GE 2015 Annual Report Download - page 115

MD&A CRITICAL ACCOUNTING ESTIMATES
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CRITICAL ACCOUNTING ESTIMATES
Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding
of our financial statements because they involve significant judgments and uncertainties. Many of these estimates include determining
fair value. All of these estimates reflect our best judgment about current, and for some estimates future, economic and market
conditions and their potential effects based on information available as of the date of these financial statements. If these conditions
change from those expected, it is reasonably possible that the judgments and estimates described below could change, which may
result in future impairments of investment securities, goodwill, intangibles and long-lived assets, incremental losses on financing
receivables, increases in reserves for contingencies, establishment of valuation allowances on deferred tax assets and increased tax
liabilities, among other effects. Also see Note 1 to the consolidated financial statements, which discusses our most significant
accounting policies.
REVENUE RECOGNITION ON LONG-TERM PRODUCT SERVICES AGREEMENTS
Revenue recognition on long-term product services agreements requires estimates of profits over the multiple-year terms of such
agreements, considering factors such as the frequency and extent of future monitoring, maintenance and overhaul events; the amount
of personnel, spare parts and other resources required to perform the services; and future billing rate, cost changeVDQGFXVWRPHUV¶
utilization of assets. We routinely review estimates under product services agreements and regularly revise them to adjust for changes
in outlook.
We also regularly assess customer credit risk inherent in the carrying amounts of receivables and contract costs and estimated
earnings, including the risk that contractual penalties may not be sufficient to offset our accumulated investment in the event of
customer termination. We gain insight into future utilization and cost trends, as well as credit risk, through our knowledge of the installed
base of equipment and the close interaction with our customers that comes with supplying critical services and parts over extended
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adjustments increased earnings by $1.4 billion, $1.0 billion and $0.3 billion in 2015, 2014 and 2013, respectively. We provide for
probable losses when they become evident.
Further information is provided in Notes 1 and 9 to the consolidated financial statements.
ASSET IMPAIRMENT
Asset impairment assessment involves various estimates and assumptions as follows:
INVESTMENTS
We regularly review investment securities for impairment using both quantitative and qualitative criteria. For debt securities, if we do not
intend to sell the security and it is not more likely than not that we will be required to sell the security before recovery of our amortized
cost, we evaluate other qualitative criteria to determine whether a credit loss exists, such as the financial health of and specific
prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Quantitative criteria
include determining whether there has been an adverse change in expected future cash flows. For equity securities, our criteria include
the length of time and magnitude of the amount that each security is in an unrealized loss position. Our other-than-temporary
impairment reviews involve our finance, risk and asset management functions as well as the portfolio management and research
capabilities of our internal and third-party asset managers. See Note 1 to the consolidated financial statements, which discusses the
determination of fair value of investment securities.
Further information about actual and potential impairment losses is provided in Notes 1 and 3 to the consolidated financial statements.
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