Facebook 2013 Annual Report Download - page 44

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For 2013, worldwide ARPU was $6.81, an increase of 28% from 2012. Over this period, ARPU increased by approximately 43%
in Rest of World, 38% in the United States & Canada, 36% in Europe and 34% in Asia. User growth was more rapid in geographies with
relatively lower ARPU, such as Asia and Rest of World. We expect that user growth in the future will continue to be higher in those
regions where ARPU is relatively lower, such as Asia and Rest of World, such that worldwide ARPU may continue to increase at a slower
rate relative to ARPU in any geographic region, or potentially decrease even if ARPU increases in each geographic region.
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 developers with applications on the Facebook website. Our users can make payments on
Facebook by using debit and credit cards, PayPal, mobile phone payments, gift cards or other methods. We receive a fee from developers
when a user engages in a payment transaction for the purchase of a virtual or digital good on the Facebook website. The price of the
virtual or digital good is a price that is solely determined by the developer. We remit to the developer an amount that is based on the total
amount of transaction less the processing fee that we charge the 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 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 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.
We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset
and liability method. Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the
years in which those tax assets and liabilities are expected to be realized or settled. We record a valuation allowance to reduce our deferred
tax assets to the net amount that we believe is more likely than not to be realized.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will
be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have
adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be
materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or
the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such
differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact
on our financial condition and operating results. The provision for income taxes includes the effects of any reserves that we believe are
appropriate, as well as the related net interest and penalties.
Share-based Compensation
Prior to January 1, 2011 we granted RSUs (Pre-2011 RSUs) to our employees and members of our board of directors that vested
upon the satisfaction of both a service-based condition, generally over four years, and a liquidity condition. The liquidity condition was