Bank of America 2009 Annual Report Download - page 132

Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1 – Summary of Significant Accounting
Principles
Bank of America Corporation (the Corporation), through its banking and
nonbanking subsidiaries, provides a diverse range of financial services
and products throughout the U.S. and in certain international markets. At
December 31, 2009, the Corporation operated its banking activities
primarily under two charters: Bank of America, National Association (Bank
of America, N.A.) and FIA Card Services, N.A. In connection with certain
acquisitions including Merrill Lynch & Co. Inc. (Merrill Lynch) and Country-
wide Financial Corporation (Countrywide), the Corporation acquired bank-
ing subsidiaries that have been merged into Bank of America, N.A. with
no impact on the Consolidated Financial Statements of the Corporation.
On January 1, 2009, the Corporation acquired Merrill Lynch through its
merger with a subsidiary of the Corporation in exchange for common and
preferred stock with a value of $29.1 billion. On July 1, 2008, the Corpo-
ration acquired all of the outstanding shares of Countrywide through its
merger with a subsidiary of the Corporation in exchange for common
stock with a value of $4.2 billion. On October 1, 2007, the Corporation
acquired all the outstanding shares of ABN AMRO North America Holding
Company, parent of LaSalle Bank Corporation (LaSalle), for $21.0 billion
in cash. On July 1, 2007, the Corporation acquired all the outstanding
shares of U.S. Trust Corporation for $3.3 billion in cash.
The results of operations of the acquired companies were included in
the Corporation’s results from their dates of acquisition.
Principles of Consolidation and Basis of
Presentation
The Consolidated Financial Statements include the accounts of the Corpo-
ration and its majority-owned subsidiaries, and those variable interest
entities (VIEs) where the Corporation is the primary beneficiary. Inter-
company accounts and transactions have been eliminated. Results of
operations of acquired companies are included from the dates of acquis-
ition and for VIEs, from the dates that the Corporation became the pri-
mary 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
of 20 percent to 50 percent and for which it has the ability to exercise
significant influence over operating and financing decisions using the
equity method of accounting. These investments are included in other
assets and are subject to impairment testing. The Corporation’s propor-
tionate share of income or loss is included in equity investment income.
The preparation of the Consolidated Financial Statements in con-
formity with accounting principles generally accepted in the United States
of America (GAAP) requires management to make estimates and assump-
tions that affect reported amounts and disclosures. Realized results
could differ from those estimates and assumptions.
The Corporation evaluates subsequent events through the date of fil-
ing with the Securities and Exchange Commission (SEC). Certain prior
period amounts have been reclassified to conform to current period
presentation.
New Accounting Pronouncements
On July 1, 2009, the Corporation adopted new guidance that established
the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (Codification) as the single source of authoritative GAAP. The
Codification establishes a common referencing system for accounting
standards and is generally organized by subject matter. Use of the Codifi-
cation has no impact on the Corporation’s financial condition or results of
operations. In connection with the use of the Codification, this Form 10-K
no longer makes reference to specific accounting standards by number or
title.
In June 2009, the FASB issued new accounting guidance on transfers
of financial assets and consolidation of VIEs. This new accounting guid-
ance, which was effective on January 1, 2010, revises existing sale
accounting criteria for transfers of financial assets and significantly
changes the criteria by which an enterprise determines whether it must
consolidate a VIE. The adoption of this new accounting guidance on
January 1, 2010 resulted in the consolidation of certain qualifying special
purpose entities (QSPEs) and VIEs that were not recorded on the Corpo-
ration’s Consolidated Balance Sheet prior to that date. The adoption of
this new accounting guidance resulted in a net incremental increase in
assets, on a preliminary basis, of approximately $100 billion, including
$70 billion resulting from consolidation of credit card trusts and $30 bil-
lion from consolidation of other special purpose entities (SPEs) including
multi-seller conduits. These amounts are net of retained interests in
securitizations held on the Consolidated Balance Sheet and an $11 bil-
lion increase in the allowance for loan losses, the majority of which
relates to credit card receivables. This increase in the allowance for loan
losses was recorded on January 1, 2010 as a charge net-of-tax to
retained earnings for the cumulative effect of the adoption of this new
accounting guidance. Initial recording of these assets and related allow-
ance on the Corporation’s Consolidated Balance Sheet had no impact on
results of operations.
On January 1, 2009, the Corporation elected to early adopt new FASB
guidance for determining whether a market is inactive and a transaction
is distressed in order to apply the existing fair value measurements guid-
ance. In addition, this new guidance requires enhanced disclosures
regarding financial assets and liabilities that are recorded at fair value.
The adoption of this new guidance did not have a material impact on the
Corporation’s financial condition or results of operations. The enhanced
disclosures required under this new guidance are included in Note 20 –
Fair Value Measurements.
On January 1, 2009, the Corporation elected to early adopt new FASB
guidance on recognition and presentation of other-than-temporary impair-
ment of debt securities that requires an entity to recognize the credit
component of other-than-temporary impairment of a debt security in earn-
ings and the noncredit component in other comprehensive income (OCI)
when the entity does not intend to sell the security and it is more-likely-
than-not that the entity will not be required to sell the security prior to
recovery. This new guidance also requires expanded disclosures. In
connection with the adoption of this new guidance, the Corporation
recorded a cumulative-effect adjustment to reclassify $71 million,
net-of-tax, from retained earnings to accumulated OCI as of January 1,
130 Bank of America 2009