Facebook 2012 Annual Report Download - page 54

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share-based compensation related to Pre-2011 RSUs triggered by the completion of our IPO in May 2012. As of
December 31, 2012, there was $2.21 billion of unrecognized share-based compensation expense, of which $1.96
billion is related to RSUs and $244 million is related to restricted shares and stock options. This unrecognized
share-based compensation expense is expected to be recognized over a weighted-average period of
approximately three years.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting
principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related
disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we believe to be reasonable under the circumstances.
Our actual results could differ from these estimates.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates
reasonably could have been used, or if changes in the estimate that are reasonably possible could materially
impact the financial statements. We believe that the assumptions and estimates associated with revenue
recognition for payments and other fees, income taxes, share-based compensation, loss contingencies, and
business combinations and valuation of goodwill and other acquired intangible assets have the greatest potential
impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting
policies and estimates. For further information on all of our significant accounting policies, see Note 1 of our
accompanying Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K.
Revenue Recognition for Payments and Other Fees
We enable Payments from our users to our Platform developers. Our users can make payments on the
Facebook Platform by using credit cards or other payment methods available on our website. The primary
process for these transactions is through the purchase of our virtual currency. Our users then use this virtual
currency to purchase virtual and digital goods in games and apps from developers on the Facebook Platform.
Upon the initial sale of the virtual currency, we record consideration received from a user as a deposit.
When a user engages in a payment transaction utilizing the virtual currency for the purchase of a virtual or
digital good from a Platform developer, we reduce the virtual currency balance of the user by the price of the
purchase, which is a price that is solely determined by the Platform developer. We remit to the Platform
developer an amount that is based on the total amount of virtual currency redeemed less the processing fee that
we charge the Platform developer for the service performed. Our revenue is the net amount of the transaction
representing our processing fee for the transaction. We record revenue on a net basis as we do not consider
ourselves to be the principal in the sale of the virtual or digital good to the user. Under GAAP guidance related to
reporting revenue gross as a principal versus net as an agent, the indicators used to determine whether an entity is
a principal or an agent to a transaction are subject to judgment. We consider ourselves the agent to these
transactions when we apply the indicators to our facts. Should material subsequent changes in the substance or
nature of the transactions with Platform developers result in us being considered the principal in such sales, we
would reflect the virtual and digital goods sale as revenue and the amounts paid to the Platform developers as an
associated cost.
Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant
judgment is required in determining our provision for income taxes and income tax assets and liabilities,
including evaluating uncertainties in the application of accounting principles and complex tax laws.
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