Epson 2009 Annual Report Download - page 55

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Notes to Consolidated Financial Statements
1. Basis of presenting consolidated financial statements
(1) Nature of operations
Seiko Epson Corporation (the “Company”) was originally established as a manufacturer of watches but
later expanded its business to provide key devices and solutions for the digital color imaging markets
through the application of its proprietary technologies. The Company operates its manufacturing and sales
business mainly in Japan, the Americas, Europe and Asia/Oceania.
(2) Basis of presenting consolidated financial statements
The Company and its subsidiaries in Japan maintain their records and prepare their financial statements in
accordance with accounting principles generally accepted in Japan. Meanwhile its foreign subsidiaries
maintain their records and prepare their financial statements in conformity with International Financial
Reporting Standards or the generally accepted accounting principles in the United States. In addition, some
items required by Japanese standards should be adjusted in the consolidation process so that net income is
accurately accounted for, unless they are not material.
The amounts in the accompanying consolidated financial statements and the notes thereto for periods from
or subsequent to April 1, 2007 are rounded down.
2. Number of group companies
As of March 31, 2009, the Company had 97 consolidated subsidiaries. It has applied the equity method in
respect to three unconsolidated subsidiaries and five affiliates.
3. Summary of significant accounting policies
(1) Consolidation and investments in affiliates
The accompanying consolidated financial statements include the accounts of the Company and those of its
subsidiaries that are controlled by Epson. Under the effective control approach, all majority-owned
companies are to be consolidated. Additionally, companies in which share ownership equals 50% or less
may be required to be consolidated in cases where such companies are effectively controlled by other
companies through the interests held by a party who has a close relationship with the parent in accordance
with Japanese accounting standards. All significant inter-company transactions and accounts, along with
unrealized inter-company profits, are eliminated upon consolidation.
Investments in affiliates in which Epson has significant influence are accounted for using the equity
method. Consolidated income includes Epson’s current equity in net income or loss of affiliates after
elimination of significant unrealized inter-company profits.
The difference between the cost and the underlying net assets of investments in subsidiaries is recognized
as “goodwill” and is included in the intangible assets account (if the cost is in excess) or in the noncurrent
liabilities account (if the underlying net asset is in excess). Goodwill is amortized on a straight-line basis
over a period of five years.
(2) Foreign currency translation and transactions
Foreign currency transactions are translated using foreign exchange rates prevailing at the respective
transaction dates. Receivables and payables in foreign currencies are translated at the foreign exchange
rates prevailing at the respective balance sheet dates, and the resulting transaction gains or losses are
included in income for the current period.
All the assets and liabilities of foreign subsidiaries and affiliates are translated at the foreign exchange rates
prevailing at the respective balance sheet dates, and all the income and expense accounts are translated at
the average foreign exchange rates for the respective periods. Foreign currency translation adjustments are
recorded in the consolidated balance sheets as translation adjustments and minority interest in subsidiaries.
(3) Cash and cash equivalents
Cash and cash equivalents included in the consolidated financial statements comprise cash on hand, bank
deposits that may be withdrawn on demand, and highly liquid investments purchased with initial maturities
of three months or less, and which present low risk of fluctuation in value.