Support.com 2009 Annual Report Download - page 27

Table of Contents
We intend the following discussion of our financial condition and results of operations to provide information that will assist in understanding our
financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes, as
well as how certain accounting principles, policies and estimates affect our financial statements.
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 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 circumstances. 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, fair value measurements, fair value estimates-ARS put option, business combinations—purchase accounting,
accounting for goodwill and other intangible assets, stock-based compensation and accounting for income taxes, 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
Our revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and revenue
recognition is based on complex rules which require us to make judgments. In applying our revenue recognition policy we must determine whether revenue is to
be recognized on a gross or net basis in accordance with the provisions of ASC 605, Revenue Recognition, which portions of our revenue are to be recognized in
the current period, and which portions must be deferred and recognized in subsequent periods. We do not record revenue on sales transactions when the
collection of cash is in doubt at the time of sale, and we use management judgment in determining collectability. From time to time, we may enter into
agreements which involve us making payments to our channel partners. We evaluate these agreements and use judgment in evaluating the treatment of such
payments and in determining which portions of the consideration paid to customers should be recorded as contra-revenue and which should be recorded as an
expense. We generally provide a refund period on services and software, and we employ judgment in determining whether a customer is eligible for a refund
based on that customer’s specific facts and circumstances. If our estimates and judgments on any of the foregoing are incorrect, our revenue for one or more
periods may be incorrectly recorded.
Fair Value Measurements
Effective January 1, 2008, we adopted ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the
exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs
and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value, which are the following:
• Level 1—Quoted prices in active markets for identical assets or liabilities. Therefore, determining fair value for Level 1 instruments generally does
not require significant management judgment, and the estimation is not difficult.
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Source: Support.com, Inc., 10-K, March 12, 2010 Powered by Morningstar® Document Research℠