MasterCard 2008 Annual Report Download - page 77

Critical Accounting Estimates
Our accounting policies are integral to understanding our results of operations and financial condition. We
are required 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
revenue and expenses during the reporting periods. We have established detailed policies and control procedures
to ensure that the methods used to make estimates and assumptions are well controlled and are applied
consistently from period to period. The following is a brief description of our current accounting policies
involving significant management judgments.
Financial Statement Caption/
Critical Accounting Estimate Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
Asset Impairment Analyses
Investments
The Company invests in certain
short-term and long-term assets,
including municipal bonds, bond
funds and ARS. The Company’s
investment strategy for these assets
is to ensure capital preservation
while capturing some interest return
on the invested funds. The
Company performs on-going
evaluations of its investments to
assess potential impairment.
Impairment of the Company’s
investments in municipal bonds is
assessed based on market prices of
similar assets, as provided by
custodians of such assets.
Impairment of the Company’s
short-term bond funds is assessed
based on quoted prices for these
assets, as they are actively traded
on a daily basis.
If actual results are not consistent
with our assumptions and estimates,
we may be exposed to additional
impairment charges associated with
our investments. The fair value of
our available-for-sale investment
portfolio was $780 million as of
December 31, 2008, which included
$36 million of net unrealized losses.
The primary analysis tool used to
assess impairment of the
Company’s ARS investments is a
discounted cash flow model. This
model considers the original
economic life of the asset, the
relevant cash flows expected over
the life of the asset, an appropriate
discount rate and other factors that
may be relevant. The present value
of the expected future cash flows is
calculated and compared to the
carrying value to determine if an
impairment has occurred and, if so,
what is the expected duration of
the impairment.
Prepaid Customer and Merchant
Incentives
We prepay certain customer and
merchant business incentives to
incent usage and acceptance of our
cards. In the event of customer or
merchant business failure, these
incentives may not have future
economic benefits for our business.
The evaluation of recoverability of
prepaid customer and merchant
incentives is done whenever events
or changes in circumstances
indicate that their carrying amount
may not be recoverable.
If events or changes in
circumstances occur that we are not
aware of, additional impairment
charges related to our prepaid
customer and merchant incentives
may be incurred. The carrying value
of prepaid customer and merchant
incentives was $398 at December
31, 2008.
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