Yahoo 2013 Annual Report Download - page 67

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 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, among other things, 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 our consolidated
financial statements.
Management has discussed the development and selection of these critical accounting estimates with the Audit
and Finance Committee (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 and search advertising, and other sources. Display
advertising revenue is generated from the display of graphical and non-graphical advertisements and search
advertising revenue is generated from clicks on text-based links to advertisers’ Websites that appear primarily on
search results pages, 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 contract-specific 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 16—“Income Taxes” in the Notes to our consolidated financial statements
for additional information. We establish liabilities for tax-related uncertainties based on estimates of whether,
and the extent to which, additional taxes will be due. These liabilities 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 liabilities in light of changing facts and circumstances, such as the closing of
a tax audit, new tax legislation, developments in case law or interactions with the tax authorities. To the extent
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