These financial statements pertain to the financial position, results of operations, and cash flows of the DIF and are presented in accordance with U.S. generally accepted accounting principles (GAAP). As permitted by the Federal Accounting Standards Advisory Board's Statement of Federal Financial Accounting Standards 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Accounting Standards Board, the FDIC prepares financial statements in conformity with standards promulgated by the Financial Accounting Standards Board (FASB). These statements do not include reporting for assets and liabilities of resolution entities because these entities are legally separate and distinct, and the DIF does not have any ownership interests in them. Periodic and final accountability reports of resolution entities are furnished to courts, supervisory authorities, and others upon request.
Use of Estimates
Management makes estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Where it is reasonably possible that changes in estimates will cause a material change in the financial statements in the near term, the nature and extent of such changes in estimates have been disclosed. The more significant estimates include the assessments receivable and associated revenue; the allowance for loss on receivables from resolutions (including loss-share agreements); the estimated losses for: anticipated failures, litigation, and representations and warranties; guarantee obligations for: the Temporary Liquidity Guarantee Program and debt of limited liability companies; valuation of trust preferred securities; and the postretirement benefit obligation.
Cash equivalents are short-term, highly liquid investments consisting primarily of U.S. Treasury Overnight Certificates. The majority of cash equivalents held by the DIF at December 31, 2009, resulted from the collection of $45.7 billion in prepaid assessments on December 30, 2009 for all quarterly assessment periods through December 31, 2012 (see Note 9).
Investment in U.S. Treasury Obligations
DIF funds are required to be invested in obligations of the United States or in obligations guaranteed as to principal and interest by the United States; the Secretary of the Treasury must approve all such investments in excess of $100,000. The Secretary has granted approval to invest DIF funds only in U.S. Treasury obligations that are purchased or sold exclusively through the Bureau of the Public Debt's Government Account Series (GAS) program.
DIF's investments in U.S. Treasury obligations are classified as available-for-sale. Securities designated as available-for-sale are shown at fair value. Unrealized gains and losses are reported as other comprehensive income. Realized gains and losses are included in the Statement of Income and Fund Balance as components of Net Income. Income on securities is calculated and recorded on a daily basis using the effective interest method.
Revenue Recognition for Assessments
Assessment revenue is recognized for the quarterly period of insurance coverage based on an estimate. The estimate is derived from an institution's risk-based assessment rate and assessment base for the prior quarter adjusted for the current quarter's available assessment credits, any changes in supervisory examination and debt issuer ratings for larger institutions, and a modest deposit insurance growth factor. At the subsequent quarter-end, the estimated revenue amounts are adjusted when actual assessments for the covered period are determined for each institution. (See Note 9 for additional information on assessments.)
Capital Assets and Depreciation
The FDIC buildings are depreciated on a straight-line basis over a 35 to 50 year estimated life. Leasehold improvements are capitalized and depreciated over the lesser of the remaining life of the lease or the estimated useful life of the improvements, if determined to be material. Capital assets depreciated on a straight-line basis over a five-year estimated useful life include mainframe equipment; furniture, fixtures, and general equipment; and internal-use software. Personal computer equipment is depreciated on a straight-line basis over a three-year estimated useful life.
The nature of related parties and a description of related party transactions are discussed in Note 1 and disclosed throughout the financial statements and footnotes.
Certain reclassifications have been made in the 2008 financial statements to conform to the presentation used in 2009.
Disclosure about Recent Accounting Pronouncements
FASB Accounting Standards Codification (ASC) 105, Generally Accepted Accounting Principles (formerly SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162, issued in June 2009), became effective for financial statements covering periods ending after September 15, 2009. On July 1, 2009, the FASB ASC was launched and became the sole source of authoritative accounting principles applicable to the FDIC.
All existing standards that were used to create the Codification have become superseded. As a result, references to generally accepted accounting principles in these Notes will consist of the numbers used in the Codification and, if appropriate, the former pronouncement number. The Codification's purpose was not to create new accounting or reporting guidance, but to organize and simplify authoritative GAAP literature. Consequently, there will be no change to the DIF's financial statements due to the implementation of this Codification.
Statement of Financial Accounting Standards (SFAS) No. 167, Amendments to FASB Interpretation No. 46(R), was issued by the FASB in June 2009, and subsequently codified upon issuance of Accounting Standards Update No. 2009-17, Consolidations (ASC 810) -Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. SFAS 167, effective for reporting periods beginning after November 15, 2009, modifies the former quantitative approach for determining the primary beneficiary of a variable interest entity (VIE) to a qualitative assessment. An enterprise must determine qualitatively whether it has (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. If an enterprise has both of these characteristics, the enterprise is considered the primary beneficiary and must consolidate the VIE. Management is currently reviewing the possible impact, if any, of SFAS 167 (now codified in ASC 810) on DIF's accounting and financial reporting requirements for 2010.
SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140, was issued by the FASB in June 2009. Subsequently, the FASB issued Accounting Standards Update No. 2009-16, Transfers and Servicing (ASC 860) -Accounting for Transfers of FinancialAssets, to formally incorporate the provisions of SFAS No. 166 into the Codification. SFAS 166 removes the concept of a qualifying special-purpose entity from GAAP, changes the requirements for derecognizing financial assets, and requires additional disclosures about a transferor's continuing involvement in transferred financial assets. The FASB's objective is to improve the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets.
The provisions of SFAS 166 (now codified in ASC 860) become effective for the DIF for all transfers of financial assets occurring on or after January 1, 2010.
SFAS No. 165, Subsequent Events, was issued in May 2009 and subsequently codified in FASB ASC 855, Subsequent Events. ASC 855 represents the inclusion of guidance on subsequent events in the accounting literature. Historically, management had relied on auditing literature for guidance on assessing and disclosing subsequent events. ASC 855 now requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date—that is, whether that date represents the date the financial statements were issued or were available to be issued. These new provisions, effective for the DIF as of December 31, 2009, do not have a significant impact on the financial statements.
FASB Staff Position (FSP) FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, was issued in April 2009 and subsequently codified in FASB ASC 320, Investments-Debt and Equity Securities. It modifies the other-than-temporary impairment (OTTI) guidance for debt securities. An OTTI is considered to have occurred if 1) an entity has the intent to sell an impaired security, 2) it is more likely than not that it will be required to sell the security before its anticipated recovery, or 3) an entity does not expect to recover the entire amortized cost basis when there is no intent or likely requirement to sell the security.
In addition, the FSP requires that an OTTI loss should be recognized in earnings or other comprehensive income. If the entity has the intent to sell the security or it is more likely than not that it will be required to sell the security, the entire impairment (amortized cost basis over fair value) will be recognized in earnings. However, if an entity's management asserts that it does not have the intent to sell a debt security and it is more likely than not that it will not have to sell the security before recovery of its cost basis, then an entity must separate the impairment loss into two components: 1) the amount related to credit loss, which is recorded in earnings, and 2) the remainder of the impairment loss, which is recorded in other comprehensive income. The provisions of the FSP, now codified in ASC 320, became effective for the DIF as of June 30, 2009.
Other recent accounting pronouncements have been deemed to be not applicable or material to the financial statements as presented.