Honda 2014 Annual Report Download - page 43

respectively, and our assumed expected long-term rate of return for the year
ended March 31, 2014 was 3.0% for Japanese plans. Our assumed discount rate
and rate of salary increase as of March 31, 2014 were 4.6~4.8% and 2.5~3.9%,
respectively, and our assumed expected long-term rate of return for fiscal 2014
was 6.0~7.4% for foreign plans.
We believe that the accounting estimates related to our pension plans are
“ critical accounting estimate” because changes in these estimates can materially
affect our financial condition and results of operations.
Actual results may differ from our assumptions, and the difference is
accumulated and amortized over future periods. Therefore, the difference generally
will be reflected as our recognized expenses in future periods. We believe that the
assumptions currently used are appropriate, however, differences in actual
expenses or changes in assumptions could affect our pension costs and obliga-
tions, including our cash requirements to fund such obligations.
The following table shows the effect of a 0.5% change in the assumed discount
rate and the expected long-term rate of return on our funded status, equity, and
pension expense.
Japanese Plans
Percentage
point
change (%)
Yen (billions)
Assumptions Funded status Equity Pension expense
Discount rate +0.5/–0.5 –89.7/+100.8 +59.5/–66.9 –1.8/+2.3
Expected long-term rate of return +0.5/–0.5 — — –4.2/+4.2
Foreign Plans
Percentage
point
change (%)
Yen (billions)
Assumptions Funded status Equity Pension expense
Discount rate +0.5/–0.5 –61.0/+71.0 +44.2/–52.0 –4.4/+4.9
Expected long-term rate of return +0.5/–0.5 — — –2.8/+2.8
*1 Note that this sensitivity analysis may be asymmetric, and are specific to the base conditions at March 31, 2014.
*2 Funded status for fiscal 2014 is affected by March 31, 2014 assumptions.
Pension expense for fiscal 2014 is affected by March 31, 2013 assumptions.
Income Taxes
Honda is subject to income tax examinations in many tax jurisdictions because
Honda conducts its operations in various regions of the world. We recognize the
tax benefit from an uncertain tax position based on the technical merits of the posi-
tion when the position is more likely than not to be sustained upon examination.
Benefits from tax positions that meet the more likely than not recognition
threshold are measured at the largest amount of benefit that is greater than 50%
likelihood of being realized upon ultimate resolution. We performed a comprehen-
sive review of any uncertain tax positions.
We believe our accounting for tax uncertainties is a “critical accounting estimate”
because it requires us to evaluate and assess the probability of the outcome that
could be realized upon ultimate resolution. Our estimates may change in the future
due to new developments.
We believe that our estimates and assumptions of unrecognized tax benefits
are reasonable, however, if our estimates of unrecognized tax benefits and poten-
tial tax benefits are not representative of actual outcomes, our consolidated finan-
cial statements could be materially affected in the period of settlement or when
the statutes of limitations expire, as we treat these events as discrete items in the
period of resolution.
Due to the Company’s remeasurement based on technical merits regarding
transfer pricing matters of overseas transactions between the Company and for-
eign affiliates, the Company has decreased a portion of unrecognized tax benefits
during the year ended March 31, 2014.
Honda Motor Co., Ltd. Annual Report 2014 42
6 Financial Section
1 The Power of Dreams
2 Financial Highlights
3 To Our Shareholders
4 Review of Operations
5 Corporate Governance
7
Investor Relations
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