Yahoo 2010 Annual Report Download - page 55

As of December 31, 2010, we did not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. In addition, as of December 31, 2010, we had no off-balance sheet arrangements that have, or
are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of
operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these
consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various other assumptions that we believe are
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.
An accounting policy is considered 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, and if different estimates
that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur,
could materially impact the consolidated financial statements. We believe that the following critical accounting
policies reflect the more significant estimates and assumptions used in the preparation of the consolidated
financial statements.
Management has discussed the development and selection of these critical accounting estimates with the Audit
Committee of our Board, and the Audit Committee has reviewed the disclosure below. In addition, there are
other items within our financial statements that require estimation, but are not deemed critical as defined above.
Changes in estimates used in these and other items could have a material impact on our financial statements.
Revenue Recognition. Our revenue is generated from display, search, and other. Display revenue is generated
from the display of graphical advertisements and search revenue is generated from the display of text-based links
to an advertiser’s Website. Other revenue consists of listings-based services revenue, transaction revenue, and
fees revenue. While the majority of our revenue transactions contain standard business terms and conditions,
there are certain transactions that contain non-standard business terms and conditions. In addition, we enter into
certain sales transactions that involve multiple elements (arrangements with more than one deliverable). We also
enter into arrangements to purchase goods and/or services from certain customers. As a result, significant
contract interpretation is sometimes required to determine the appropriate accounting for these transactions
including: (1) whether an arrangement exists; (2) whether fees are fixed or determinable; (3) how the
arrangement consideration should be allocated among potential multiple elements; (4) establishing selling prices
for deliverables considering multiple factors; (5) when to recognize revenue on the deliverables; (6) whether all
elements of the arrangement have been delivered; (7) whether the arrangement should be reported gross as a
principal versus net as an agent; (8) whether we receive a separately identifiable benefit from the purchase
arrangements with certain customers for which we can reasonably estimate fair value; and (9) whether the
consideration received from a vendor should be characterized as revenue or a reimbursement of costs incurred. In
addition, our revenue recognition policy requires an assessment as to whether collection is reasonably assured,
which inherently requires us to evaluate the creditworthiness of our customers. Changes in judgments on these
assumptions and estimates could materially impact the timing or amount of revenue recognition.
Income Taxes. Significant judgment is required in evaluating our uncertain tax positions and determining our
provision for income taxes. See Note 9—“Income Taxes” in the Notes to the consolidated financial statements
for additional information. We establish reserves for tax-related uncertainties based on estimates of whether, and
the extent to which, additional taxes will be due. These reserves are established when we believe that certain
positions might be challenged despite our belief that our tax return positions are in accordance with applicable
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