ADP 2012 Annual Report Download - page 56

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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’s liability coverage for PEO Services worksite employees. In estimating ultimate loss 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 insurance that caps
the exposure for each claim at $1 million per occurrence, and has also secured aggregate stop loss insurance that caps aggregate losses at a
certain level in each policy year.
R. Recently Issued Accounting Pronouncements.
In January 2012, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2011-03,
“Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 revises the criteria for
assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem
financial assets before their maturity. The determination of whether the transfer of a financial asset subject to a repurchase agreement is a sale
is based, in part, on whether the entity maintains effective control over the financial asset. ASU 2011-03 removes from the assessment of
effective control: the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed
terms, even in the event of default by the transferee, and the related requirement to demonstrate that the transferor possesses adequate collateral
to fund substantially all the cost of purchasing replacement financial assets. The adoption of ASU 2011-03 did not have an impact on the
Company’s consolidated results of operations, financial condition, or cash flows.
In January 2012, the Company adopted ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 requires expansion of the disclosures required for Level
3 measurements of fair value and provides updates to the existing measurement guidance. The adoption of ASU 2011-04 did not have an
impact on the Company’s consolidated results of operations, financial condition, or cash flows.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU 2011-05
requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but
consecutive, statements of net income and other comprehensive income. ASU 2011-05 is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011. The adoption of ASU 2011-05 will not have an impact on the Company’s consolidated results
of operations, financial condition, or cash flows.
In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment.” ASU
2011-08 amends the guidance in Accounting Standards Codification (“ASC”) 350-20 on testing goodwill for impairment. ASU 2011-08
permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is
less than its carrying value. If it is concluded that the fair value of a reporting unit is less than its carrying value based upon the qualitative
assessment, it is necessary to perform the currently prescribed two-step goodwill impairment test. ASU 2011-08 does not change how goodwill
is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. ASU 2011-08 is
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU
2011-08 will not have an impact on the Company’s consolidated results of operations, financial condition, or cash flows.
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