Restoration Hardware 2015 Annual Report Download - page 61

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As of January 30, 2016, we have retained a valuation allowance totaling $0.2 million against deferred tax assets for our
Shanghai operations.
The accounting standard for uncertainty in income taxes prescribes a recognition threshold that a tax position is required to meet
before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and
penalties, accounting in interim periods, disclosure and transition issues. Differences between tax positions taken in a tax return and
amounts recognized in the financial statements generally result in an increase in a liability for income taxes payable or a reduction of
an income tax refund receivable, or a reduction in a deferred tax asset or an increase in a deferred tax liability, or both. We recognize
interest and penalties related to unrecognized tax benefits in tax expense.
Recently Issued Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board issued their
converged accounting standard update on revenue recognition, Accounting Standards Update 2014-09—Revenue from Contracts with
Customers (Topic 606). This guidance outlines a single comprehensive model for companies to use in accounting for revenue arising
from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The
core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer
obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Under the new guidance,
transfer of control is no longer the same as transfer of risks and rewards as indicated in the prior guidance. We will also need to apply
the new guidance to determine whether revenue should be recognized over time or at a point in time. This guidance can be applied
either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The FASB deferred the
effective date for the new revenue reporting standard for entities reporting under U.S. GAAP for one year from the original effective
date. In accordance with the deferral, ASU 2014-09 will become effective beginning after December 15, 2017 for public entities.
Early application is permitted for annual reporting periods ending after December 15, 2016. We are evaluating the impact of adopting
this new accounting standard on our consolidated financial statements and have not selected an adoption date or a transition method.
Consolidation Accounting
In February 2015, the FASB issued Accounting Standards Update No. 2015-02—Consolidation (Topic 810): Amendments to the
Consolidation Analysis, which improves targeted areas of the consolidation guidance and reduces the number of consolidation models.
The amendments to the guidance are effective for fiscal years beginning after December 15, 2015 (our first quarter of fiscal 2016), and
interim periods within those years, with early adoption permitted. We do not currently believe this guidance will have a material
impact on our consolidated financial statements.
Classification of Debt Issuance Costs
In April 2015, the FASB issued Accounting Standards Update 2015-03—Interest—Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 require that debt issuance costs related to a
recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. Costs associated with line-of-credit arrangements may continue to be recorded as deferred assets. The
update requires retrospective application and represents a change in accounting principle. The debt issuance costs guidance is effective
for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. ASU 2015-03 will be effective for us
in our first quarter of fiscal 2016. Early adoption is permitted. We have elected not to early adopt. Other than reclassifying $2.1
million as of January 30, 2016 from non-current assets to non-current liabilities on the consolidated balance sheets, we do not expect a
material impact on our consolidated financial statements upon adoption.
Software Licenses in Cloud Computing Arrangements
In April 2015, the FASB issued Accounting Standards Update No. 2015-05—Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in ASU
2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud
computing arrangement includes a software license, the customer should account for the software license element of the arrangement
consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer should
account for the arrangement as a service contract. The amendments in ASU 2015-05 are effective for fiscal years beginning after
December 15, 2015, and interim periods within those years. Early adoption is permitted. The guidance may be applied either
prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. We do not currently
believe this guidance will have a material impact on our consolidated financial statements.