Support.com 2007 Annual Report Download - page 39

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Critical Accounting Policies and Estimates
In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we make assumptions,
judgments and estimates that can have a significant impact on our net revenue, and operating results, as well as on the value of certain assets and liabilities on our
consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable
under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our
assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for
revenue recognition, allowance for doubtful accounts, accounting for income taxes, accounting for goodwill and other intangible assets, and stock-based
compensation have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss
below the critical accounting estimates associated with these policies. 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. 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 and recognized later. In order to determine current and deferred revenue, we make estimates with regard to the expected amount of
future services to be performed and the appropriate fair value for those services. We also make judgments as to whether future services are essential to the
functionality of other elements of the software arrangement. 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 statements of operations.
35
Source: SUPPORTSOFT INC, 10-K, March 13, 2008