ADP 2015 Annual Report Download - page 38

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 1, New Accounting Pronouncements, of Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial
statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses. We
continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. The estimates are based on historical experience
and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by
management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are
discussed below.
RevenueRecognition.Our revenues are primarily attributable to fees for providing services ( e.g.,Employer Services' payroll processing fees), investment
income on payroll funds, payroll tax filing funds and other Employer Services' client-related funds, and fees charged to implement clients on the Company's
solutions. We enter into agreements for a fixed fee per transaction ( e.g.,number of payees or number of payrolls processed). Fees associated with services are
recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is
reasonably assured.
PEO provides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’ compensation insurance, and
administering state unemployment insurance, among other human resources functions. Amounts collected from PEO worksite employers include payroll, fees for
benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment taxes.
The payroll and payroll taxes collected from the worksite employers is presented in revenue net, as the Company is not the primary obligor with respect to
this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is the primary obligor, has latitude in establishing price,
selects suppliers, and determines the service specifications.
The fees collected from the worksite employers for benefits, workers’ compensation and state unemployment taxes are presented in revenues and the
associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company acts as a principal with
respect to this aspect of the arrangement. With respect to the fees for benefits, workers’ compensation and state unemployment taxes, the Company is the primary
obligor, has latitude in establishing price, selects suppliers, determines the service specifications and is liable for credit risk.
We recognize interest income on collected but not yet remitted funds held for clients in revenues as earned, as the collection, holding and remittance of
these funds are critical components of providing these services.
Client implementation fees are charged to set clients up on our solutions and are deferred until the client has gone live and services have begun. These
fees are amortized to revenue over the longer of the contractual term or expected client life, including estimated renewals of client contracts.
We assess the collectability of revenues based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as
the customer's payment history.
Goodwill. We account for goodwill in accordance with Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other," which
requires that goodwill be tested for impairment annually whenever events or changes in circumstances indicate the carrying value may not be recoverable.
According to ASC 350, we can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or can directly perform the two-step
impairment test. Based on a qualitative assessment, if it is determined that the fair value of a reporting unit is more likely than not less than its carrying amount, the
two-step impairment test prescribed by ASC 350 would be performed.
Our annual goodwill impairment assessment as of June 30, 2016 was performed using a qualitative approach. The qualitative assessment considered
industry and market considerations for any deterioration in the environment in which we operate, the competitive environment, a decline (both absolute and
relative to peers) in market-dependent multiples or metrics, any changes in the market for our services, and regulatory and political development. Additionally, we
assessed financial
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