Dell 2006 Annual Report Download - page 73

Table of Contents
DELL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Liabilities — a replacement of FASB Statement No. 125 ("SFAS 140"). SFAS 155 allows Dell to elect to account for financial
instruments with embedded derivatives as a whole on a fair value basis, instead of bifurcating the derivative from the host
financial instrument. This statement also requires Dell to evaluate its interest in securitized financial assets to identify any
freestanding derivatives and embedded derivatives, and clarifies that concentrations of credit risk in the form of subordination
are not embedded derivatives. SFAS 155 is effective for all financial instruments acquired, issued, or subject to a
remeasurement event after the beginning of Dell's Fiscal 2008. Dell determined that its retained interest in securitized assets
contains embedded derivatives and elected to account for the entire asset on a fair value basis. The fair value basis did not
have a material effect on Dell's results of operations, financial position, or cash flows.
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets — an amendment of FASB
Statement No. 140 ("SFAS 156"). SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a servicing contract in specific situations. Additionally,
the servicing asset or servicing liability is initially measured at fair value; however, an entity may elect the "amortization
method" or "fair value method" for subsequent reporting periods. SFAS 156 is effective beginning Dell's Fiscal 2008.
Adoption of SFAS 156 did not have a material effect on Dell's results of operations, financial position, or cash flows.
In June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3, Disclosure Requirements for Taxes
Assessed by a Governmental Authority on Revenue-Producing Transactions ("EITF 06-3"). The consensus allows an entity
to choose between two acceptable alternatives based on their accounting policies for transactions in which the entity collects
taxes on behalf of a governmental authority, such as sales taxes. Under the gross method, taxes collected are accounted for
as a component of revenue with an offsetting expense. Conversely, the net method excludes such taxes from revenue.
Companies are required to disclose the method selected pursuant to APB Opinion No. 22, Disclosure of Accounting Policies.
If such taxes are reported gross and are significant, companies are required to disclose the amount of those taxes. The
guidance should be applied to financial reports through retrospective application for all periods presented, if amounts are
significant, for interim and annual reporting periods beginning after December 15, 2006, which is Dell's Fiscal 2008. Dell
records revenue net of such taxes.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation
of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This
Interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and
disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Dell adopted this Interpretation in
the first quarter of Fiscal 2008, and this adoption resulted in a decrease to stockholders' equity of approximately $62 million.
In addition, consistent with the provisions of FIN 48, Dell changed the classification of $1.1 billion of income tax liabilities
from current to non-current liabilities because payment of cash is not anticipated within one year of the balance sheet date.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 addresses the process of
quantifying financial statement misstatements; however, it does not address how to assess materiality in interim financial
statements. SAB 108 establishes the dual approach for the evaluation of the impact of financial statement misstatements.
SAB 108 was effective for Dell's Fiscal 2007. There was no impact on Dell's results of operations, financial position, or cash
flows due to the adoption of SAB 108. However, this guidance was considered in the determination by Dell to restate its
previously issued financial statements as discussed in Note 2 of Notes to Consolidated Financial Statements.
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