TripAdvisor 2015 Annual Report Download - page 52

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Critical Accounting Policies and Estimates
Criticalaccountingpoliciesandestimatesarethosethatwebelieveareimportantinthepreparationofourconsolidatedfinancialstatementsbecausethey
requirethatmanagementusejudgmentandestimatesinapplyingthosepolicies.Weprepareourconsolidatedfinancialstatementsandaccompanyingnotesin
accordancewithGAAP.
Preparationoftheconsolidatedfinancialstatementsandaccompanyingnotesrequiresthatmanagementmakeestimatesandassumptionsthataffectthe
reportedamountsofassetsandliabilitiesandthedisclosureofcontingentassetsandliabilitiesasofthedateoftheconsolidatedfinancialstatementsaswellas
revenueandexpensesduringtheperiodsreported.Managementbasesitsestimatesonhistoricalexperience,whereapplicable,andotherassumptionsthatit
believesarereasonableunderthecircumstances.Actualresultsmaydifferfromestimatesunderdifferentassumptionsorconditions.
Therearecertaincriticalestimatesthatwebelieverequiresignificantjudgmentinthepreparationoftheconsolidatedfinancialstatements.Weconsideran
accountingestimatetobecriticalif:
·Itrequiresustomakeanassumptionbecauseinformationwasnotavailableatthetimeoritincludedmattersthatwerehighlyuncertainatthetime
managementwasmakingtheestimate;and/or
·Changesintheestimateordifferentestimatesthatmanagementcouldhaveselectedmayhavehadamaterialimpactonourfinancialconditionor
resultsofoperations.
Oursignificantaccountingpoliciesandestimatesaremorefullydescribedin“Note2—Significant Accounting Policies ”inthenotestoourconsolidated
financialstatementsinItem8.Adiscussionofinformationaboutthenatureandrationaleforourcriticalaccountingestimatesisbelow.
Business Combination Valuations and Recoverability of Goodwill, Indefinite and Definite-Lived Intangible Assets
Goodwill .Weaccountforacquiredbusinessesusingthepurchasemethodofaccountingwhichrequiresthattheassetsacquiredandliabilitiesassumedbe
recordedatthedateofacquisitionattheirrespectivefairvalues.Anyexcessofthepurchasepriceovertheestimatedfairvaluesofthenetassetsacquiredis
recordedasgoodwill.Weassessgoodwill,whichisnotamortized,forimpairmentasofOctober1,ormorefrequently,ifeventsandcircumstancesindicate
impairmentmayhaveoccurred.Wetestgoodwillforimpairmentatthereportingunitlevel(operatingsegmentoronelevelbelowanoperatingsegment).Eachof
ouroperatingsegmentswithgoodwillrepresentsareportingunitforthepurposeofassessingimpairment.Goodwillisallocatedtoourreportingunitsatthedate
thegoodwillisinitiallyrecorded.Oncegoodwillhasbeenallocatedtothereportingunits,itnolongerretainsitsidentificationwithaparticularacquisitionand
becomesidentifiedwiththereportingunitinitsentirety.Accordingly,thefairvalueofthereportingunitasawholeisavailabletosupporttherecoverabilityofits
goodwill.
Intheevaluationofgoodwillforimpairment,wegenerallyfirstperformaqualitativeassessmenttodeterminewhetheritismorelikelythannot(i.e.,a
likelihoodofmorethan50%)thattheimpliedfairvalueofthereportingunitislessthanthecarryingamount.Ifwedeterminethatitisnotmorelikelythannotthat
theimpliedfairvalueofthegoodwillislessthanitscarryingamount,nofurthertestingisnecessary.If,however,wedeterminethatitismorelikelythannotthat
theimpliedfairvalueofthegoodwillislessthanitscarryingamount,wethenperformaquantitativeassessmentandcomparetheimpliedfairvalueofthe
reportingunittothecarryingvalue.Ifthecarryingvalueofareportingunitexceedsitsimpliedfairvalue,thegoodwillofthatreportingunitispotentiallyimpaired
andweproceedtosteptwooftheimpairmentanalysis.Insteptwooftheanalysis,wewillrecordanimpairmentlossequaltotheexcessofthecarryingvalueof
thereportingunit’sgoodwilloveritsimpliedfairvalueshouldsuchacircumstancearise.
Indeterminingtheestimatedfairvalueofassetsacquiredandliabilitiesassumedinbusinesscombinationsandfordeterminingimpliedfairvaluesof
reportingunitsinaquantitativegoodwillimpairmenttest,weuseone,orablend,ofthefollowingrecognizedvaluationmethods:theincomeapproach(including
discountedcashflows),themarketapproachorthecostapproach.Oursignificantestimatesinthosefairvaluemeasurementsmayincludeidentifyingbusiness
factorssuchassize,growth,profitability,riskandreturnoninvestmentandassessingcomparablerevenueand/oroperatingincomemultiples.Further,when
measuringfairvaluebasedondiscountedcashflows,wemakeassumptionsaboutrisk-adjusteddiscountrates,ratesofincreaseinrevenue,costofrevenue,and
operatingexpenses,weightedaveragecostofcapital,ratesoflong-termgrowth,andincometaxrates.Valuationsareperformedbymanagementorthirdparty
valuationspecialistsundermanagement'ssupervision,whereappropriate.Webelievethatthefairvaluesassignedtotheassetsacquiredandliabilitiesassumedin
businesscombinationsandimpairmenttestsarebasedonreasonableassumptionsthatmarketplaceparticipantswoulduse.However,suchassumptionsare
inherentlyuncertainandactualresultscoulddifferfromthoseestimates.
Aspartofourqualitativeassessmentforour2015goodwillimpairmentanalysis,thefactorsthatweconsideredincluded,butwerenotlimitedto:
(a)changesinmacroeconomicconditionsintheoveralleconomyandthespecificmarketsinwhichweoperate,
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