions.
The Corporation evaluates subsequent events through the date
of filing with the Securities and Exchange Commission (SEC).
Certain prior period amounts have been reclassified to conform
to current period presentation.
New Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (FASB)
issued new accounting guidance that addresses effective control
in repurchase agreements and eliminates the requirement for
entities to consider whether the transferor/seller has the ability
to repurchase the financial assets in a repurchase agreement.
This new accounting guidance was effective, on a prospective
basis, for new transactions or modifications to existing
transactions on January 1, 2012. The adoption of this guidance
did not have a material impact on the Corporation’s consolidated
financial position or results of operations.
Effective January 1, 2012, the Corporation adopted
amendments from the FASB to the fair value accounting guidance.
The amendments clarify the application of the highest and best
use, and valuation premise concepts, preclude the application of
“blockage factors” in the valuation of all financial instruments and
include criteria for applying the fair value measurement principles
to portfolios of financial instruments. The amendments also
prescribe additional disclosures for Level 3 fair value
measurements and financial instruments not carried at fair value.
The adoption of this guidance did not have a material impact on
the Corporation’s consolidated financial position or results of
operations. For the related disclosures, see Note 21 – Fair Value
Measurements and Note 23 – Fair Value of Financial Instruments.
Effective January 1, 2012, the Corporation adopted new
accounting guidance from the FASB on the presentation of
comprehensive income in financial statements. The Corporation
adopted the new guidance by reporting the components of
comprehensive income in two separate but consecutive
statements. For the new statement and related information, see
the Consolidated Statement of Comprehensive Income and Note
15 – Accumulated Other Comprehensive Income (Loss).
Effective January 1, 2013, the Corporation will be required to
retrospectively adopt new accounting guidance from the FASB
requiring additional disclosures on the effect of netting
arrangements on an entity’s financial position. The disclosures
relate to derivatives and securities financing agreements that are
either offset on the balance sheet under existing accounting
guidance or are subject to a legally enforceable master netting or
similar agreement. This new guidance addresses only disclosures,
and accordingly, will have no impact on the Corporation’s
consolidated financial position or results of operations.
In December 2012, the FASB issued a proposed standard on
accounting for expected credit losses. It would replace multiple
existing impairment models, including an “incurred loss” model
for loans, with an “expected credit loss” model. The FASB
announced it would establish the effective date when it issues the
final standard. The Corporation cannot predict at this time whether
or when a final standard will be issued, when it will be effective or
what its final provisions will be. It is possible that the final standard
could have a material adverse impact on the Corporation’s results
of operations once it is issued and becomes effective.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash items in
the process of collection, and amounts due from correspondent
banks and the Federal Reserve Bank.
Securities Financing Agreements
Securities borrowed or purchased under agreements to resell and
securities loaned or sold under agreements to repurchase
(securities financing agreements) are treated as collateralized
financing transactions. These agreements are recorded at the
amounts at which the securities were acquired or sold plus accrued
interest, except for certain securities financing agreements that
the Corporation accounts for under the fair value option. Changes
in the fair value of securities financing agreements that are
accounted for under the fair value option are recorded in trading