Yahoo 2014 Annual Report Download - page 80

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 search and display 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
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