Halliburton 2013 Annual Report Download - page 50

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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 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, integrated project management 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.
We determine deferred taxes separately for each tax-paying component (an entity or a group of entities that is
consolidated for tax purposes) in each tax jurisdiction. That determination includes the following procedures:
- identifying the types and amounts of existing temporary differences;
- measuring the total deferred tax liability for taxable temporary differences using the applicable tax rate;
- measuring the total deferred tax asset for deductible temporary differences and operating loss carryforwards using
the applicable tax rate;
- measuring the deferred tax assets for each type of tax credit carryforward; and
- reducing the deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Our methodology for recording income taxes requires a significant amount of judgment in the use of assumptions and
estimates. Additionally, we use forecasts of certain tax elements, such as taxable income and foreign tax credit utilization, as
well as evaluate the feasibility of implementing tax planning strategies. Given the inherent uncertainty involved with the use of
such variables, there can be significant variation between anticipated and actual results. Unforeseen events may significantly
impact these variables, and changes to these variables could have a material impact on our income tax accounts related to both
continuing and discontinued operations.
We have operations in approximately 80 countries. Consequently, we are subject to the jurisdiction of a significant
number of taxing authorities. No single jurisdiction has a disproportionately low tax rate. The income earned in these various
jurisdictions is taxed on differing bases, including income actually earned, income deemed earned, and revenue-based tax
withholding. The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties, and
related authorities in each jurisdiction. Changes in the operating environment, including changes in tax law and
currency/repatriation controls, could impact the determination of our income tax liabilities for a tax year.