Computer Associates 2015 Annual Report Download - page 52

See Note 1, ‘‘Significant Accounting Policies’’ for additional information on our revenue recognition policy.
Accounts Receivable
The allowance for doubtful accounts is a reserve for the impairment of accounts receivable on the Consolidated Balance
Sheets. In developing the estimate for the allowance for doubtful accounts, we rely on several factors, including:
• Historical information, such as general collection history of multi-year software agreements;
• Current customer information and events, such as extended delinquency, requests for restructuring and filings for
bankruptcy;
• Results of analyzing historical and current data; and
• The overall macroeconomic environment.
The allowance includes two components: (1) specifically identified receivables that are reviewed for impairment when, based
on current information, we do not expect to collect the full amount due from the customer; and (2) an allowance for losses
inherent in the remaining receivable portfolio based on historical activity.
Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, along with net operating losses and tax credit carryforwards. We measure deferred
tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change
in tax rates on income in the period that includes the enactment date.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. We
reflect changes in recognition or measurement in a period in which the change in judgment occurs. We record interest and
penalties related to uncertain tax positions in income tax expense.
Goodwill, Capitalized Software Products, and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in connection with business
combinations accounted for using the purchase method of accounting. Goodwill is not amortized, but instead goodwill is
required to be tested for impairment annually and under certain circumstances. We review goodwill for impairment on an
annual basis on the first day of the fourth quarter of each fiscal year, and on an interim basis whenever events or changes
in circumstances indicate that the carrying value may not be recoverable, at the reporting unit level. Our reporting units are
the same as our operating segments.
When evaluating goodwill for impairment, based upon our annual test or due to changes in circumstances described above,
we first can opt to perform a qualitative assessment to determine if the fair value of a reporting unit is more likely than not
(i.e., a likelihood of more than 50 percent) less than the reporting unit’s carrying amount, including goodwill, or we can
directly perform the two-step impairment test. This qualitative assessment includes, among other things, consideration of:
(i) identifying inputs and assumptions that most affect fair value; (ii) identifying relevant events and circumstances that may
have an impact on those inputs and assumptions; (iii) weighing the events and circumstances; and (iv) concluding on the
totality of events and circumstances. If this assessment indicates that the fair value of the reporting unit exceeds the carrying
value of the net assets assigned to that unit, goodwill is not considered impaired and we are not required to perform further
testing. However, if the fair value of a reporting unit is more likely than not to be less than its carrying amount, the
two-step impairment test will be performed.
When performing the two-step impairment test, we first determine the estimated fair value of our reporting units based on
use of the income and market approaches. Under the income approach, we calculate the estimated fair value of a reporting
unit based on the present value of estimated future cash flows. If the carrying value of the reporting unit exceeds the
estimated fair value, we then calculate the implied fair value of goodwill for the reporting unit and compare it to the
carrying amount of goodwill for the reporting unit. If the carrying amount of goodwill exceeds the implied fair value, an
impairment charge is recorded to our statement of operations to reduce the carrying value to implied value.
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