Visa 2009 Annual Report Download - page 52

Table of Contents
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which
requires us to make judgments, assumptions and estimates that affect the amounts reported. See Note 1—Summary of Significant Accounting Policies to our
consolidated financial statements. We have established policies and control procedures which seek to ensure that estimates and assumptions are appropriately
governed and applied consistently from period to period. However, actual results could differ from our assumptions and estimates, and such differences could
be material.
We believe that the following accounting estimates are the most critical to fully understand and evaluate our reported financial results, as they require
our most subjective or complex management judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain
and unpredictable.
Revenue Recognition—Volume and Support Incentives
Critical Estimates. We enter into incentive agreements with financial institution customers, merchants and other business partners to build payments
volume and to increase product acceptance. These incentives are generally accounted for as reductions of operating revenue or expense where an identifiable
benefit can be identified. Certain volume and support incentives are based on performance targets and are accrued systematically and rationally based upon
estimates of future performance. Other incentives are based on fixed payments and are generally deferred, if certain criteria are met. The deferability criteria
includes the existence of legally enforceable recoverability clauses, management's ability and intent to enforce the recoverability clauses and the ability to
generate future earnings from the agreement in excess of the deferred amounts. Capitalized amounts are amortized over the period of contractual
recoverability.
Assumptions and Judgment. Estimation of volume and support incentives relies on forecasts of payments volume, estimates of card issuance and card
conversion. Performance is estimated using customer reported information, transactional information accumulated from our systems, historical information
and discussions with our customers.
Impact if Actual Results Differ from Assumptions. If our customers' actual performance or recoverable cash flows are not consistent with our estimates,
volume and support incentives may be materially different than initially recorded. Increases in incentive payments are generally driven by increased payment
and transaction volume, and as a result, in the event incentive payments exceed estimates, such payments are not expected to have a material effect on our
financial condition, results of operations or cash flows. The cumulative impact of a revision in estimates is recorded in the period such revisions become
probable and estimable. For the year ended September 30, 2009, performance adjustments to volume and support agreements were less than 1% of our total
operating revenues.
Fair Value—Visa Europe Put Option
Critical Estimates. We have granted Visa Europe a perpetual put option under which we are required to purchase all of the share capital of Visa Europe
from its members at any time. The purchase price of the Visa Europe shares under the put option is based upon a formula that, subject to certain adjustments,
applies Visa Inc.'s forward price-to-earnings multiple, as defined in the agreement, at the time the option is exercised to Visa Europe's projected sustainable
adjusted net operating income for the forward 12-month period. See Note 3—Visa Europe to our consolidated financial statements for further detail regarding
the calculation of the put exercise price under the agreement.
The fair value of Visa Europe's option, which under certain conditions could obligate us to purchase its members' equity interests for an amount greater
than fair value, was determined to be
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