Incredimail 2009 Annual Report Download - page 37

Taxes on Income
We record income taxes using the asset and liability approach. Management judgment is required in determining our provision for
income taxes. The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable
tax laws. The entitlement to such benefits depends upon our compliance with the terms and conditions set out in these laws. Although we believe
that our estimates are reasonable and that we have considered future taxable income and ongoing prudent and feasible tax strategies in estimating
our tax outcome, there is no assurance that the final tax outcome will not be different than those which are reflected in our historical income tax
provisions and accruals. Such differences could have a material effect on our income tax provision, net income and cash balances in the period in
which such determination is made.
On January 1, 2007, we adopted ASC 740 with respect to uncertain tax positions (formerly FASB Interpretation No. 48, ("FIN 48"),
which contains a two-
step approach to recognizing and measuring uncertain tax positions accounted for in accordance with ASC 740, "Income
Taxes" (formerly SFAS No. 109). The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the
weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be
sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely to be realized upon ultimate settlement. Prior to January 1, 2007, we estimated our uncertain income tax
obligations in accordance with ASC 740 and ASC 450 "Contingencies" (formerly SFAS 5).
We recorded interest on taxes paid late as tax expenses. Adoption of the recognition and measurement provisions of ASC 740 with
respect to uncertain tax positions (formerly FIN 48) did not have an impact on our policy for interest related to income tax exposures.
Impairment of investments in marketable securities.
On April 1, 2009, we adopted a new guidance that changed the impairment and presentation model for our available for sale debt
securities. Under the amended impairment model, an other-than-
temporary impairment (OTTI) loss is recognized in earnings if the entity has the
intent to sell the debt security, or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost
basis. However, if an entity does not expect to sell a debt security, it still needs to evaluate expected cash flows to be received and determine if a
credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized currently in earnings.
Amounts relating to factors other than credit losses are recorded in other comprehensive income.
Upon adoption of the new guidance, we reclassified a non-
credit related amount of $210 thousand net of tax for OTTI losses recognized
in earnings prior to April 1, 2009, as a cumulative effect adjustment that increased retained earnings and decreased other comprehensive income
(OCI) at April 1, 2009.
Prior to April 1, 2009, we reviewed various factors in determining whether we should recognize an impairment charge for our
marketable securities, including our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery
in market value, the length of time and extent to which the fair value has been less than our cost basis, the credit ratings of the securities and the
financial condition and near-term prospects of the issuers.
Impairment of Long
-Lived Assets.
Our long-
lived assets include property and equipment and other intangible assets. In assessing the recoverability of our property and
equipment and other intangible assets, we make judgments regarding whether impairment indicators exist based on legal factors, market
conditions and operating performances of our business and products. Future events could cause us to conclude that impairment indicators exist
and that the carrying values of the intangible assets are impaired. Any resulting impairment loss could have a material adverse impact on our
financial position and results of operations.
We are required to assess the impairment of long-
lived assets, tangible and intangible, other than goodwill, under ASC 360, "Property
Plant and Equipment" (formerly SFAS No. 144) on a periodic basis, when events or changes in circumstances indicate that the carrying value
may not be recoverable. Impairment indicators include any significant changes in the manner of our use of the assets or the strategy of our
overall business, significant negative industry or economic trends and significant decline in our share price for a sustained period.
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