IBM 2011 Annual Report Download - page 90

Notes to Consolidated Financial Statements
International Business Machines Corporation and Subsidiary Companies88
adopted the amended guidance for arrangements with multiple
deliverables described in the preceding paragraph. Therefore, the
company elected to early adopt this guidance as of January 1, 2010
on a prospective basis for all new or materially modified arrangements
entered into on or after that date. The adoption of this guidance did
not have a material impact in the Consolidated Financial Statements.
For transactions entered into prior to January 1, 2010, the company
recognized revenue based on established revenue recognition
guidance as it related to the elements within the arrangement. For
the vast majority of the company’s arrangements involving multiple
deliverables, the fee from the arrangement was allocated to each
respective element based on its relative fair value, using VSOE. In
the limited circumstances when the company was not able to
determine VSOE for all of the elements of the arrangement, but was
able to obtain VSOE for any undelivered elements, revenue was
allocated using the residual method. Under the residual method,
the amount of revenue allocated to delivered elements equaled
the total arrangement consideration less the aggregate fair value
of any undelivered elements, and no revenue was recognized until
all elements without VSOE had been delivered. If VSOE of any
undelivered items did not exist, revenue from the entire arrangement
was initially deferred and recognized at the earlier of: (i) delivery of
those elements for which VSOE did not exist or (ii) when VSOE was
established. The residual method and recognition of revenue on a
ratable basis were generally used in circumstances where VSOE,
as applicable, was unavailable.
In June 2009, the FASB issued amendments to the accounting
rules for variable interest entities (VIEs). The new guidance eliminates
the quantitative approach previously required for determining the
primary beneficiary of a variable interest entity and requires ongoing
qualitative reassessments of whether an enterprise is the primary
beneficiary. The company adopted these amendments for the interim
and annual reporting periods beginning on January 1, 2010. The
adoption of these amendments did not have a material impact in
the Consolidated Financial Statements.
In September 2009, the FASB issued amended guidance
concerning fair value measurements of investments in certain entities
that calculate net asset value per share (or its equivalent). If fair value
is not readily determinable, the amended guidance permits, as a
practical expedient, a reporting entity to measure the fair value of
an investment using the net asset value per share (or its equivalent)
provided by the investee without further adjustment. In accordance
with the guidance, the company adopted these amendments for the
year ended December 31, 2009. There was no material impact in
the Consolidated Financial Statements.
In May 2009, the FASB issued guidelines on subsequent event
accounting which sets forth: 1) the period after the balance sheet date
during which management of a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure
in the financial statements; 2) the circumstances under which an entity
should recognize events or transactions occurring after the balance
sheet date in its financial statements; and 3) the disclosures that an
entity should make about events or transactions that occurred after
the balance sheet date. These guidelines were effective for interim
and annual periods ending after June 15, 2009, and the company
adopted them in the quarter ended June 30, 2009. In February 2010,
the guidance was amended to remove the requirement to disclose
the date through which subsequent events were evaluated. There
was no impact in the consolidated financial results.
On January 1, 2009, the company adopted the revised FASB
guidance regarding business combinations which was required to
be applied to business combinations on a prospective basis. The
revised guidance required that the acquisition method of accounting
be applied to a broader set of business combinations, amended
the definition of a business combination, provided a definition of a
business, required an acquirer to recognize an acquired business
at its fair value at the acquisition date, and required the assets and
liabilities assumed in a business combination to be measured and
recognized at their fair values as of the acquisition date (with limited
exceptions). There was no impact upon adoption and the effects of
this guidance depend on the nature and significance of business
combinations occurring after the effective date.
In April 2009, the FASB issued an amendment to the revised
business combination guidance regarding the accounting for assets
acquired and liabilities assumed in a business combination that arise
from contingencies. The requirements of this amended guidance carry
forward without significant revision the guidance on contingencies
which existed prior to January 1, 2009. Assets acquired and liabilities
assumed in a business combination that arise from contingencies
are recognized at fair value if fair value can be reasonably estimated.
If fair value cannot be reasonably estimated, the asset or liability
would generally be recognized in accordance with the Accounting
Standards Codification (ASC) Topic 450 on contingencies. There
was no impact upon adoption.