Tucows 2014 Annual Report Download - page 74

Any changes to our key assumptions about our businesses and our prospects, or changes in market conditions,
could cause the fair value of our Domain Services operating segment to fall below its carrying value, resulting in a
potential impairment charge. In addition, changes in our organizational structure or how our management allocates
resources and assesses performance, could result in a change in our operating segments, requiring a reallocation and
updated impairment analysis of goodwill and indefinite life intangible assets. A goodwill or intangible asset impairment
charge could have a material effect on our consolidated financial statements because of the significance of goodwill and
intangible assets to our consolidated balance sheet. There was no impairment of goodwill or intangible assets as a result
of the annual impairment tests completed during the fourth quarters of 2014 and 2013.
Accounting for income taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required
in evaluating our uncertain tax positions and determining our provision for income taxes. We apply a two-step approach
to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by
determining if on the weight of available evidence it is more likely than not that the position will be sustained on audit,
including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit that is
more than 50% likely to be realized upon settlement.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that
the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and
circumstances, such as the closing of a tax audit or the refinement of an estimate based on new information that may
become available. To the extent that the final tax outcome of these matters is different than the amounts recorded, such
differences will impact the provision for income taxes in the period in which such determination is made.
As we account for income taxes under the asset and liability method, we recognize deferred tax assets or
liabilities for the anticipated future tax effects of temporary differences between the financial statement basis and the tax
basis of our assets and liabilities. We record a valuation allowance to reduce the net deferred tax assets when it is more
likely than not that the benefit from the deferred tax assets will not be realized. In assessing the need for a valuation
allowance, historical and future levels of income, expectations and risks associated with estimates of future taxable
income and ongoing tax planning strategies are considered. In the event that it is determined that the deferred tax assets to
be realized in the future would be in excess of the net recorded amount, an adjustment to the deferred tax asset valuation
allowance would be recorded. This adjustment would increase income in the period that such determination was made.
Likewise, should it be determined that all or part of a recorded net deferred tax asset would not be realized in the future,
an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period that such
determination would be made.
On a periodic basis, we evaluate the probability that our deferred tax asset balance will be recovered to assess its
realizability. To the extent we believe it is more likely than not that some portion of our deferred tax assets will not be
realized, we will increase the valuation allowance against the deferred tax assets. Realization of our deferred tax assets is
dependent primarily upon future taxable income. Our judgments regarding future profitability may change due to future
market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require possible
material adjustments to these deferred tax assets, impacting net income or net loss in the period when such determinations
are made.
Recently Issued Accounting Standards
See Note 2 – Summary of Significant Accounting Policies of the Notes to the Consolidated Financial
Statements included in Part II, Item 8 of this Form 10-K for information regarding recently issued accounting standards.
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