Housing Bubble
Freddie Mac expects to restate earnings upward for prior years
McLean, VA – Freddie Mac today announced that it expects to report record earnings for 2002 on January 27. The figures, however, will be unaudited and subject to change because the company's new auditor, PricewaterhouseCoopers, has not yet completed its audit of Freddie Mac's 2002 financial statements.
The reasons for the delay involve issues resulting from management’s re-evaluation, conducted in conjunction with PwC, of certain accounting policies previously used by management and approved by the company’s prior auditor, Arthur Andersen. These issues primarily involve the hedge accounting treatment of certain transactions including those occasioned by the implementation of FAS 133.
Management believes that the effect of changes to its accounting policies will be limited to changes in the timing of the recognition of income. Management believes that the cumulative effect of adjustments to prior period earnings will be to materially increase the reported levels of GAAP and Operating Earnings. Based on the issues that have been identified and the information currently available, management expects to restate its financial results for 2002, 2001 and possibly 2000. Expected adjustments have no impact on the fair market value disclosures, market risk disclosures or the economics of the company. Management further believes that the adjustments will result in an increase in its capital surplus under the regulatory capital requirements.
Because PwC was not Freddie Mac's auditor prior to 2002, changes in the accounting policies and the related effects of those changes require a full reaudit of fiscal year 2001 and possibly 2000. Freddie Mac concurs with PwC that a reaudit should be undertaken. The decision to reaudit is consistent with Freddie Mac's commitment to maintaining the highest standards of financial integrity.
The company's objective is to have audited financial information available for the marketplace as soon as possible, but has been informed by PwC that the process is likely to take several months.
