## 3. Summary of Significant Accounting Policies 

The acronyms that appear in these Notes to our Consolidated Financial Statements refer to the following: 

ASC Accounting Standards Codification 

ASU Accounting Standards Update 

EITF Emerging Issues Task Force 

FASB Financial Accounting Standards Board 

SEC Securities and Exchange Commission 

Principles of Consolidation.  We conduct our business operations through wholly owned or majority-owned operating subsidiaries. The accompanying consolidated financial statements include the accounts of Morningstar, Inc. and our subsidiaries. The assets, liabilities, and results of operations of subsidiaries in which we have a controlling interest have been consolidated. All significant intercompany accounts and transactions have been eliminated. 

We account and report the noncontrolling (minority) interests in our Consolidated Financial Statements in accordance with FASB ASC 810, Consolidation . A noncontrolling interest is the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to the parent company. We report the noncontrolling interest in our Consolidated Balance Sheet within equity separate from the share- holders’ equity attributable to Morningstar, Inc. In addition, we present the net income (loss) and comprehensive income (loss) attributed to Morningstar, Inc.’s shareholders and the noncontrolling interest in our Consolidated Statements of Income and Consolidated Statements of Equity and Comprehensive Income (Loss). 

We account for investments in entities in which we exercise sig- nificant influence, but do not control, using the equity method. 

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. Actual results may differ from these estimates. 

Reclassifications.  Certain amounts reported in previous years have been reclassified to conform to the 2010 presentation. 

Cash and Cash Equivalents.  Cash and cash equivalents consist of cash and investments with original maturities of three months or less. We state them at cost, which approximates fair value. 

Investments.  We account for our investments in accordance with FASB ASC 320, Investments—Debt and Equity Securities . We clas- sify our investments into three categories: held-to-maturity, trading, and available-for-sale. 

U  Held-to-maturity: We classify certain investments, primarily cer- tificates of deposit, as held-to-maturity securities, based on our intent and ability to hold these securities to maturity. We record held-to-maturity investments at amortized cost in our Consolidated Balance Sheets. 

U  Trading: We classify certain other investments, primarily equity securities, as trading securities, primarily to satisfy the require- ments of one of our wholly owned subsidiaries, which is a reg- istered broker-dealer. We include realized and unrealized gains and losses associated with these investments as a component of our operating income in the Consolidated Statements of Income. We record these securities at their fair value in our Consolidated Balance Sheets. 

U  Available-for-sale: Investments not considered held-to-maturity or trading securities are classified as available-for-sale securities. Available-for-sale securities primarily consist of fixed-income securities. We report unrealized gains and losses for available- for-sale securities as other comprehensive income (loss), net of related income taxes. We record these securities at their fair value in our Consolidated Balance Sheets. 

Fair Value Measurements.  We follow FASB ASC 820, Fair Value Measurements and Disclosures . FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Under FASB ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances and does not require any new fair value measurements. 

