8.	INCOME TAXES

During the first quarter of fiscal year 2015 QAD adopted ASU 2013-11. The new standard requires the netting of unrecognized tax benefits against deferred tax assets for a loss or credit that would apply in settlement of the uncertain tax position. As a result, the Company netted $1.4 million of its uncertain tax benefits against $1.4 million of deferred tax assets on its Condensed Consolidated Balance Sheets. The total amount of unrecognized tax benefits (before netting) was $2.7 million at July 31, 2014. This amount includes penalties and interest. The entire amount of unrecognized tax benefits, if recognized, would 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 and lapse of statute of limitations 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 July 31, 2014, the Company has accrued approximately $0.3 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 the fiscal years ended March 31, 1998, 1999, 2008, 2009, 2010 and 2012

California for the fiscal year ended 2004

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

During the first six months of fiscal year 2015 the Company settled audits in the following locations:

South Africa for the fiscal year ended 2008

Thailand for the fiscal year ended January 2012

India for the fiscal year ended March 31, 2011

France for the fiscal years ended 2011, 2012 and 2013

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

No material adjustments were made as a result of such settlements.