HR Block 2009 Annual Report Download - page 32

In assessing potential goodwill impairment of our RSM reporting unit, we estimate fair value based on an
assumption that the collaboration between RSM and M&P under their alternative practice structure arrangement
will continue. Were M&P to exit the alternative practice structure, or the collaboration between these two
businesses otherwise cease, we believe our fair value estimates could be lower than presently assumed. In
addition, adverse business results for M&P could also negatively impact our fair value estimates for RSM. Goodwill
balances for RSM totaled $402.6 million at April 30, 2009. Changes in our future assessment of fair value for this
reporting unit could result in an impairment of goodwill and such impairment could be significant.
We recorded goodwill impairments within our Tax Services segment of $2.2 million and $5.7 million during fiscal
years 2009 and 2008, respectively. There was no goodwill impairment in our continuing operations during fiscal
year 2007, however, we recorded $154.9 million in goodwill impairments in discontinued operations related to the
sale and wind-down of our mortgage operations.
INCOME TAXES – We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (SFAS 109), as further interpreted by FASB Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48).
We calculate our current and deferred tax provision for the fiscal year based on estimates and assumptions that
could differ from the actual results reflected in income tax returns filed during the applicable calendar year.
Adjustments based on filed returns are recorded in the appropriate periods when identified. We file a consolidated
federal tax return on a calendar year basis, generally in the second fiscal quarter of the subsequent year.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to
be realized. We have considered taxable income in carry-back periods, historical and forecasted earnings, future
taxable income, the mix of earnings in the jurisdictions in which we operate, and tax planning strategies in
determining the need for a valuation allowance against our deferred tax assets. Determination of a valuation
allowance for deferred tax assets requires that we make judgments about future matters that are not certain,
including projections of future taxable income and evaluating potential tax-planning strategies. To the extent that
actual results differ from our current assumptions, the valuation allowance will increase or decrease. In the event
we were to determine we would not be able to realize all or part of our deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to earnings in the period in which we make such
determination. Likewise, if we later determine it is more likely than not that the deferred tax assets would be
realized, we would reverse the applicable portion of the previously provided valuation allowance.
The income tax laws of jurisdictions in which we operate are complex and subject to different interpretations by
the taxpayer and applicable government taxing authorities. Income tax returns filed by us are based on our
interpretation of these rules. The amount of income taxes we pay is subject to ongoing audits by federal, state and
foreign tax authorities, which may result in proposed assessments, including assessments of interest and/or
penalties. Our estimate for the potential outcome for any uncertain tax issue is highly subjective and based on our
best judgments. Actual results may differ from our current judgments due to a variety of factors, including changes
in law, interpretations of law by taxing authorities that differ from our assessments, changes in the jurisdictions in
which we operate and results of routine tax examinations. We believe we have adequately provided for any
reasonably foreseeable outcome related to these matters. However, our future results may include favorable or
unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, or
when statutes of limitation on potential assessments expire. As a result, our effective tax rate may fluctuate on a
quarterly basis.
REVENUE RECOGNITION – We have many different revenue sources, each governed by specific revenue
recognition policies. Our revenue recognition policies can be found in Item 8, note 1 to our consolidated financial
statements.
OTHER SIGNIFICANT ACCOUNTING POLICIES – Other significant accounting policies, not involving the same
level of judgment or uncertainty as those discussed above are nevertheless important to an understanding of the
financial statements. These policies may require judgments on complex matters that are often subject to multiple
sources of authoritative guidance. Certain of these matters are among topics currently under reexamination by
accounting standard setters and regulators. Although specific conclusions reached by these standard setters may
cause a material change in our accounting policies, outcomes cannot be predicted with confidence. See Item 8,
note 1 to our consolidated financial statements, which discusses accounting policies we have selected when there
are acceptable alternatives and new or proposed accounting standards that may affect our financial reporting in
the future.
28 H&R BLOCK 2009 Form 10K