MasterCard 2009 Annual Report Download - page 76

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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
Revenue Recognition
Our domestic assessments require
an estimate of our customers’
quarterly GDV or GEV to realize
quarterly domestic assessments each
quarter.
Our domestic assessments included
an estimate representing 13% of
total domestic assessments in each
of 2009, 2008 and 2007 and 6%, 6%
and 7% of total net revenues in
2009, 2008 and 2007, respectively.
Our revenue recognition policies are
fully described in Note 1 (Summary
of Significant Accounting Policies)
to the consolidated financial
statements in Part II, Item 8 of this
Report.
Our customers’ GDV and GEV is
estimated by using historical
performance, transactional
information accumulated from our
systems and discussions with our
customers.
Such estimates are subsequently
validated against the GDV or
GEV reported by our customers.
Differences are adjusted in the
period the customer reports.
If our customers’ actual
performance is not consistent with
our estimates of their performance,
realized revenues may be materially
different than initially estimated.
Historically, our estimates have
differed from the actual
performance by less than 5% of the
estimates on a quarterly basis.
Rebates and incentives are generally
recorded as contra-revenue based on
our estimate of each customer’s
performance in a given period and
according to the terms of the related
customer agreements. Examples of
the customer performance items
requiring estimation include GDV or
GEV, transactions, issuance of new
cards, launch of new programs or the
execution of marketing programs.
In addition, certain customer
agreements include prepayment of
rebates and incentives. Amortization
of prepayments and other assets
may be on straight-line basis over
the life of the agreement or based on
customer performance depending on
the terms of the related customer
agreements.
Our estimates of each customer’s
performance are based on
historical customer performance,
transactional information
accumulated from our systems and
discussions with our customers.
Such estimates are subsequently
validated by information reported
by our customers. Differences are
adjusted in the period the
customer reports.
If our customers’ actual
performance is not consistent with
our estimates of their performance,
contra-revenues may be materially
different than initially estimated.
66