GE 2014 Annual Report Download - page 111

GE 2014 FORM 10-K 91
MD&A CRITICAL ACCOUNTING ESTIMATES
FAIR VALUE MEASUREMENTS
Assets and liabilities measured at fair value every reporting period include investments in debt and equity securities and
derivatives. Assets that are not measured at fair value every reporting period but that are subject to fair value measurements
in certain circumstances include loans and long-lived assets that have been reduced to fair value when they are held for sale,
impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method
investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of
retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a
subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair
value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.
A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly
transaction between market participants at the measurement date. In the absence of active markets for the identical assets or
liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such
data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at
the measurement date. The determination of fair value often involves significant judgments about assumptions such as
determining an appropriate discount rate that factors in both risk and liquidity premiums, identifying the similarities and
differences in market transactions, weighting those differences accordingly and then making the appropriate adjustments to
those market transactions to reflect the risks specific to our asset being valued.
Further information on fair value measurements is provided in Notes 1, 21 and 22 to the consolidated financial statements in
this Form 10-K Report.
OTHER LOSS CONTINGENCIES
Other loss contingencies are uncertain and unresolved matters that arise in the ordinary course of business and result from
events or actions by others that have the potential to result in a future loss. Such contingencies include, but are not limited to
environmental obligations, litigation, regulatory proceedings, product quality and losses resulting from other events and
developments.
When a loss is considered probable and reasonably estimable, we record a liability in the amount of our best estimate for the
ultimate loss. When there appears to be a range of possible costs with equal likelihood, liabilities are based on the low-end of
such range. However, the likelihood of a loss with respect to a particular contingency is often difficult to predict and
determining a meaningful estimate of the loss or a range of loss may not be practicable based on the information available and
the potential effect of future events and decisions by third parties that will determine the ultimate resolution of the contingency.
Moreover, it is not uncommon for such matters to be resolved over many years, during which time relevant developments and
new information must be continuously evaluated to determine both the likelihood of potential loss and whether it is possible to
reasonably estimate a range of possible loss. When a loss is probable but a reasonable estimate cannot be made, disclosure
is provided.
Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the
amount of a loss will exceed the recorded provision. We regularly review all contingencies to determine whether the likelihood
of loss has changed and to assess whether a reasonable estimate of the loss or range of loss can be made. As discussed
above, development of a meaningful estimate of loss or a range of potential loss is complex when the outcome is directly
dependent on negotiations with or decisions by third parties, such as regulatory agencies, the court system and other
interested parties. Such factors bear directly on whether it is possible to reasonably estimate a range of potential loss and
boundaries of high and low estimates.
Further information is provided in Notes 2, 13 and 24 to the consolidated financial statements in this Form 10-K Report.