Yahoo 2011 Annual Report Download - page 59

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 consolidated 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 and from revenue sharing arrangements with partners for search technology and
services. 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
tax laws. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit,
new tax legislation, or the change of an estimate based on new information. 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. The provision for income taxes includes the
effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related net
interest and penalties.
We record a valuation allowance against certain of our deferred income tax assets if it is more likely than not that
those assets will not be realized. In evaluating our ability to realize our deferred income tax assets we consider all
available positive and negative evidence, including our operating results, ongoing tax planning, and forecasts of
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