Investment Accounting Policy
Cash and Equivalents
Debt securities and money market instruments with original maturities of three months or less are included in cash equivalents unless designated as available-for-sale and classified as investment securities.
Investment Securities
General Electric reports investments in debt and marketable equity securities, and certain other equity securities, at fair value. Unrealized gains and losses on available-for-sale investment securities are included in shareowners' equity, net of applicable taxes and other adjustments. General Electric regularly reviews investment securities for impairment using both quantitative and qualitative criteria.
For debt securities, if General Electric does not intend to sell the security or it is not more likely than not that General Electric will be required to sell the security before recovery of amortized cost, General Electric evaluates qualitative criteria to determine whether General Electric does not expect to recover the amortized cost basis of the security, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. General Electric also evaluates quantitative criteria including determining whether there has been an adverse change in expected future cash flows. If General Electric does not expect to recover the entire amortized cost basis of the security, General Electric considers the security to be other-than-temporarily impaired, and General Electric records the difference between the security's amortized cost basis and its recoverable amount in earnings and the difference between the security's recoverable amount and fair value in other comprehensive income. If General Electric intends to sell the security or it is more likely than not General Electric will be required to sell the security before recovery of its amortized cost basis, the security is also considered other-than-temporarily impaired and General Electric recognizes the entire difference between the security's amortized cost basis and its fair value in earnings. For equity securities, General Electric considers the length of time and magnitude of the amount that each security is in an unrealized loss position. If General Electric does not expect to recover the entire amortized cost basis of the security, General Electric considers the security to be other-than-temporarily impaired, and General Electric records the difference between the security's amortized cost basis and its fair value in earnings.
Prior to April 1, 2009, unrealized losses that were other-than-temporary were recognized in earnings at an amount equal to the difference between the security's amortized cost and fair value. In determining whether the unrealized loss was other-than-temporary, General Electric considered both quantitative and qualitative criteria. Quantitative criteria included the length of time and magnitude of the amount that each security was in an unrealized loss position and, for securities with fixed maturities, whether the issuer was in compliance with terms and covenants of the security. For structured securities, General Electric evaluated whether there was an adverse change in the timing or amount of expected cash flows. Qualitative criteria included the financial health of and specific prospects for the issuer, as well as General Electric's intent and ability to hold the security to maturity or until forecasted recovery.
Realized gains and losses are accounted for on the specific identification method. Unrealized gains and losses on investment securities classified as trading and certain retained interests are included in earnings.
Source: General Electric Co., Annual Report
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