Halliburton 2011 Annual Report Download - page 75

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60
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements requires the use of judgments and estimates. Our critical
accounting policies are described below to provide a better understanding of how we develop our
assumptions and judgments about future events and related estimations and how they can impact our
financial statements. A critical accounting estimate is one that requires our most difficult, subjective, or
complex judgments and assessments and is fundamental to our results of operations. We identified our
most critical accounting estimates to be:
- forecasting our effective income tax rate, including our future ability to utilize foreign tax
credits and the realizability of deferred tax assets, and providing for uncertain tax positions;
- legal, environmental, and investigation matters;
- valuations of indemnities;
- valuations of long-lived assets, including intangible assets and goodwill;
- purchase price allocation for acquired businesses;
- pensions;
- allowance for bad debts; and
- percentage-of-completion accounting for long-term, construction-type contracts.
We base our estimates on historical experience and on various other assumptions we believe to be
reasonable according to the current facts and circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other
sources. We believe the following are the critical accounting policies used in the preparation of our
consolidated financial statements, as well as the significant estimates and judgments affecting the
application of these policies. This discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes included in this report.
We have discussed the development and selection of these critical accounting policies and
estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the
disclosure presented below.
Income tax accounting
We recognize the amount of taxes payable or refundable for the current year and use an asset and
liability approach in recognizing the amount of deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in our financial statements or tax returns. We apply the
following basic principles in accounting for our income taxes:
- a current tax liability or asset is recognized for the estimated taxes payable or refundable on
tax returns for the current year;
- a deferred tax liability or asset is recognized for the estimated future tax effects attributable to
temporary differences and carryforwards;
- the measurement of current and deferred tax liabilities and assets is based on provisions of
the enacted tax law, and the effects of potential future changes in tax laws or rates are not
considered; and
- the value of deferred tax assets is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, are not expected to be realized.