Statement of Financial Condition
UBS Securities LLC
Notes to the Statement of Financial Condition (continued)
(In Thousands)
2. Significant Accounting Policies (continued)
Income Taxes (continued)
In accordance with the provisions of FASB ASC 740 - "Income Taxes" ("ASC Topic 740"),
deferred tax assets and liabilities are recognized for the future tax effect of differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect
during the year in which the basis differences reverse.
In the event it is more likely than not that a deferred tax asset will not be realized, a valuation
allowance is recorded. ASC Topic 740 sets out a consistent framework to determine the
appropriate level of tax reserves to maintain for uncertain tax positions. This interpretation uses a
two-step approach wherein a tax benefit is recognized if a position is more likely than not to be
sustained. The amount of the benefit is then measured to be the highest tax benefit that is greater
than 50% likely to be realized.
Consolidation
The Company consolidates entities in which it has a controlling financial interest. The Company
determines whether it has a controlling financial interest in an entity by first evaluating whether
the entity is a "Variable Interest Entity" (VIE) or a "Voting Interest Entity".
To determine if the Company holds a controlling financial interest in an entity, the Company must
first evaluate if it is required to apply the VIE model to the entity, otherwise the entity is evaluated
under the voting interest model. Where the Company holds current or potential rights that give the
Company the power to direct the activities of a VIE that most significantly impact the VIE's
economic performance ("power") combined with a variable interest that gives the Company the
right to receive potentially significant benefits or the obligation to absorb potentially significant
losses ("significant economics"), the Company has a controlling financial interest in that VIE.
Rights held by others to remove the party with power over the VIE are not considered unless one
party can exercise those rights unilaterally.
Recent Accounting Developments
Adopted in 2021
In March 2020, the FASB released ASU 2020-04, Facilitation of the Effects of Reference Rate
Reform on Financial Reporting, in response to operational challenges likely to arise in accounting
for contract modifications and hedge accounting due to regulatory reform initiatives to replace
various Interbank Offered Rate (IBOR). The ASU was further amended in January 2021 by ASC
2021-01. The amendments in these ASUS provide optional guidance for a limited period of time
to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform
on financial reporting. The Parent has established a global governance structure and change
program to address the scale and complexity of the continuing transition to alternative reference
rates (ARRs).
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