Paychex 2012 Annual Report Download - page 61

PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company also maintains a reserve for uncertain tax positions. The Company evaluates tax positions
taken or expected to be taken in a tax return for recognition in its consolidated financial statements. Prior to
recording the related tax benefit in the consolidated financial statements, the Company must conclude that tax
positions must be more-likely-than-not to be sustained, assuming those positions will be examined by taxing
authorities with full knowledge of all relevant information. The benefit recognized in the consolidated financial
statements is the amount the Company expects to realize after examination by taxing authorities. If a tax position
drops below the more-likely-than-not standard, the benefit can no longer be recognized. Assumptions, judgment,
and the use of estimates are required in determining if the more-likely-than-not standard has been met when
developing the provision for income taxes and in determining the expected benefit. A change in the assessment
of the more-likely-than-not standard could materially impact the Company’s results of operations or financial
position. The Company’s reserve for uncertain tax positions was $36.8 million as of May 31, 2012 and $34.4
million as of May 31, 2011. Refer to Note I for further discussion of the Company’s reserve for uncertain tax
positions.
Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires management to make estimates, judgments, and assumptions that affect
reported amounts of assets, liabilities, revenue, and expenses during the reporting period. Actual amounts and
results could differ from these estimates.
Recently adopted accounting pronouncements: Effective June 1, 2011, the Company adopted the
following Financial Accounting Standards Board (“FASB”) authoritative guidance, none of which had a material
impact on its consolidated financial statements:
• Guidance on the timing and method required to perform certain steps in the periodic goodwill impairment
test for public entities that may have reporting units with zero or negative carrying amounts;
• Guidance to clarify the reporting of pro forma financial information related to business combinations of
public entities and to expand certain supplemental pro forma disclosures;
• Guidance for arrangements with multiple deliverables that are outside the scope of the software revenue
recognition guidance; and
• Guidance eliminating tangible products containing both software and non-software components that
operate together to deliver a product’s functionality from the scope of current GAAP for software.
During fiscal 2012, the Company adopted the following FASB authoritative guidance, neither of which had
a material impact on its consolidated financial statements:
• Guidance that amended certain measurement and disclosure requirements related to fair value
measurements to improve consistency with international reporting standards;
• Guidance that allows companies to assess qualitative factors to determine if it is more-likely-than-not that
goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test.
Recently issued accounting pronouncements: In June 2011, the FASB issued new guidance on the
presentation of comprehensive income. This guidance will require a company to present components of net
income and other comprehensive income in one continuous statement or in two separate, but consecutive
statements. There are no changes to the components that are recognized in net income or other comprehensive
income under current GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2011, with early adoption permitted. It is applicable to the Company’s fiscal
year beginning June 1, 2012. The Company is currently evaluating this guidance, but does not expect its adoption
will have a material effect on its consolidated financial statements.
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