Equifax 2001 Annual Report Download - page 30

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Critical Accounting Policies and Estimates
The Company’s consolidated financial state-
ments have been prepared in accordance with
accounting principles generally accepted in the
United States. The preparation of these financial
statements requires management to make esti-
mates and assumptions that affect: the reported
amounts of assets and liabilities at the date of the
financial statements; the disclosure of contingent
assets and liabilities at the date of the financial
statements; and the reported amounts of rev-
enues and expenses during the reporting period.
Management regularly evaluates its estimates
and assumptions. These estimates and assump-
tions are based on historical experience and on
various other factors that are believed to be rea-
sonable under the circumstances, and form the
basis for making judgments about the carrying
values of assets and liabilities that are not readily
apparent from other sources. Actual results may
differ from these estimates under different
assumptions or conditions.
The Company’s significant accounting policies are
described in Note 1 of Notes to Consolidated
Financial Statements. Management believes
that the following accounting policies involve
a higher degree of complexity and warrant
specific description:
Valuation of Long-Lived Assets The Company
regularly evaluates whether events or circum-
stances have occurred which indicate that the
carrying amounts of long-lived assets (princi-
pally goodwill, purchased data files, systems
development and other deferred costs, and
investments in unconsolidated subsidiaries)
may be impaired or not recoverable. The sig-
nificant factors that are considered that could
trigger an impairment review include: changes
in business strategy, market conditions, or the
manner of use of an asset; underperformance
relative to historical or expected future operat-
ing results; and negative industry or economic
trends. In evaluating an asset for possible
impairment, management estimates that
asset’s future undiscounted cash flows to
measure whether the asset is recoverable. If it
is determined that the asset is not recoverable,
the Company measures the impairment based
on the projected discounted cash flows of the
asset over its remaining life. While the
Company believes that its estimates of future
cash flows are reasonable, different assump-
tions regarding such cash flows could materi-
ally affect these evaluations. In 2001, the FASB
issued Statement No. 142, “Goodwill and
Other Intangible Assets,” which among other
things, eliminates the amortization of goodwill
and certain other intangible assets and
requires that goodwill be evaluated annually
for impairment by applying a fair value-based
test. The Company adopted the standard effec-
tive January 1, 2002 for acquisitions prior to
June 30, 2001, and, in accordance with the
standard, will complete its first fair value-
based impairment tests by June 30, 2002.
Deferred Tax Assets The Company estimates
levels of future taxable income and utilizes
prudent and feasible tax planning strategies in
establishing and maintaining deferred tax
assets (see Note 7 of Notes to Consolidated
Financial Statements). If the Company is unable
to realize all or part of its deferred tax assets in
the future, the Company’s effective tax rate
could increase.
M arket Risk
The Company is exposed to market risk, prima-
rily from changes in foreign currency exchange
rates and changes in interest rates.
In the normal course of business, the balance
sheets and results of operations of the
Company’s foreign subsidiaries can be impacted
by changes in foreign currency exchange rates.
The Company’s position is to not hedge trans-
lational foreign currency exchange risks.
However, the Company does hedge material