Accounting Principles and Practices

9 Months Ended

Sep. 30, 2011

Accounting Principles and Practices

Accounting Principles and Practices

2.  Accounting Principles and Practices

Changes in Accounting Principles

In September 2011, the Financial Accounting Standards Board (“FASB”) issued final guidance on goodwill impairment that gives an entity the option to perform a qualitative assessment that may eliminate the requirement to perform the annual two-step test. The current two-step test requires an entity to assess goodwill for impairment by quantitatively comparing the fair value of a reporting unit with its carrying amount, including goodwill (Step 1). If the reporting unit’s fair value is less than its carrying amount, Step 2 of the test must be performed to measure the amount of goodwill impairment, if any. The recently issued guidance gives an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity concludes that this is the case, it must perform the two-step test. Otherwise, the two-step test is not required. The guidance is effective for Aon beginning in the first quarter 2012, with earlier adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In June 2011, the FASB issued guidance that updated principles related to the presentation of comprehensive income. The revised guidance will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements and eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The guidance, which must be applied retroactively, is effective for Aon beginning in the first quarter 2012, with earlier adoption permitted. The adoption of this guidance is expected to affect only the presentation of the consolidated financial statements, and will have no effect on the financial condition, results of operations or cash flows of the Company.

On January 1, 2010, the Company adopted guidance requiring additional disclosures for fair value measurements.  The amended guidance required entities to disclose additional information for assets and liabilities that are transferred between levels of the fair value hierarchy.  This guidance also clarified existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements.  The guidance also required entities to disclose information in the Level 3 rollforward about purchases, sales, issuances and settlements on a gross basis.  See Note 15 “Fair Value Measurements and Financial Instruments” for these disclosures.

In September 2009, the FASB issued guidance that updated principles related to revenue recognition when there are multiple-element arrangements.  This guidance related to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modified the manner in which the transaction consideration is allocated across the separately identifiable deliverables.  The guidance also expanded the disclosures required for multiple-element revenue arrangements.  The effective date for this guidance was January 1, 2011.  The Company early adopted this guidance in the fourth quarter 2010 and applied its requirements to all revenue arrangements entered into or materially modified after January 1, 2010.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.