Tucows 2012 Annual Report Download - page 22

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may be recorded against our deferred tax assets. Although we believe that our estimates are reasonable, the ultimate
determination of our tax liability is always subject to review by the applicable tax authorities. Any adverse outcome of
such a review could have a negative effect on our operating results and financial condition in the period or periods for
which such determination is made. Our current and future tax liabilities could be adversely affected by:
• international income tax authorities, including the Canada Revenue Agency and the U.S. Internal Revenue
Service, challenging the validity of our arm’s- length related party transfer pricing policies or the validity o
f
our contemporaneous documentation.
• changes in the valuation of our deferred tax assets; or
• changes in tax laws, regulations, accounting principles or the interpretations of such laws.
In the event we are unable to satisfy regulatory requirements relating to internal control over financial reporting, or
if these internal controls are not effective, our business and financial results may suffer.
Enacted in July 2010, The Dodd-Frank Act amended the Sarbanes-Oxley Act of 2002 to exclude smaller
reporting companies, like Tucows, from the requirement to obtain an audit report on internal controls over financial
reporting.
Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial
reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports
and effectively prevent fraud, our brand and operating results could be harmed. Pursuant to the Sarbanes-Oxley Act of
2002, we are required to furnish a report by management on internal control over financial reporting, including
management’s assessment of the effectiveness of such control. Internal control over financial reporting may not prevent
or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or
overriding of controls, or fraud. Therefore, even effective internal controls cannot guarantee assurance with respect to
the preparation and fair presentation of financial statements. In addition, projections of any evaluation of the
effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement required
new or improved controls, or if we experience difficulties in their implementation, our business and operating results
could be harmed, we could fail to meet our reporting obligations, which could have a material adverse effect on our
operating results and on our stock price, and it could make it more difficult for us to attract and retain qualified persons
to serve on our Board of Directors or as executive officers.
Impairment of goodwill and other intangible assets would result in a decrease in earnings.
Current accounting rules require that goodwill and other intangible assets with indefinite useful lives may no
longer be amortized, but instead must be tested for impairment at least annually. These rules also require that intangible
assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual
values, and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. To the extent such evaluation indicates that the useful lives of intangible assets are
different than originally estimated, the amortization period is reduced or extended and, accordingly, the quarterly
amortization expense is increased or decreased. We have substantial goodwill and other intangible assets, and we would
be required to record a significant charge to earnings in our financial statements during the period in which any
impairment of our goodwill or intangible assets is determined. Any impairment charges or changes to the estimated
amortization periods could have a material adverse effect on our financial results.
We could suffer uninsured losses.
Although we maintain general liability insurance, claims could exceed the coverage obtained or might not be
covered by our insurance. While we typically obtain representations from our technology and content providers and
contractual partners concerning the ownership of licensed technology and informational content and obtain
indemnification to cover any breach of these representations, we still may not receive accurate representations or
adequate compensation for any breach of these representations. We may have to pay a substantial amount of money for
claims that are not covered by insurance or indemnification or for claims where the existing scope or adequacy of
insurance or indemnification is disputed or insufficient.