Oki 2001 Annual Report Download - page 24

Oki Electric Industry Co., Ltd. Annual Report 2001
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risks arising from fluctuations in foreign currency exchange rates and
interest rates. During the period from the commencement of hedging to
the assessment of its effectiveness, the Group reviews the effectiveness
of all hedging policies in order to monitor and control cumulative cash
flows and to respond to any changes in the market.
(m) Adoption of new accounting standards
For retirement benefits: Effective the year ended March 31, 2001, the
Group adopted a new accounting standard for retirement benefits (“Opin-
ion Concerning the Establishment of an Accounting Standard for Retire-
ment Benefits,” issued by the Business Accounting Deliberation Council
(the “BADC”) on June 16 1998). The effect of this change was to
increase the cost of retirement benefits by ¥7,726 million ($62,307
thousand), and to decrease income before income taxes, minority interests
and equity in losses of affiliates by ¥7,340 million ($59,194 thousand) as
compared with the amounts that would have been recorded under the
method applied in the previous fiscal year.
With respect to the presentation in the balance sheets, accrued
severance indemnities and accrued prior service cost of the employees’
tax-qualified pension plan have been included in the allowance for
retirement benefits.
For financial instruments: Effective the year ended March 31, 2001, the
Group adopted a new accounting standard for financial instruments
(“Opinion Concerning Establishment of an Accounting Standard for
Financial Instruments,” issued by the BADC on January 22, 1999). The
effect of this change was to increase income before income taxes, minority
interests and equity in losses of affiliates by ¥359 million ($2,898 thou-
sand), over the amount that would have been recorded if the method
applied in the previous year had been followed.
The accounting standard requires the Group to classify its securities
into the following three categories: trading, held-to-maturity and other. At
the beginning of the year, the Group reviewed the classification of all its
securities. Based on this classification, any trading, held-to-maturity and
other securities with a maturity of less than one year have been included
in current assets. All other securities have been included in other invest-
ments in securities as noncurrent assets. As a result, at April 1, 2000,
securities in current assets decreased by ¥46,333 million ($373,653
thousand) and other investments in securities, in noncurrent assets,
increased by the same amount.
For foreign currency transactions: Effective the year ended March
31, 2001, the Company adopted a revised accounting standard for
foreign currency transactions (“Opinion Concerning the Establishment
of Accounting Standards for Foreign Currency Transactions,” issued by
the BADC on October 22, 1999). As a result, long-term monetary
receivables and payables denominated in foreign currencies, which had
formerly been translated into yen at the historical rates of exchange in
effect at the dates of the respective transactions, have been translated
into yen at the rate of exchange in effect at the balance sheet date. The
effect of this change was to decrease income before income taxes,
minority interests and equity in losses of affiliates by ¥444 million
($3,582 thousand) from the amount that would have been recorded if
the method applied in the previous year had been followed.
Foreign currency translation adjustments were presented under assets
in the prior year’s consolidated financial statements. Effective the current
year, they have been included in shareholders’ equity and minority
interests as a result of an amendment to the “Regulations Concerning
the Terminology, Forms and Method of Preparation of Consolidated
Financial Statements.”
of the respective assets. However, buildings (excluding leasehold
improvements) acquired after April 1, 1998 by the Group are depreci-
ated by the straight-line method over the estimated useful lives of the
respective assets. Significant renewals and betterments are capitalized at
cost. Maintenance and repairs are charged to income.
(h) Intangible assets and amortization
Intangible assets, including computer software costs capitalized, are
amortized by the straight-line method over their estimated useful lives.
(i) Leases
Noncancelable leases are primarily accounted for as operating leases
(regardless of whether such leases are classified as operating or finance
leases) except that lease agreements which stipulate the transfer of
ownership of the leased property to the lessee are accounted for as
finance leases.
(j) Retirement benefits
The Group has severance benefit plans covering substantially all its
employees. An employee who terminates employment with the Company
receives approximately 60% of such benefits in the form of a lump-sum
payment, or as pension annuity payments from the pension plans with the
remainder in a lump-sum payment from the unfunded severance benefit
plan. Severance benefits are based on the compensation at the time of
termination, years of service and certain other factors.
An allowance for retirement benefits has been provided for employ-
ees’ retirement benefits, based on an estimate of the projected retirement
benefit obligation and the pension fund assets.
Actuarial gains and losses are amortized by the straight-line method
over a period of 14 years, which is within the estimated average remain-
ing years of service of the Group’s employees. The amortization of such
gains and losses is recognized effective the year subsequent to the year
in which they are incurred.
The Group also provides an allowance for retirement benefits for
directors at the amount that would be required to be paid if all directors
retired at the balance sheet date, based on the Group’s internal rules.
(k) Income taxes
Deferred income taxes are recognized by the liability method. Under the
liability method, deferred tax assets and liabilities are determined based
on the difference between financial reporting and the tax basis of the
assets and liabilities, and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
(l) Hedge accounting
Forward foreign exchange contracts are accounted for by deferral hedge
accounting, which requires that unrealized gains or losses be deferred as
liabilities or assets. Forward foreign exchange contracts that meet
certain criteria are accounted for by the allocation method, which is
utilized to hedge against risk arising from fluctuations in foreign
exchange rates. Interest rate swaps that meet the required criteria are
accounted for by a special method (as stipulated in the accounting
standards) as if the interest rates applied to the interest rate swaps had
originally applied to the underlying borrowings. Swap contracts are
utilized to hedge market risks that may arise in the future market with
respect to short-term loans, long-term loans and bonds at variable
interest rates.
The Group has developed hedging policies to control various
aspects of derivative transactions, including authorization levels and
transaction volumes. Based on these policies, the Group hedges the