Microsoft 2009 Annual Report Download - page 34

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On July 1, 2008, we adopted SFAS No. 157, Fair Value Measurements, for all financial assets and liabilities and
nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). SFAS No. 157 defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair value measurements. This
statement does not require any new fair value measurements, but provides guidance on how to measure fair value
by providing a fair value hierarchy used to classify the source of the information. See Note 4 – Investments of the
Notes to Financial Statements.
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of
FASB Statement No. 115, became effective for us on July 1, 2008. SFAS No. 159 gives us the irrevocable option to
elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-
contract basis with the difference between the carrying value before election of the fair value option and the fair
value recorded upon election as an adjustment to beginning retained deficit. As of June 30, 2009, we had not
elected the fair value option for any eligible financial asset or liability.
Recent Accounting Pronouncements Not Yet Adopted
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which is effective for
us beginning July 1, 2010. This Statement amends FIN 46(R), Consolidation of Variable Interest Entities an
interpretation of ARB No. 51, to require revised evaluations of whether entities represent variable interest entities,
ongoing assessments of control over such entities, and additional disclosures for variable interests. We believe the
adoption of this pronouncement will not have a material impact on our financial statements.
In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157, which delays the
effective date of SFAS No. 157 for us to July 1, 2009, for all nonfinancial assets and nonfinancial liabilities, except
for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). We believe the adoption of the delayed items of SFAS No. 157 will not have a material impact on our
financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which replaces SFAS No. 141.
The statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting
(previously referred to as the purchase method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are recognized as a result of business
combinations. It also requires the capitalization of in-process research and development at fair value and requires
the expensing of acquisition-related costs as incurred. In April 2009, the FASB issued FSP FAS 141(R)-1 which
amends SFAS No. 141(R) by establishing a model to account for certain pre-acquisition contingencies. Under the
FSP, an acquirer is required to recognize at fair value an asset acquired or a liability assumed in a business
combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be
determined during the measurement period. If the acquisition-date fair value cannot be determined, then the acquirer
should follow the recognition criteria in SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14,
Reasonable Estimation of the Amount of a Loss – an interpretation of FASB Statement No. 5. SFAS No. 141(R) and
FSP FAS 141(R)-1 are effective for us beginning July 1, 2009, and will apply prospectively to business combinations
completed on or after that date. The impact of the adoption of SFAS No. 141(R) and FSP FAS 141(R)-1 will depend
on the nature of acquisitions completed after the date of adoption.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements – an amendment of ARB No. 51, which changes the accounting and reporting for minority interests.
Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity
separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control
will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be
included in net income and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded
at fair value with any gain or loss recognized in net income. SFAS No. 160 is effective for us beginning July 1, 2009,
and will apply prospectively, except for the presentation and disclosure requirements, which will apply
retrospectively. We believe the adoption of SFAS No. 160 will not have a material impact on our financial
statements.