Support.com 2005 Annual Report Download - page 33

accounting estimates associated with these policies. Historically, our assumptions, judgments and estimates relative to our critical
accounting policies have not differed materially from actual results. For further information on the critical accounting policies, see
Note 1 of our Notes to Consolidated Financial Statements.
Revenue Recognition
We recognize revenue in accordance with generally accepted accounting principles that have been prescribed for the software
industry. Revenue recognition requirements in the software industry are very complex and are subject to change. Our revenue
recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and is
based on complex rules which require us to make judgments. In applying our revenue recognition policy we must determine which
portions of our revenue are recognized currently and which portions must be deferred. In order to determine current and deferred
revenue, we make judgments with regard to the appropriate fair value for the products and services.
We do not record revenue on sales transactions when the collection of cash is in doubt at the time of sale. Rather, revenue is
recognized from these transactions as cash is collected. The determination of collectibility requires significant judgment.
Allowances for Doubtful Accounts
We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables
when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those
invoices not specifically provided for, provisions are recorded at differing rates, based upon the age of the receivable. In determining
these percentages, we analyze our historical collection experience and current payment trends. If the historical data we use to
calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional
provisions for doubtful accounts may be needed and the future results of operations could be materially affected.
Accounting for Income Taxes
We are required to estimate our income taxes in each of the tax jurisdictions in which we operate. This process involves
management’s estimation of our actual current tax exposures together with an assessment of temporary differences determined based
on the difference between the financial statement and tax basis of certain items. These differences result in net deferred tax assets and
liabilities, which are included within the consolidated balance sheet. We must then assess the likelihood that the deferred tax assets
will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation
allowance. To the extent we establish a valuation allowance or adjust this allowance in a period, we must include a tax expense or
benefit within the tax provision in the statement of income.
Business Combinations
When we acquire businesses, we allocate the purchase price to tangible assets and liabilities acquired and identifiable intangible
assets. Any residual purchase price is recorded as goodwill. We engage independent third-party appraisal firms to assist in
determining the fair values of assets acquired and liabilities assumed. Such a valuation requires management to make significant
estimates, especially with respect to intangible assets. These estimates are based on historical experience and information obtained
from the management of the acquired companies. These estimates can include, but are not limited to, the cash flows than an asset is
expected to generate in the future, the appropriate weighted average cost of capital, and the cost savings expected to be derived from
acquiring an asset. These estimates are inherently uncertain and unpredictable. In addition, unanticipated events and circumstances
may occur which may affect the accuracy or validity of such estimates.
At December 31, 2005, goodwill was $9.8 million, and net identifiable intangible assets were $4.0 million. We assess the
impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying value may not be
recoverable. We assess the impairment of acquired product rights and other identifiable intangible assets whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. An impairment loss would be recognized when the sum of
the undiscounted future net cash
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