Citigroup Inc.

Accounting for Defensive Intangible AssetsIn November 2008, the FASB ratified the consensus reached by the EITF onIssue 08-7, “Accounting for Defensive Intangible Assets” (Issue 08-7) (nowASC 350-30-25-5, Intangibles—Goodwill and Other: Defensive IntangibleAssets). An acquired defensive asset shall be accounted for as a separate unitof accounting (i.e., an asset separate from other assets of the acquirer).The useful life assigned to an acquired defensive asset shall be based on theperiod during which the asset would diminish in value. Issue 08-7 states thatit would be rare for a defensive intangible asset to have an indefinite life.Issue 08-7 was effective for Citigroup on January 1, 2009, and did not have amaterial impact.CVA Accounting MisstatementIn January 2010, the Company determined that an error existed in the processused to value certain liabilities for which the Company elected the fair valueoption (FVO). The error related to a calculation intended to measure the impacton the liability’s fair value attributable to Citigroup’s credit spreads. Becauseof the error in the process, both an initial Citi contractual credit spread andan initial own-credit valuation adjustment were being included at the timeof issuance of new Citi FVO debt. The own-credit valuation adjustment wasproperly included; therefore, the initial Citi contractual credit spread shouldhave been excluded. (See Note 26 for a description of own-credit valuationadjustments.) The cumulative effect of this error from January 1, 2007 (thedate that SFAS 157 (ASC 820), requiring the valuation of own-credit for FVOliabilities, was adopted) through December 31, 2008 was to overstate incomeand retained earnings by $204 million ($330 million on a pretax basis). Theimpact of this adjustment was determined not to be material to the Company’sresults of operations and financial position for any previously reported period.Consequently, in the accompanying financial statements, the cumulative effectthrough December 31, 2008 was recorded in 2009.The table below summarizes the previously reported impact of CVA incomefor debt on which the FVO was elected and the related adjustments to correctthe process error for the impacted reporting periods.In millions of dollars 2008 2007Pretax gain (loss) from the change in the CVAreserve on FVO debt that would have beenrecorded in the income statement:Previously reported $4,558 $888Corrected amount adjusted for removal of the error 4,352 764Difference $ 206 $124In millions of dollars 2008 2007Year-end CVA reserve reported as acontra-liability on FVO debt:Previously reported $5,446 $888Corrected amount adjusted for removal of the error 5,116 764Difference $ 330 $124See Note 33 to the Consolidated Financial Statements.176