INTL FCStone 2014 Annual Report Download - page 67

INTL FCSTONE INC.  Form 10K 51
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
in effect at the close of business at the end of the accounting
period. For foreign currency transactions completed during each
reporting period, the foreign exchange rate in effect at the time
of the transaction is used.
e application of the valuation process for financial instruments
and foreign currencies is critical because these items represent a
significant portion of our total assets. Valuations for substantially
all of the financial instruments held are available from independent
publishers of market information. e valuation process may
involve estimates and judgments in the case of certain financial
instruments with limited liquidity and OTC derivatives. Given
the wide availability of pricing information, the high degree of
liquidity of the majority of our assets, and the relatively short
periods for which they are typically held in inventory, there is
insignificant sensitivity to changes in estimates and insignificant
risk of changes in estimates having a material effect on our
financial statements. e basis for estimating the valuation of
any financial instruments has not undergone any change.
Revenue Recognition. A significant portion of our revenues are
derived principally from realized and unrealized trading income
in securities, derivative instruments, commodities and foreign
currencies purchased or sold for our account. We record realized
and unrealized trading income on a trade date basis. We state
securities owned and securities sold, not yet purchased and foreign
currencies sold, not yet purchased, at fair value with related
changes in unrealized appreciation or depreciation reflected in
‘trading gains, net’ in the consolidated income statements. We
record fee and interest income on the accrual basis and dividend
income is recognized on the ex-dividend date.
Revenue on commodities that are purchased for physical delivery
to customers and that are not readily convertible into cash is
recognized at the point in time when the commodity has been
shipped, title and risk of loss has been transferred to the customer,
and the following conditions have been met: persuasive evidence
of an arrangement exists, the price is fixed and determinable, and
collectability of the resulting receivable is reasonably assured.
e critical aspect of revenue recognition is recording all known
transactions as of the trade date of each transaction for the financial
period. We have developed systems for each of our businesses to
capture all known transactions. Recording all known transactions
involves reviewing trades that occur after the financial period
that relate to the financial period. e accuracy of capturing this
information is dependent upon the completeness and accuracy
of data capture of the operations systems and our clearing firms.
Income Taxes. We are subject to income taxes in the U.S.
and numerous foreign jurisdictions. Significant judgment is
required in determining the consolidated provision for income
taxes and in evaluating tax positions, including evaluating
uncertainties. As a result, the company recognizes tax liabilities
based on estimates of whether additional taxes and interest will
be due. ese tax liabilities are recognized when despite our
belief that our tax return positions are supportable, we believe
that certain positions may not be fully sustained upon review
by the relevant tax authorities.
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected
to be recovered or settled. e effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Significant judgment is
also required in determining any valuation allowance recorded
against deferred tax assets. In assessing the need for a valuation
allowance, management considers all available evidence for each
jurisdiction including past operating results, estimates of future
taxable income, and the feasibility of ongoing tax planning
strategies. In the event that we change our determination as to
the amount of deferred tax assets that can be realized, we will
adjust our valuation allowance with a corresponding impact to
income tax expense in the period in which such determination
is made.
We believe that our accruals for tax liabilities are adequate for all
open audit years based on our assessment of many factors including
past experience and interpretations of tax law. is assessment
relies on estimates and assumptions and may involve series of
complex judgments about future events. To the extent that new
information becomes available which causes us to change our
judgment regarding the adequacy of existing tax liabilities, such
changes to tax liabilities will impact income tax expense in the
period in which such determination is made. e consolidated
provision for income taxes will change period to period based on
non-recurring events, such as the settlement of income tax audits
and changes in tax law, as well as recurring factors including the
geographic mix of income before taxes, state and local taxes, and
the effects of various global income tax strategies.