Equifax 2011 Annual Report Download - page 31

APPLICATION OF CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
The Company’s Consolidated Financial Statements are prepared in
conformity with U.S. generally accepted accounting principles, or
GAAP. This requires our management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses and related disclosures of contingent assets
and liabilities in our Consolidated Financial Statements and the Notes
to Consolidated Financial Statements. The following accounting poli-
cies involve critical accounting estimates because they are particularly
dependent on estimates and assumptions made by management
about matters that are uncertain at the time the accounting estimates
are made. In addition, while we have used our best estimates based
on facts and circumstances available to us at the time, different
estimates reasonably could have been used in the current period, or
changes in the accounting estimates that we used are reasonably
likely to occur from period to period, either of which may have a
material impact on the presentation of our Consolidated Balance
Sheets and Statements of Income. We also have other significant
accounting policies which involve the use of estimates, judgments
and assumptions that are relevant to understanding our results. For
additional information about these policies, see Note 1 of the Notes
to Consolidated Financial Statements in this report. Although we
believe that our estimates, assumptions and judgments are reason-
able, they are based upon information available at the time. Actual
results may differ significantly from these estimates under different
assumptions, judgments or conditions.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement
exists, collectibility of arrangement consideration is reasonably
assured, the arrangement fees are fixed or determinable and delivery
of the product or service has been completed. A significant portion of
our revenue is derived from the provision of information services to
our customers on a transaction basis, in which case revenue is
recognized, assuming all other revenue recognition criteria are met,
when the services are provided. A smaller portion of our revenues
relate to subscription-based contracts under which a customer pays
a preset fee for a predetermined or unlimited number of transactions
or services provided during the subscription period, generally one
year. Revenue related to subscription-based contracts having a
preset number of transactions is recognized as the services are
provided, using an effective transaction rate as the actual transac-
tions are completed. Any remaining revenue related to unfulfilled units
is not recognized until the end of the related contract’s subscription
period. Revenue related to subscription-based contracts having an
unlimited volume is recognized ratably during the contract term.
Revenue is recorded net of sales taxes.
If at the outset of an arrangement, we determine that collectibility is
not reasonably assured, revenue is deferred until the earlier of when
collectibility becomes probable or the receipt of payment. If there is
uncertainty as to the customer’s acceptance of our deliverables,
revenue is not recognized until the earlier of receipt of customer
acceptance or expiration of the acceptance period. If at the outset of
an arrangement, we determine that the arrangement fee is not fixed
or determinable, revenue is deferred until the arrangement fee
becomes estimable, assuming all other revenue recognition criteria
have been met.
The determination of certain of our tax management services revenue
requires the use of estimates, principally related to transaction
volumes in instances where these volumes are reported to us by our
clients on a monthly basis in arrears. In these instances, we estimate
transaction volumes based on average actual volumes reported in the
past. Differences between our estimates and actual final volumes
reported are recorded in the period in which actual volumes are
reported. We have not experienced significant variances between our
estimates and actual reported volumes in the past. We monitor actual
volumes to ensure that we will continue to make reasonable
estimates in the future. If we determine that we are unable to make
reasonable future estimates, revenue may be deferred until actual
customer data is obtained. Also within our TALX Workforce Solutions
operating segment, the fees for certain of our tax credits and incen-
tives revenue are based on a percentage of the credit delivered to our
clients. Revenue for these arrangements is recognized based on the
achievement of milestones, upon calculation of the credit, or when
the credit is utilized by our client, depending on the provisions of the
client contract.
We have certain offerings that are sold as multiple element arrange-
ments. The multiple elements may include consumer or commercial
information, file updates for certain solutions, services provided by
our decisioning technologies personnel, training services, statistical
models and other services. To account for each of these elements
separately, the delivered elements must have stand-alone value to
our customer, and there must exist objective and reliable evidence of
the fair value for any undelivered elements. If we are unable to
unbundle the arrangement into separate units of accounting, we
apply one of the accounting policies described above. This may lead
to the arrangement consideration being recognized as the final
contract element is delivered to our customer or ratably over
the contract.
Many of our multiple element arrangements involve the delivery of
services generated by a combination of services provided by one or
more of our operating segments. No individual information service
impacts the value or usage of other information services included in
an arrangement and each service can be sold alone or, in most
cases, purchased from another vendor without affecting the quality of
use or value to the customer of the other information services
included in the arrangement. Some of our products require the
development of interfaces or platforms by our decisioning technolo-
gies personnel that allow our customers to interact with our
proprietary information databases. These development services do
not meet the requirement for having stand-alone value, thus any
EQUIFAX 2011 ANNUAL REPORT 29