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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2016
Disclosure Text Block Abstract |
Basis of Presentation | NOTE 1 Summary of Significant Accounting Policies The Company American Express Company (the Company) is a global services company that provides customers with access to products, insights and experiences that enrich lives and build business success. The Company’s principal products and services are charge and credit payment card products and travel-related services offered t o consumers and businesses around the world. Business travel-related services are offered through the non-consolidated joint venture, American Express Global Business Travel (the GBT JV). Prior to July 1, 2014, these business travel operations were wholly owned. The Company’s various products and services are sold globally to diverse customer groups, including consumers, small businesses, mid-sized companies and large corporations. These products and services are sold through various channels, including dir ect mail, online applications, in-house and third-party sales forces and direct response advertising. Effective for the first quarter of 2016, the Company realigned its segment presentation to reflect the organizational changes announced during the fourth quarter of 2015. Prior periods have been restated to conform to the new reportable operating segments, which are as follows: U.S. Consumer Services (USCS) issues a wide range of proprietary consumer cards and provides services to consumers in the United S tates, including consumer travel services; International Consumer and Network Services (ICNS) issues a wide range of proprietary consumer cards outside the United States and enters into partnership agreements with third-party card issuers and acquirers, li censing the American Express brand and extending the reach of the global network. It also provides travel services to consumers outside the United States; Global Commercial Services (GCS) issues a wide range of proprietary corporate and small business card s and provides payment and expense management services globally. In addition, GCS provides commercial financing products; and Global Merchant Services (GMS) operates a global payments network that processes and settles proprietary and non-proprietary card transactions. GMS acquires merchants and provides multi-channel marketing programs and capabilities, services and data analytics, leveraging the Company’s global closed-loop network. GMS also operates loyalty coalition businesses in certain countries arou nd the world. Corporate functions and certain other businesses and operations, including the Company’s Prepaid Services business and the American Express Global Business Travel (GBT) operations up to June 30, 2014, and subsequent activities related to the GBT JV, are included in Corporate & Other. Principles of Consolidation The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Significant intercompany transactions are eliminated. The Company consolidates entities in which it holds a “controlling financial interest.” For voting interest entities, the Company is considered to hold a controlling financial interest when it is able to exercise c ontrol over the investees’ operating and financial decisions. For variable interest entities (VIEs), the determination of which is based on the amount and characteristics of the entity’s equity, the Company is considered to hold a controlling financial int erest when it is determined to be the primary beneficiary. A primary beneficiary is the party that has both: (1) the power to direct the activities that most significantly impact that VIE’s economic performance, and (2) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Entities in which the Company’s voting interest in common equity does not provide it with control, but allows the Company to exert significant influence over t he operating and financial decisions, are accounted for under the equity method. All other investments in equity securities, to the extent they are not considered marketable securities, are accounted for under the cost method. Foreign Currency Assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon exchange rates prevailing at the end of the reporting period; r evenues and expenses are translated at the average month-end exchange rates during the year. R esulting translation adjustments, along with any related qualifying hedge and tax effects, are included in accumulated other comprehensive income (loss) (AOCI), a component of shareholders’ equity. Translation adjustments, including qualifying hedge and tax effect s, are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Gains and losses related to transactions in a currency other than the functional currency are reported net in Other expenses, in the Company’s Co nsolidated Statements of Income. N et foreign currency transaction losses amounted to approximately $18 million in 2016, and n et foreign currency transaction gains amounted to approximately $68 million and $44 million in 2015 and 2014, respectively. Amounts Based on Estimates and Assumptions Accounting estimates are an integral part of the Consolidated Financial Statements. These estimates are based, in part, on management’s assumptions concerning future events. Amon g the more significant assumptions are those that relate to reserves for Card Member losses on loans and receivables, the proprietary point liability for Membership Rewards costs, fair value measurement s, goodwill and income taxes. These accounting estimates reflect the best judgment of management, but actual results could differ. Income statement Discount Revenue Discount revenue generally represents the amount earned by the Company on transactions occurring at merchants with which the Company, or a Global Network Services (GNS) partner, has entered into a card acceptance agreement for facilitating transactions between the merchants and the Company’s Card Members. The amount of fees charged, or merchant discount, is generally deduct ed from the payment to the merchant and recorded as discount revenue at the time a Card Member enters into a point-of-sale transaction with a merchant. Where the Company acts as the merchant acquirer and the card presented at a merchant is issued by a thir d-party financial institution, such as in the case of GNS partners, the Company makes financial settlement to the merchant and receives the discount revenue. In the Company’s role as the operator of the card network, it also receives financial settlement f rom the GNS card issuer, which in turn receives an issuer rate that is individually negotiated between that issuer and the Company. The difference between the merchant discount the Company receives from the merchant (which is directly agreed between a merc hant and the Company and is not based on the issuer rate) and the issuer rate r eceived by the GNS card issuer is recorded as discount revenue. In cases where the Company is the card issuer and the merchant acquirer is a third party (which can be the case in a country in which an Independent Operator partner is the local merchant acquirer or in the United States under our OptBlue program with certain third-party merchant acquirers), the Company receives a network rate in its settlement with the merchant acq uirer, which is individually negotiated between the Company and that merchant acquirer and is recorded as discount revenue. In contrast with networks such as those operated by Visa Inc. and MasterC ard Incorporated, there are no collectively set interchange rates on the American Express network, issuer rates do not serve as a basis for merchant discount rates and no fees are agreed or due between the third-party financial institution participants on the network. Net Card Fees Net card fees represent revenue earned from annual card membership fees, which varies based on the type of card and the n umber of cards for each account. These fees, net of deferred acquisition costs and a reserve for projected refunds for Card Member cancellation s, are deferred and rec ognized on a straight-line basis over the 12-month card membership period as Net Card Fees in the Consolidated Statements of Income. The unamortized net card fee balance is reported in Other Liabilities on the Consolidated Balance Sheets (refer to Note 10). Other Fees and Commissions Other fees and commissions represent foreign currency conversion fees, Card Member delinquency fees, loyalty coalition-related fees, travel commissions and fees and service fees, which are primarily recognized in the period in which they are charged to the Card Member (refer to Note 19). In addition, service fees are also earned from other customers (e.g., merchants) for a variety of services and are recognized when the service is performed, which is generally in the period the fee is charged. Also included are fees related to the Company’s Membership Rewards program, which are deferred and recognized over the period covered by the fee, typically one year; t he unamortized portion of which is included in Other Liabilities on the Consolidated Balance Sheets (Refer to Note 10). Contra-revenue The Company regularly makes payments through contractual arrangements with merchants, corporate payments clients, Card Members and certain other customers. These payments, including cash rebat es and statement credits provided to Card Members, are generally classified as contra-revenue unless a specifically identifiable benefit (e.g., goods or services) is received by the Company or its Card Members in consideration for that payment, and the fai r value of such benefit is determinable and measurable. If such conditions are met, then the payment is classified as expense up to the estimated fair value of the benefit. If no such benefit is identified, then the entire payment is classified as contra-r evenue and included in the Consolidated Statements of Income in the revenue line item where the related transactions are re corded (e.g., Discount revenue or Other fees and commissions). Interest Income Interest on Card Member loans is assessed using the average daily balance method. Unless the loan is classified as non-accrual, interest is recognized based upon the principal amount outstanding, in accordance with the terms of the applicable account agreement, until the outstanding balance is paid, or writ ten off. Interest and dividends on investment securities primarily relate to the Company’s performing fixed-income securities. Interest income is recognized as earned using the effective interest method, which adjusts the yield for security premiums and d iscounts, fees and other payments, so that a constant rate of return is recognized on the investment security’s outstanding balance. Amounts are recognized until securit ies are in default or when it becomes likely that future interest payments will not be made as scheduled. Interest on deposits with banks and other is recognized as earned, and primarily relates to the placement of cash, in excess of near-term funding requirements, in interest-bearing time deposits, overnight sweep accounts, and other inter est-bearing demand and call accounts. Interest Expense Interest expense includes interest incurred primarily to fund Card Member loans and receivables, general corporate purposes and liquidity needs, and is recognized as incurred. Interest expense is div ided principally into two categories: (i) deposits, which primarily relates to interest expense on deposits taken from customers and institutions, and (ii) debt, which primarily relates to interest expense on t he Company’s long-term debt and short-term bor rowings, as well as the realized impact of derivatives hedging interest rate risk on the Company’s long-term debt. Expenses Marketing and promotion expense includes advertising costs, which are expensed in the year in which the advertising first takes pla ce. Balance Sheet Cash and Cash Equivalents Cash and cash equivalents include cash and amounts due from banks, interest-bearing bank balances, including securities purchased under resale agreements, and other highly liquid investments with original maturities of 90 days or less. Goodwill Goodwill represents the excess of acquisition cost of an acquired business over the fair value of assets acquired and liabilities assumed. The Company allocates goodwill to its reporting units for the purpose of imp airment testing. A reporting unit is defined as an operating segment, or a business that is one level below an operating segment, for which discrete financial information is regularly reviewed by the operating segment manager. The Company evaluates goodwil l for impairment annually as of June 30, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of one or more of the Company’s reporting units below its carrying value. The Company performs an impa irment evaluation of goodwill using a two-step process. The first step identifies whether there is a potential impairment by comparing the fair value of a reporting unit to the carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds the fair value, the second step of the impairment test is performed to determine the implied fair value of goodwill. An impairment loss is recognized based on the amount that the carrying amount of goodwill exceeds the implied fair value. Prior to completing the interim assessment of goodwill for impairment under the second step, the Company performs a recoverability test of certain long-lived assets by assessing the rec overability of the assets based on the cash flows generated by the relevant ass ets or asset groups. I f the sum of undiscounted cash flow exceeds the carrying value, an impairment loss is recognized based on the amount that the carrying value of the asset or asset group exceeds its fair value. See further details in Other Intangible A ssets herein. Goodwill impairment testing involves management judgment, requiring an assessment of whether the carrying val ue of the reporting unit exceeded its fair value. U sing widely accepted valuation techniques, t he Company appli es a combination of th e income approach (discounted cash flows) and market approach (market multiples) to measure the fair values of its reporting units. When preparing discounted cash flow models under the income approach, the Company uses internal forecasts to estimate futur e cash flows expected to be generated by the reporting units. To discount these cash flows, the Company uses the expected cost of equity, determined by using a capital asset pricing model. The Company believes the discount rates used appropriately reflect the risks and uncertainties in the financial markets generally and specifically in the Company’s internally developed forecasts. When using market multiples under the market approach, the Company applies comparable publicly traded compan ies’ multiples (e.g., earnings or revenues) to its reporting units’ actual results. Other Intangible Assets Intangible assets, primarily customer relationships, are amortized on a straight-line basis over their estimated useful lives of 1 to 22 years. The Company reviews long-lived assets and asset groups, including intangible assets, for impairment whenever events and circumstances indicate their carrying amounts may not be recoverable. An impairment is recognized if the carrying amount is not recoverable and exceeds the asset or asset group’s fair value. Certain long-lived assets, such as capitalized software development costs, are included in Premises and equipment. The Company reviews these assets for impairment using the same impairment methodology used for intangible assets. Premises and Equipment Premises and equipment, including leasehold improvements, are carried at cost less accumulated depreciation. Costs incurred during construction are capitalized and are depreciated once an asset is placed in service. Depreciation is generally computed using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years for equipment, furniture and building improvements, and from 40 to 50 years for p remises, which are depreciated based upon their estimated useful life at the acquisition date. Leasehold improvements are depreciated using the straight-line method over the lesser of the remaining term of the leased facility, or the economic life of the improvement, and ranges from 5 to 10 years. The Company maintains operating leases worldwide for facilities and equipment. Rent expense for facility leases is recognized ratably over the lease term, and inc ludes adjustments for rent concessions, rent escalations and leasehold improvement allowances. The Company recognizes lease restoration obligations at the fair value of the restoration liabilities when incurred and amortizes the restoration assets over the lease term. Certain costs associated with the acquisition or development of internal-use software are also recorded in Premises and equipment. Once the software is ready for its intended use, these costs are amortized on a straight-line basis over the sof tware’s estimated useful life, generally 5 years. Other Significant Accounting Policies The following table identifies the Company’s other significant accounting policies, along with the related Note and page number where the Note can be found.
Significant Accounting Policy |  | Note Number |  | Note Title |  | Page
Accounts Receivable |  | Note 3 |  | Loans and Accounts Receivable |  | Page 88
Loans |  | Note 3 |  | Loans and Accounts Receivable |  | Page 88
Reserves for Losses |  | Note 4 |  | Reserves for Losses |  | Page 94
Investment Securities |  | Note 5 |  | Investment Securities |  | Page 96
Asset Securitizations |  | Note 6 |  | Asset Securitizations |  | Page 97
Membership Rewards |  | Note 10 |  | Other Liabilities |  | Page 103
Stock-based Compensation |  | Note 11 |  | Stock Plans |  | Page 104
Retirement Plans |  | Note 12 |  | Retirement Plans |  | Page 106
Legal Contingencies |  | Note 13 |  | Contingencies and Commitments |  | Page 106
Derivative Financial Instruments and Hedging Activities |  | Note 14 |  | Derivatives and Hedging Activities |  | Page 107
Fair Value Measurements |  | Note 15 |  | Fair Values |  | Page 111
Income Taxes |  | Note 21 |  | Income Taxes |  | Page 120
Regulatory Matters and Capital Adequacy |  | Note 23 |  | Regulatory Matters and Capital Adequacy |  | Page 122
Reportable Operating Segments |  | Note 25 |  | Reportable Operating Segments and Geographic Operations |  | Page 125
Recently Issued Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued new accounting guidance on revenue recognition. The accounting standard establishes the principles to apply to determine the amount and timing of revenue recognition, specifying the accounting for certain costs related to revenue, and requiring additional disclosures about the nature, amount, timing and uncertainty of revenue s and related cash flows. The guidance, as amended, supersedes most of the current revenue recognition requirements, and is effective January 1, 2018, with early adoption as of January 1, 2017. The Company will adopt the new guidance on January 1, 2018, and anticipates using the full retrospective method, which applies the new standard to each prior reporting period presented. T he Company has been working on the implementation of th e standard since its issuance in 2014 and has made significant p rogress in evaluat ing the potential impact on its Consolidated Financial Statements. There will be changes to the recognition timing and classification of revenues and expenses; however, the Company does not expect a significant impact to pretax income up on adoption. The Company is also in the process of implementing changes to its accounting policies, business processes, systems and internal controls to support the recognition and disclosure requirements under the new standard. In January 2016, the FASB issued new accounting guidance on the recognition and measurement of financial assets and financial liabilities. The guidance, which is effective January 1, 2018, makes targeted changes to current GAAP, specifically to the classification and measurement of equity securities, and to certain disclosure requirements associated with the fair value of financial instruments. The Company continues to evaluate the impact this guidance will have on its financial position, resul ts of operations and cash flows. I n preparation for the implementation, the Company is evaluating the impact the guidance will have on its cost method investments, as well as the impact the standard will have on its accounting policies, business processes, systems and internal controls. In F ebruary 2016, the FASB issued new accounting guidance on leases. The guidance, which is effective January 1, 2019, with early adoption permitted, requires virtually all leases to be recognized on the Consolidated Balance Sheets. The Company currently antic ipates adopting the standard effective January 1, 2019, using the modified retrospective approach, which requires recording existing operating leases on the Consolidated Balance Sheets upon adoption and in the comparative period. The Company is in the proc ess of identifying changes to it s accounting policies, business processes, systems, and internal controls in preparation for the implementation. Specifically, the Company is currently reviewing its lease portfolio, including service contracts that may incl ude embedded leases, and is evaluating and interpreting the requirements under the guidance, including the available accounting policy elections and practical expedients upon transition, in order to determine the impacts to the Company’s financial position, results of operat ions and cash flows upon adoption. In March 2016, the FASB issued new accounting guidance on employee shar e-based payments, adopted by the Company effective January 1, 2017, which simplifies various aspects of the accounting for share-b ased payment transactions, including the income tax consequences, accounting for award forfeitures, and classification on the Consolidated Statements of Cash Flows. Among other items, the guidance requires excess tax benefits and deficiencies, which under previous guidance would have been recorded within additional paid-in capital, to now be recognized in the income tax provision within the results of operations. The adoption of the guidance did not have a significant impact on the Company’s financial posit ion, results of operations or cash flows. In June 2016, the FASB issued new accounting guidance for recognition of credit losses on financial instruments, which is effective January 1, 2020, with early adoption permitted on January 1, 2019. The guidance in troduces a new credit reserving model known as the Current Expected Credit Loss (CECL) model, which is based on expected losses, and differs significantly from the incurred loss approach used today. The CECL model requires measurement of expected credit lo sses not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information and will likely result in earlier recognition of credit reserves. The Company does not intend to adopt the new standard early and is currently evaluating the impact the new guidance will have on its financial position, results of operations and cash flows; however, it is expected that the new CECL model will alter the assumptions used in estim ating credit losses on Card Member loans and receivables, among other financial instruments (e.g., investments in available-for-sale debt securities), and may result in material changes to the Company’s credit reserves. Classification of Various Items Certain reclassifications of prior period amounts have been made to conform to the current period presentation. During 2016, the Company determined that in the Consolidated Statements of Cash Flows for the comparative periods ended June 30, 2015, September 30, 2015 and December 31, 2015, certain activities related to long-term debt repayments were misclassified between financing activities and operating activities. There is no impact to the Consolidated Statements of Income or Consolidated Balance Sheets. T he Company has evaluated the effects of these misclassifications and concluded that none are material to any of its previously is sued Consolidated Financial Statements. Nevertheless, the Company has elected to revise prospectively the comparative periods mentioned above. For the year ended Dec ember 3 1, 2015, this revision resulted in a $361 million decrease to both Net cash used in financing activities and Net cash provided by operating activities. In addition, travel commissions and fees, which were previ ously disclosed separately on the Consolidated S tatements of Income, are now included within Other fees and commissions.

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