FairPoint Communications 2004 Annual Report Download - page 56

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Our critical accounting policies are as follows:
•Revenue recognition;
•Allowance for doubtful accounts;
•Accounting for income taxes; and
•Valuation of long-lived assets, including goodwill.
Revenue recognition. Certain of our interstate network access and data revenues are based on tariffed access charges filed directly
with the Federal Communications Commission; the remainder of such revenues are derived from revenue sharing arrangements with other
local exchange carriers administered by the National Exchange Carrier Association.
The Telecommunications Act allows local exchange carriers to file access tariffs on a streamlined basis and, if certain criteria are met,
deems those tariffs lawful. Tariffs that have been "deemed lawful" in effect nullify an interexchange carrier's ability to seek refunds should the
earnings from the tariffs ultimately result in earnings above the authorized rate of return prescribed by the Federal Communications
Commission. Certain of the Company's telephone subsidiaries file interstate tariffs directly with the Federal Communication Commission
using this streamlined filing approach. The settlement period related to (i) the 2001 to 2002 monitoring period lapses on September 30, 2005
and (ii) the 2003 to 2004 monitoring period lapses on September 30, 2007. We will continue to monitor the legal status of any pending or
future proceedings that could impact its entitlement to these funds, and may recognize as revenue some or all of the over-earnings at the end
of the settlement period or as the legal status becomes more certain.
Allowance for doubtful accounts. In evaluating the collectibility of our accounts receivable, we assess a number of factors,
including a specific customer's or carrier's ability to meet its financial obligations to us, the length of time the receivable has been past due
and historical collection experience. Based on these assessments, we record both specific and general reserves for uncollectible accounts
receivable to reduce the related accounts receivable to the amount we ultimately expect to collect from customers and carriers. If
circumstances change or economic conditions worsen such that our past collection experience is no longer relevant, our estimate of the
recoverability of our accounts receivable could be further reduced from the levels reflected in our accompanying consolidated balance sheet.
Accounting for income taxes. As part of the process of preparing our consolidated financial statements we were required to estimate
our income taxes. This process involves estimating our actual current tax exposure and assessing temporary differences resulting from
different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included
within our consolidated balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent we believe the recovery is not likely, we must establish a valuation allowance. Further, to the extent that we
establish a valuation allowance or increase this allowance in a financial accounting period, we must include a tax provision, or reduce our tax
benefit in our consolidated statement of operations. In performing the assessment, management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies. We use our judgment to determine our provision or benefit for
income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.
There are various factors that may cause those tax assumptions to change in the near term. We cannot predict whether future U.S.
federal income tax laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact
of significant changes to the
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