MasterCard 2013 Annual Report Download - page 53

49
A quantitative sensitivity analysis is provided where that information is reasonably available, can be reliably estimated
and provides material information to investors. The amounts used to assess sensitivity (e.g., 10 percent) are included
to allow users of this Report to understand a general direction cause and effect of changes in the estimates and do not
represent management's predictions of variability. For all of these estimates, it should be noted that future events rarely
develop exactly as forecasted, and estimates require regular review and adjustment.
Revenue Recognition
Application of the various accounting principles in U.S. GAAP related to the measurement and recognition of revenue
requires the Company to make judgments and estimates. Specifically, complex arrangements with nonstandard terms
and conditions may require significant contract interpretation to determine the appropriate accounting. Domestic
assessment revenue requires an estimate of our customers' performance in order to recognize domestic assessments
revenue. Rebates and incentives are recorded as a reduction to gross revenue based on these estimates. We consider
various factors in estimating customer performance, including a review of specific transactions, historical experience
with that customer and market and economic conditions. Differences between actual results and the Company's estimates
are adjusted in the period the customer reports actual performance. If our customers' actual performance is not consistent
with our estimates of their performance, net revenue may be materially different.
Loss Contingencies
The Company is currently involved in various claims and legal proceedings. The Company regularly reviews the status
of each significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal
proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for
the estimated loss. Significant judgment is required in both the determination of probability and the determination of
whether an exposure is reasonably estimable. Our judgments are subjective based on the status of the legal or regulatory
proceedings, the merits of our defenses and consultation with in-house and outside legal counsel. Because of
uncertainties related to these matters, accruals are based only on the best information available at the time. As additional
information becomes available, the Company reassesses the potential liability related to its pending claims and litigation
and may revise its estimates. Due to the inherent uncertainties of the legal and regulatory process in the multiple
jurisdictions in which we operate, our judgments may be materially different than the actual outcomes.
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
be materially different than the estimated amounts.
We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be
realized. Significant judgment is required in determining the valuation allowance. We consider 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 in the period in which such a determination is made, 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 consider all relevant facts and
current authorities in the tax law in assessing whether any benefit resulting from an uncertain tax position is 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 consider business plans, planning opportunities, and expected future outcomes in assessing