ADP 2009 Annual Report Download - page 41

P. Income Taxes. The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which
establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to
recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences
of events that have been recognized in an entity’ s financial statements or tax returns. The Company is subject to the continuous examination of
our income tax returns by the Internal Revenue Service (“IRS”) and other tax authorities.
The Company accounts for tax positions taken or expected to be taken in a tax return in accordance with the provisions of Financial
Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), which was adopted by the Company on July 1, 2007. As a result of
the adoption, the Company recorded a net decrease to retained earnings of $11.7 million, as well as a corresponding increase to other liabilities
on the Consolidated Balance Sheets. FIN 48 prescribes a financial statement recognition threshold and measurement attribute for tax positions
taken or expected to be taken in a tax return. Specifically, it clarifies that an entity’ s tax benefits must be “more likely than not” of being
sustained assuming that these positions will be examined by taxing authorities with full knowledge of all relevant information prior to
recording the related tax benefit in the financial statements. If a tax position drops below the “more likely than not” standard, the benefit can no
longer be recognized. Assumptions, judgment and the use of estimates are required in determining if the “more likely than not” standard has
been met when developing the provision for income taxes. As of June 30, 2009 and 2008, the Company’ s liabilities for unrecognized tax
benefits, which include interest and penalties, were $92.8 million and $404.2 million, respectively.
If certain pending tax matters settle within the next twelve months, the total amount of unrecognized tax benefits may increase or decrease for
all open tax years and jurisdictions. Based on current estimates, settlements related to various jurisdictions and tax periods could increase
earnings up to $20.5 million. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. We continually assess
the likelihood and amount of potential adjustments and adjust the income tax provision, the current tax liability and deferred taxes in the period
in which the facts that give rise to a revision become known.
Q. Recently Issued Accounting Pronouncements. In May 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”)
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o. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued including the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements. SFAS No. 165 is effective for interim or annual financial
periods ending after June 15, 2009. On June 30, 2009, the Company adopted SFAS No. 165 and the adoption did not have a material impact on
its results of operations, cash flows or financial condition.
In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 157-4, “Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-
4 provides additional guidance for determining the fair value of assets and liabilities when the volume and level of activity for the asset or
liability have significantly decreased. FSP FAS 157-4 also provides guidance on identifying circumstances that indicate an observed
transaction used to determine fair value is not orderly and, therefore, is not indicative of fair value. FSP FAS 157-4 is effective for interim and
annual periods ending after June 15, 2009. On April 1, 2009, the Company adopted FSP FAS 157-4 and the adoption did not have a material
impact on its results of operations, cash flows or financial condition.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP
FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 changes the method for determining whether an other-than-temporary
impairment exists for debt securities by requiring a company to assess whether it is probable that it will not be able to recover the cost basis of
a security utilizing several factors, including the length of time and the extent to which fair value has been less than the cost basis, adverse
conditions related to a particular security and volatility of a particular security. FSP FAS 115-2 and FAS 124-2 also requires that an other-than-
temporary impairment charge for debt securities be recorded in earnings if it is more-likely-than-not that the entity will sell or be required to
sell a debt security before anticipated recovery of the cost basis. In addition, if any portion of a decline in fair value below the cost basis of a
security is related to credit losses, such amount should be recorded in earnings. Lastly, FSP FAS 115-2 and FAS 124-2 expands and increases
the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities to all interim and annual periods.
FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. On April 1, 2009, the Company adopted
FSP FAS 115-2 and FAS 124-2 and the adoption did not have a material impact on its results of operations, cash flows or financial condition.
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