HR Block 2015 Annual Report Download - page 58

H&R Block, Inc. | 2015 Form 10-K 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS – Our operating subsidiaries provide assisted and digital do-it-yourself (DIY) tax return
preparation - in-person, online, desktop software and mobile applications - and related services to the general public
primarily in the United States (U.S.) and its territories, Canada, and Australia. We also offer retail banking services in
the U.S. through H&R Block Bank (HRB Bank), a federal savings bank.
PRINCIPLES OF CONSOLIDATION – The consolidated financial statements include the accounts of the Company
and our 100% owned subsidiaries. Intercompany transactions and balances have been eliminated.
Some of our subsidiaries operate in regulated industries and their underlying accounting records reflect the policies
and requirements of these industries.
DISCONTINUED OPERATIONS – Our discontinued operations include the results of operations of Sand Canyon
Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC),
which exited its mortgage business in fiscal year 2008. Discontinued operations also include the results of our previously
reported Business Services segment. See notes 17 and 18 for additional information on litigation, claims and other
loss contingencies related to our discontinued operations.
MANAGEMENT ESTIMATES – The preparation of financial statements in conformity with accounting principles
generally accepted in the U. S. (GAAP) requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates,
assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage
business, contingent losses associated with pending claims and litigation, valuation allowances on deferred tax assets,
reserves for uncertain tax positions and related matters. Estimates have been prepared based on the best information
available as of each balance sheet date. As such, actual results could differ materially from those estimates.
CASH AND CASH EQUIVALENTS – All non-restricted highly liquid instruments purchased with an original maturity
of three months or less are considered to be cash equivalents.
Outstanding checks in excess of funds on deposit (book overdrafts) included in accounts payable totaled $34.0
million and $38.3 million as of April 30, 2015 and 2014, respectively.
CASH AND CASH EQUIVALENTS – RESTRICTED – Cash and cash equivalents – restricted consists primarily of cash
held by HRB Bank required for regulatory compliance and cash held by our captive insurance subsidiary that is expected
to be used to pay claims.
RECEIVABLES AND RELATED ALLOWANCES – Our trade receivables consist primarily of accounts receivable from
tax clients for tax return preparation. The allowance for doubtful accounts for these receivables requires management's
judgment regarding collectibility and current economic conditions to establish an amount considered by management
to be adequate to cover estimated losses as of the balance sheet date. Receivables from tax clients for tax return
preparation are not specifically identified and charged off; instead they are evaluated on a pooled basis. At the end
of each tax season the outstanding balances on these receivables are evaluated based on collections received and
expected collections over subsequent tax seasons.
Our financing receivables consist primarily of mortgage loans held for investment, H&R Block Emerald Advance®
lines of Credit (EAs), loans made to franchisees, and amounts due under our refund discount program in Canada (Cash
Back®).
H&R Block Emerald Advance® lines of credit. EAs are typically offered to clients in our offices from late November
through mid-January, currently in an amount not to exceed $1,000. If the borrower meets certain criteria as agreed
in the loan terms, the line of credit can be increased and utilized year-round. These lines of credit are offered by HRB
Bank. EA balances require an annual paydown on February 15th, and any amounts unpaid are placed on non-accrual
status as of March 1st. Payments on past due amounts are applied to principal.
These receivables are not specifically identified; instead we review the credit quality of these receivables on a
pooled basis, segregated by the year of origination. We determine our allowance for these receivables based on a