INCOME TAXES

3 Months Ended

Apr. 30, 2014

INCOME TAXES [Abstract]

INCOME TAXES

8.  INCOME TAXES

During the first quarter of fiscal 2015 the Company adopted ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"), which requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward.  As a result of adoption of ASU 2013-11, the Company reduced its unrecognized tax benefits by $1.4 million with an accompanying reduction of deferred tax assets by $1.4 million.  The gross amount of unrecognized tax benefits was $2.6 million at April 30, 2014, including interest and penalties. The entire amount of unrecognized tax benefits, if recognized, will impact the Company’s effective tax rate. This liability is classified as long-term unless the liability is expected to conclude within twelve months of the reporting date.  In the next twelve months, due to potential settlements with domestic tax authorities related to tax credits, an estimated $0.8 million of unrecognized tax benefits may be recognized.

The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. As of April 30, 2014, the Company has accrued approximately $0.2 million of interest and penalty expense relating to unrecognized tax benefits.

The Company files U.S. federal, state, and foreign tax returns that are subject to audit by various tax authorities. The Company is currently under audit in:

· India for fiscal years ended March 31, 1998, 1999,  2008, 2009, 2010, 2011 and 2012

· France for the fiscal years ended 2011, 2012 and 2013

· California for fiscal years ended 2004 and 2005

· City of Wilmington, Delaware for the calendar years  2009, 2010, 2011, 2012, 2013

· Minnesota for the fiscal years ended 2010, 2011, 2012, 2013

During the first quarter of fiscal year 2015, QAD Thailand settled its audit for the fiscal year ended January 31, 2012 and QAD South Africa settled its audit for the fiscal year ended January 31, 2008. No material adjustments were made as a result of such settlements.