MasterCard 2010 Annual Report Download - page 80

Financial Statement Caption/
Critical Accounting Estimate Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
Income Taxes
In calculating our effective tax rate,
we need to make estimates
regarding the timing and amount of
taxable and deductible items which
will adjust the pretax income earned
in various tax jurisdictions.
Through our interpretation of local
tax regulations, adjustments to
pretax income for income earned
in various tax jurisdictions are
reflected within various tax filings.
Although we believe that our
estimates and judgments discussed
herein are reasonable, actual results
may differ by a material amount.
We record a valuation allowance to
reduce our deferred tax assets to the
amount that is more likely than not
to be realized.
We considered projected future
taxable income and ongoing tax
planning strategies in assessing the
need for the valuation allowance.
If it is determined that we are able
to realize deferred tax assets in
excess of the net carrying value or
to the extent we are unable to
realize a deferred tax asset, we
would adjust the valuation
allowance with a corresponding
increase or decrease to earnings.
We record tax liabilities for uncertain
tax positions taken, or expected to be
taken, which may not be sustained or
may only be partially sustained, upon
examination by the relevant taxing
authorities.
We considered all relevant facts
and current authorities in the tax
law in assessing whether any
benefit resulting from an uncertain
tax position was more likely than
not to be sustained and, if so, how
current law impacts the amount
reflected within these financial
statements.
If upon examination, we realize a
tax benefit which is not fully
sustained or is more favorably
sustained, this would decrease or
increase earnings in the period. In
certain situations, the Company will
have offsetting tax credits or taxes
in other jurisdictions.
We do not record U.S. income tax
expense for foreign earnings which
we intend to reinvest indefinitely to
expand our international operations.
We considered business plans,
planning opportunities, and
expected future outcomes in
assessing the needs for future
expansion and support of our
international operations.
If our business plans change or our
future outcomes differ from our
expectations, U.S. income tax
expense and our effective tax rate
could increase or decrease in that
period.
Asset Impairment Analyses
Prepaid Customer and Merchant
Incentives
We prepay certain customer and
merchant business incentives. In the
event of customer or merchant
business failure, these incentives
may not have future economic
benefits for our business.
Impairment analysis is performed
quarterly or whenever events or
changes in circumstances indicate
that their carrying amount may not
be recoverable. The impairment
analysis for each customer requires
an estimation of our customer’s
future performance and an
assessment of the agreement terms
to determine the future net cash
flows expected from the customer
agreement.
Our estimates of customer
performance are based on
historical customer performance,
discussions with our customer and
our expectations for the future.
If events or changes in
circumstances occur, additional
impairment charges related to our
prepaid customer and merchant
incentives may be incurred. The
carrying value of prepaid customer
and merchant incentives was $497
million at December 31, 2010.
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