Wells Fargo 2012 Annual Report Download - page 132

Note 1: Summary of Significant Accounting Policies (continued)
In third quarter 2012, we early adopted Accounting
Standards Update (ASU or Update) 2012-02, Testing Indefinite-
Lived Intangible Assets for Impairment.
ASU 2012-02 provides entities with the option to perform a
qualitative assessment of indefinite-lived intangible assets to test
for impairment. If, based on qualitative reviews, a company
concludes it is more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount,
then the company must complete quantitative steps to
determine if the asset is impaired. If a company concludes
otherwise, quantitative tests are not required. Our adoption of
this Update did not affect our consolidated financial statements.
Accounting Standards with Retrospective Application
The following accounting pronouncements have been issued by
the FASB but are not yet effective:
x Accounting Standards Update (ASU or Update) 2011-11,
Disclosures about Offsetting Assets and Liabilities; and
x ASU 2013-01, Clarifying the Scope of Disclosures about
Offsetting Assets and Liabilities.
ASU 2011-11 expands the disclosure requirements for certain
financial instruments and derivatives that are subject to
enforceable master netting agreements or similar arrangements.
The disclosures are required regardless of whether the
instruments have been offset (or netted) in the statement of
financial position. Under ASU 2011-11, companies must describe
the nature of offsetting arrangements and provide quantitative
information about those agreements, including the gross and net
amounts of financial instruments that are recognized in the
statement of financial position. In January 2013, the FASB
issued ASU 2013-01, which clarifies the scope of ASU 2011-11
by limiting the disclosures to derivatives, repurchase
agreements, and securities lending transactions to the extent
they are subject to an enforceable master netting or similar
arrangement. These changes are effective for us in first quarter
2013 with retrospective application. The Updates will not affect
our consolidated financial results since they amend only the
disclosure requirements for offsetting financial instruments.
Consolidation
Our consolidated financial statements include the accounts of
the Parent and our majority-owned subsidiaries and VIEs
(defined below) in which we are the primary beneficiary.
Significant intercompany accounts and transactions are
eliminated in consolidation. If we own at least 20% of an entity,
we generally account for the investment using the equity
method. If we own less than 20% of an entity, we generally carry
the investment at cost, except marketable equity securities,
which we carry at fair value with changes in fair value included
in OCI. Investments accounted for under the equity or cost
method are included in other assets.
We are a variable interest holder in certain special-purpose
entities (SPEs) in which equity investors do not have the
characteristics of a controlling financial interest or where the
entity does not have enough equity at risk to finance its activities
without additional subordinated financial support from other
parties (referred to as VIEs). Our variable interest arises from
contractual, ownership or other monetary interests in the entity,
which change with fluctuations in the fair value of the entity's
net assets. We consolidate a VIE if we are the primary
beneficiary, defined as the party that that has both the power to
direct the activities that most significantly impact the VIE and a
variable interest that could potentially be significant to the VIE.
A variable interest is a contractual, ownership or other interest
that changes with changes in the fair value of the VIE’s net
assets. To determine whether or not a variable interest we hold
could potentially be significant to the VIE, we consider both
qualitative and quantitative factors regarding the nature, size
and form of our involvement with the VIE. We assess whether or
not we are the primary beneficiary of a VIE on an on-going basis.
Cash and Due From Banks
Cash and cash equivalents include cash on hand, cash items in
transit, and amounts due from the Federal Reserve Bank and
other depository institutions.
Trading Assets
Trading assets are primarily securities, including corporate debt,
U.S. government agency obligations and other securities that we
acquire for short-term appreciation or other trading purposes,
and the fair value of derivatives held for customer
accommodation purposes or risk mitigation and hedging.
Interest-only strips and other retained interests in
securitizations that can be contractually prepaid or otherwise
settled in a way that the holder would not recover substantially
all of its recorded investment are classified as trading assets.
Trading assets are carried at fair value, with interest and
dividend income recorded in interest income and realized and
unrealized gains and losses recorded in noninterest income.
Periodic cash settlements on derivatives and other trading assets
are recorded in noninterest income.
Investments
SECURITIES AVAILABLE FOR SALE Debt securities that we
might not hold until maturity and marketable equity securities
are classified as securities available for sale and reported at fair
value. Unrealized gains and losses, after applicable income taxes,
are reported in cumulative OCI. Fair value measurement is
based upon quoted prices in active markets, if available. If
quoted prices in active markets are not available, fair values are
measured using pricing models or other model-based valuation
techniques such as the present value of future cash flows,
adjusted for the security's credit rating, prepayment
assumptions and other factors such as credit loss assumptions
and market liquidity. See Note 17 for more information on fair
value measurement of our securities.
We conduct other-than-temporary impairment (OTTI)
analysis on a quarterly basis or more often if a potential loss-
triggering event occurs. The initial indicator of OTTI for both
debt and equity securities is a decline in fair market value below
the amount recorded for an investment and the severity and
duration of the decline.
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