Incredimail 2013 Annual Report Download - page 40

Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operation are based on our financial statements, which have been
prepared in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these
estimates on an on-
going basis. We base our estimates on our historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amount 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. Under U.S. GAAP, when more than one accounting method or policy or its application is generally accepted, our management
selects the accounting method or policy that it believes to be most appropriate in the specific circumstances. Our management considers some of
these accounting policies to be critical.
A critical accounting policy is an accounting policy that management believes is both most important to the portrayal of our financial
condition and results and requires management’
s most difficult subjective or complex judgment, often as a result of the need to make accounting
estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are discussed in Note 2 to our
financial statements, we believe the following accounting policies to be critical:
Revenue recognition
Search generated and other revenues from advertising, whether from keyword search, advertising on our website or in our email client,
are recognized when we are entitled to receive the fee. Advertisers are charged and pay monthly, based on the number of clicks generated by
users clicking on these ads. Persuasive evidence of an arrangement exists based upon a written agreement or purchase order with a search
provider or display advertiser. Delivery occurs when an advertisement is offered by us and a user clicks on it in the case of a cost-per-
click
("CPC") arrangement, or the requisite number of impressions are displayed pursuant to a cost-per-
thousand impression ("CPM") arrangement, or
when a user installs our software.
In accordance with ASC 605-
50, "Customer Payments and Incentives", we account for cash consideration given to customers for which
we do not receive a separately identifiable benefit or cannot reasonably estimate fair value as a reduction of revenue rather than as an expense.
Revenues from email software license sales are recognized when all criteria outlined in ASC 985-605, "Software –
Revenue
Recognition" are met. Such revenues are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the
fee is fixed or determinable and collectability is probable. For substantially all of our software arrangements, we evaluate each of these criteria as
follows:
Evidence of an arrangement : We consider a clicking on "acceptance" of the agreement terms to be evidence of an arrangement.
Delivery
: Delivery is considered to occur when the license key is sent via email to the customer or alternatively the customer is given
access to download the licensed key.
Fixed or determinable fee
: Fees are determinable at the time of sale. Customers are charged immediately through credit cards. In
addition, the fees are subject to a refund policy period, currently up to 30 days.
Collection is probable
: We are subject to a minimal amount of collection risk related to software sold to our customers as these are
obtained through credit card sales.
Revenues from licensing of premium products are recognized over the term of the licensing period, which currently are either one
month or one year. Until the end of 2011, we offered lifetime licenses for one of our premium products as well. While offered, our estimation of
the lifetime usage of that product was six years, based on historical data collected. We no longer offer that service, offering all users who had
purchased the service in the past to download to their local computer all the premium content previously included in the service. Any user that
did not download the content may still contact us and receive a copy of the premium content. As the service has been terminated, that premium
content collection is no longer updated, nor can it be accessed through our software. The balance of revenues previously deferred over the
remaining lifetime of the service was truncated and recognized as revenues in the beginning of 2012.
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