Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates under different assumptions or conditions.

An accounting policy is deemed 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, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe that the assumptions and estimates associated with income taxes, loss contingencies, and valuation of long-lived assets including goodwill and intangible assets and their associated estimated useful lives have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Note 1Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

Income Taxes

We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We recognize the deferred income tax effects of a change in tax rates in the period of the enactment.

We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income, and ongoing tax planning strategies in assessing the need for a valuation allowance.

We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. These uncertain tax positions include our estimates for transfer pricing that have been developed based upon analyses of appropriate arms-length prices. Similarly, our estimates related to uncertain tax positions concerning research tax credits are based on an assessment of whether our available documentation corroborating the nature of our activities supporting the tax credits will be sufficient. Although we believe that we have adequately reserved for our uncertain tax positions (including net interest and penalties), we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves in accordance with the income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made, and could have a material impact on our financial condition and operating results.

Loss Contingencies

We are involved in legal proceedings, claims, and regulatory, tax or government inquiries and investigations that arise in the ordinary course of business. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages. We evaluate the associated developments on a regular basis and accrue a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine there is a reasonable possibility that we may incur a loss and the loss or range of loss can be estimated, we disclose the possible loss in the accompanying notes to the consolidated financial statements to the extent material.

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We review the developments in our contingencies that could affect the amount of the provisions that have been previously recorded, and the matters and related reasonably possible losses disclosed. We make adjustments to our provisions and changes to our disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. Significant judgment is required to determine both the probability of loss and the estimated amount of loss.

The outcome of these matters is inherently uncertain. Therefore, if one or more of these matters were resolved against us for amounts in excess of management's expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected. See Note 11Commitments and Contingencies and Note 14Income Taxes of the accompanying notes to our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" and Part I, Item 3, "Legal Proceedings" of this Annual Report on Form 10-K for additional information regarding these contingencies.

Valuation of Long-lived Assets including Goodwill, Intangible Assets and Estimated Useful Lives

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users, acquired technology, and trade names from a market participant perspective, useful lives, and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

We review goodwill for impairment at least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting unit below its carrying value. As of December 31, 2019, no impairment of goodwill has been identified.

Long-lived assets, including property and equipment and intangible assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value. We have not recorded any significant impairment charges during the years presented.

The useful lives of our long-lived assets including property and equipment and finite-lived intangible assets are determined by management when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. The current estimate of useful lives represents our best estimate based on current facts and circumstances, but may differ from the actual useful lives due to changes in future circumstances such as changes to our business operations, changes in the planned use of assets, and technological advancements. When we change the estimated useful life assumption for any asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated or amortized over the revised estimated useful life. Historically changes in useful lives have not resulted in material changes to our depreciation and amortization expense.

QUESTIONAccording to the article, determine the enterprise's policy review. Is the management conservative in managing its business? Please give an example of how they recognize income or how they depreciate assets.

Income Statement All numbers in thousands Expand All Breakdown IM 12/30/2020 12/30/2019 12/30/2018 12/30/2017 > Total Revenue 7,000 85,965,000 70,697,000 55,838,000 40,653,000 Cost of Revenue 3,000 16,692,000 12,770,000 9,355,000 5,454,000 Gross Profit 4,000 69,273,000 57,927,000 46,483,000 35,199,000 > Operating Expense 2,000 36,602,000 33,941,000 21,570,000 14,996,000 Operating Income 2,000 32,671,000 23,986,000 24,913,000 20,203,000 > Net Non Operating Interest Inc... ,000 672,000 904,000 652,000 392,000 > Other Income Expense 1,000 -163,000 -78,000 -204,000 -1,000 Pretax Income 1,000 33,180,000 24,812,000 25,361,000 20,594,000 Tax Provision 3,000 4,034,000 6,327,000 3,249,000 4,660,000 > Net Income Common Stockhold... 8,000 29,146,000 18,485,000 22,111,000 15,920,000 Average Dilution Earnings 0 1,000 14,000 Diluted NI Available to Com Stock... 8,000 29,146,000 18,485,000 22,112,000 15,934,000 Basic EPS 0.0065 0.0077 0.0055 Diluted EPS 0.0064 0.0076 0.0054 Basic Average Shares 2,854,000 2,890,000 2,901,000 Diluted Average Shares 2,876,000 2,921,000 2,956,000 Total Operating Income as Reported 2,000 32,671,000 23,986,000 24,913,000 20,203,000 Total Expenses 5.000 53,294,000 46,711,000 30,925,000 20,450,000 Net Income from Continuing & Dis... 8,000 29,146,000 18,485,000 22,112,000 15,934,000 Normalized Income 8,000 29,259,262 18,563,225 22,297,310 15,938,620 Interest Income ,000 672,000 924,000 661,000 398,000 Interest Expense 20,000 9,000 6,000 Net Interest Income ,000 672,000 904,000 652,000 392,000 EBIT 8,000 32,671,000 24,832,000 25,370,000 20,600,000 EBITDA 1,000 Reconciled Cost of Revenue 3,000 16,692,000 12,770,000 9,355,000 5,454,000 Reconciled Depreciation 3,000 6,862,000 5,741,000 4,315,000 3,025,000 Net Income from Continuing Oper... 8,000 29,146,000 18,485,000 22,112,000 15,934,000 Total Unusual Items Excluding Goo... 1,000 -129,000 -105,000 -213,000 -6,000 Total Unusual Items 1,000 -129,000 -105,000 -213,000 -6,000 Normalized EBITDA 1,000 39,662,000 30,678,000 29,898,000 23,631,000 Tax Rate for Calcs 0 0 0 0 Tax Effect of Unusual Items -15,738 -26,775 -27,690 -1,380 Income Statement All numbers in thousands Expand All Breakdown IM 12/30/2020 12/30/2019 12/30/2018 12/30/2017 > Total Revenue 7,000 85,965,000 70,697,000 55,838,000 40,653,000 Cost of Revenue 3,000 16,692,000 12,770,000 9,355,000 5,454,000 Gross Profit 4,000 69,273,000 57,927,000 46,483,000 35,199,000 > Operating Expense 2,000 36,602,000 33,941,000 21,570,000 14,996,000 Operating Income 2,000 32,671,000 23,986,000 24,913,000 20,203,000 > Net Non Operating Interest Inc... ,000 672,000 904,000 652,000 392,000 > Other Income Expense 1,000 -163,000 -78,000 -204,000 -1,000 Pretax Income 1,000 33,180,000 24,812,000 25,361,000 20,594,000 Tax Provision 3,000 4,034,000 6,327,000 3,249,000 4,660,000 > Net Income Common Stockhold... 8,000 29,146,000 18,485,000 22,111,000 15,920,000 Average Dilution Earnings 0 1,000 14,000 Diluted NI Available to Com Stock... 8,000 29,146,000 18,485,000 22,112,000 15,934,000 Basic EPS 0.0065 0.0077 0.0055 Diluted EPS 0.0064 0.0076 0.0054 Basic Average Shares 2,854,000 2,890,000 2,901,000 Diluted Average Shares 2,876,000 2,921,000 2,956,000 Total Operating Income as Reported 2,000 32,671,000 23,986,000 24,913,000 20,203,000 Total Expenses 5.000 53,294,000 46,711,000 30,925,000 20,450,000 Net Income from Continuing & Dis... 8,000 29,146,000 18,485,000 22,112,000 15,934,000 Normalized Income 8,000 29,259,262 18,563,225 22,297,310 15,938,620 Interest Income ,000 672,000 924,000 661,000 398,000 Interest Expense 20,000 9,000 6,000 Net Interest Income ,000 672,000 904,000 652,000 392,000 EBIT 8,000 32,671,000 24,832,000 25,370,000 20,600,000 EBITDA 1,000 Reconciled Cost of Revenue 3,000 16,692,000 12,770,000 9,355,000 5,454,000 Reconciled Depreciation 3,000 6,862,000 5,741,000 4,315,000 3,025,000 Net Income from Continuing Oper... 8,000 29,146,000 18,485,000 22,112,000 15,934,000 Total Unusual Items Excluding Goo... 1,000 -129,000 -105,000 -213,000 -6,000 Total Unusual Items 1,000 -129,000 -105,000 -213,000 -6,000 Normalized EBITDA 1,000 39,662,000 30,678,000 29,898,000 23,631,000 Tax Rate for Calcs 0 0 0 0 Tax Effect of Unusual Items -15,738 -26,775 -27,690 -1,380