HR Block 2005 Annual Report Download - page 112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS ⬎⬎⬎ Our operating subsidiaries These reclassifications had no effect on the results of
provide a variety of financial services to the general public, operations or stockholders’ equity as previously reported.
principally in the U.S. Specifically, we offer tax return Adjustments related to the restatement of previously issued
preparation; origination, sale and servicing of non-prime and financial statements are detailed in note 2.
prime mortgages; investment services through a broker-dealer; MANAGEMENT ESTIMATES ⬎⬎⬎ The preparation of
tax preparation and related software; refund anticipation loans financial statements in conformity with generally accepted
offered by a third-party lending institution; and accounting, tax accounting principles requires management to make estimates
and consulting services to business clients. Tax preparation and assumptions that affect the reported amounts of assets and
services are also provided in Canada, Australia and the United liabilities and disclosure of contingent assets and liabilities at the
Kingdom. date of the financial statements, and the reported amounts of
PRINCIPLES OF CONSOLIDATION ⬎⬎⬎ The consolidated revenues and expenses during the reporting periods. Actual
financial statements include the accounts of the Company and results could differ from those estimates.
our wholly-owned and majority-owned subsidiaries. All material CASH AND CASH EQUIVALENTS ⬎⬎⬎ Cash and cash
intercompany transactions and balances have been eliminated. equivalents include cash on hand, cash due from banks and
Some of our subsidiaries operate in regulated industries, and securities purchased under agreements to resell. For purposes of
their underlying accounting records reflect the policies and the consolidated balance sheets and consolidated statements of
requirements of these industries. cash flows, all non-restricted highly liquid instruments purchased
RECLASSIFICATIONS ⬎⬎⬎ Certain reclassifications have been with an original maturity of three months or less are considered
made to prior year amounts to conform to the current year to be cash equivalents. Book overdrafts included in accounts
presentation. The previously reported International Tax payable totaled $92.7 million and $104.8 million at April 30, 2005
Operations segment has been aggregated with U.S. Tax and 2004, respectively.
Operations in the Tax Services segment. Our broker-dealer purchases securities under agreements to
We have modified our income statement to present aggregate resell and accounts for them as collateralized financings. The
costs related to our revenue categories, rather than presenting securities are carried at the amounts at which the securities will
operating expenses by their natural classification. All direct costs, be subsequently resold, as specified in the respective agreements.
both fixed and variable, of revenues are included in these It is our policy to take possession of securities, subject to resale
categories. agreements. The securities are revalued daily and collateral
We reclassified $167.7 million and $103.3 million for fiscal years added whenever necessary to bring market value of the
2004 and 2003, respectively, from interest income to gain on sale, underlying collateral to a level equal to or greater than the
representing excess cash received from our beneficial interest in repurchase amount specified in the contracts.
Trusts. The beneficial interest in Trusts is reported at fair value at CASH AND CASH EQUIVALENTS – RESTRICTED ⬎⬎⬎ Cash
each balance sheet date. Changes in its fair value are included in and cash equivalents – restricted consists primarily of securities
current period earnings. The excess cash received together with purchased under agreements to resell and cash which has been
the and mark-to-market adjustment for each period have been segregated in a special reserve account for the exclusive benefit
classified as gain on sale of mortgage loans. We also increased of customers pursuant to federal regulations under Rule 15c3-3 of
gains on sales of mortgage for fiscal years 2004 and 2003, related the Securities Exchange Act of 1934. Also included are cash
to the reclassification of certain compensation and benefits balances held for outstanding commitments to fund mortgage
expenses previously presented net in revenues. loans and funds held to pay payroll taxes on behalf of customers.
Deferred taxes and taxes payable have been reclassified for a MARKETABLE SECURITIES – TRADING ⬎⬎⬎ Certain
change in method of income tax reporting we initiated during marketable debt securities held by our broker-dealer are
fiscal year 2004 resulting in a decrease to total assets and classified as trading, carried at market value based on quoted
liabilities of $101.3 million at April 30, 2004. prices and marked to market through the consolidated income
statements. Certain residual interests in securitizations of
H&R BLOCK 2005 Form 10K
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