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Board of Governors of the Federal Reserve System
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Federal Reserve Board of Governors

Credit and Liquidity Programs and the Balance Sheet

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Federal Reserve System financial statements

The Board of Governors and the Federal Reserve Banks annually prepare financial statements reflecting balances (as of December 31) and income and expenses for the year then ended. The Federal Reserve Bank financial statements also include the accounts and results of operations of several limited liability companies (LLCs) that have been consolidated with the Federal Reserve Bank of New York (the "consolidated LLCs").

The Board of Governors, the Federal Reserve Banks, and the consolidated LLCs are all subject to several levels of audit and review. The Reserve Banks' financial statements and those of the consolidated LLC entities are audited annually by an independent audit firm retained by the Board of Governors. To ensure auditor independence, the Board requires that the external auditor be independent in all matters relating to the audit. Specifically, the external auditor may not perform services for the Reserve Banks or others that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. In addition, the Reserve Banks, including the consolidated LLCs, are subject to oversight by the Board.

The Board of Governors' financial statements are audited annually by an independent audit firm retained by the Board's Office of Inspector General. The audit firm also provides a report on compliance and on internal control over financial reporting in accordance with government auditing standards. The Office of Inspector General also conducts audits, reviews, and investigations relating to the Board's programs and operations as well as of Board functions delegated to the Reserve Banks.

Financial statements of the Federal Reserve System

(as of and for the years ended December 31, 2008, and 2007)
The financial statements of the Board of Governors and the consolidated LLC entities are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"); those of the Federal Reserve Banks are prepared in accordance with the Financial Accounting Manual for Federal Reserve Banks ("Financial Accounting Manual"). Accounting principles for entities with the unique powers and responsibilities of the nation's central bank have not been formulated by accounting standard-setting bodies. The Board of Governors has developed specialized accounting principles and practices that it considers to be appropriate for the nature and function of a central bank, which differ from those of the private sector. These accounting principles and practices are documented in the Financial Accounting Manual, which is issued by the Board of Governors. The primary difference between the accounting principles and practices in the Financial Accounting Manual and GAAP is the presentation of all System Open Market Account (SOMA) securities holdings at amortized cost, rather than using the fair value presentation required by GAAP. U.S. government securities and investments denominated in foreign currencies comprising the System Open Market Account are recorded at cost, on a settlement-date basis, and adjusted for amortization of premiums or accretion of discounts on a straight-line basis. Amortized cost more appropriately reflects the Reserve Banks' securities holdings given the System's unique responsibility to conduct monetary policy. In addition, the Reserve Banks have elected not to present a Statement of Cash Flows because the liquidity and cash positions of the Reserve Banks are not a primary concern given their unique powers and responsibilities. Other information regarding the Reserve Banks' activities is provided in, or may be derived from, the Combined Statements of Condition, Income and Comprehensive Income, and Changes in Capital.

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Last update: April 23, 2009