ADP 2011 Annual Report Download - page 43

P. 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.
There is a financial statement recognition threshold and measurement attribute for tax positions taken or expected to be taken in a tax
return. Specifically, the likelihood of an entity
’ s tax benefits being sustained must be “more likely than not” , 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, 2011 and 2010, the Company
’ s liabilities for unrecognized
tax benefits, which include interest and penalties, were $105.7 million, and $107.2 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 $10.0 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. Workers
’ Compensation Costs. The Company employs a third party actuary to assist in determining the estimated claim liability
related to workers
’ compensation and employer liability coverage for PEO Services worksite employees. In estimating loss
development rates, we utilize historical loss experience, exposure data, and actuarial judgment, together with a range of inputs which
are primarily based upon the worksite employee ’ s job responsibilities, their location, the historical frequency and severity of
workers
’ compensation claims, and an estimate of future cost trends. For each reporting period, changes in the actuarial assumptions
resulting from changes in actual claims experience and other trends are incorporated into our workers
’ compensation claims cost
estimates. The Company has secured specific per occurrence reinsurance that caps the exposure for each individual claim at $1
million per occurrence, and has also secured aggregate stop loss reinsurance that caps aggregate losses at a certain level in each
policy year.
R. Recently Issued Accounting Pronouncements.
In July 2010, the Company adopted the Financial Accounting Standards Board (“FASB”
) Accounting Standards Update (“ASU” )
2009 - 13, “Multiple Deliverable Revenue Arrangements,” and ASU 2009 - 14, “Certain Revenue Arrangements that Include Software
Elements.”
ASU 2009 - 13 modifies the guidance related to accounting for arrangements with multiple deliverables by providing an
alternative when vendor specific objective evidence (“
VSOE ” ) or third - party evidence (“ TPE ” ) does not exist to determine the selling
price of a deliverable. The alternative when VSOE or TPE does not exist is management
’ s best estimate of the selling price of the
deliverable. Consideration for multiple deliverables is then allocated based upon the relative selling price of the deliverables and
revenue is recognized as earned for each deliverable. ASU 2009 - 14 modifies the scope of the software revenue recognition guidance
to exclude (a) non
- software components of tangible products and (b) software components of tangible products that are sold,
licensed, or leased with tangible products when the software components and non
- software components of the tangible product
function together to deliver the tangible product
’ s functionality. The adoption of ASU 2009 - 13 and ASU 2009 - 14 did not have a
material impact on the Company
’ s consolidated results of operations, financial condition or cash flows.
In December 2010, the Company adopted ASU 2010
- 20, “Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses.”
ASU 2010 - 20 requires greater transparency about a company ’ s allowance for credit losses and the
credit quality of its financing receivables. The guidance is intended to provide disclosures to help facilitate the evaluation of the
Company
’ s credit risk, how that risk is analyzed and the reasons for changes in the allowance for credit losses. The adoption of ASU
2010 - 20 did not have an impact on the Company's consolidated results of operations, financial condition or cash flows.
In April 2011, the Company adopted ASU 2010
- 29, “Disclosure of Supplementary Pro Forma Information for Business
Combinations.”
ASU 2010 - 29 requires an entity to disclose revenue and earnings of the combined entity as though the business
combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting
period. ASU 2010
- 29 is effective prospectively for business combinations that occur on or after the beginning of the first annual
reporting period beginning after December 15, 2010. The adoption of ASU 2010
- 29 did not have an impact on the Company ’ s
consolidated results of operations, financial condition or cash flows.
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