Canon 2005 Annual Report Download - page 65

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hedged item that is attributable to the hedged risk, are recorded in
earnings. Changes in the fair value of a derivative that is desig-
nated and qualifies as a cash-flow hedge are recorded in other
comprehensive income (loss), until earnings are affected by the
variability in cash flows of the hedged item. Gains and losses from
hedging ineffectiveness are included in other income (deductions).
Gains and losses excluded from the assessment of hedge effective-
ness (time value component) are included in other income
(deductions).
Canon also uses certain derivative financial instruments which
are not designated as hedges. Canon records these derivative
financial instruments on the consolidated balance sheets at fair
value. The changes in fair values are immediately recorded in
earnings.
(w) Guarantees
Canon recognizes, at the inception of a guarantee, a liability for
the fair value of the obligation it has undertaken in issuing
guarantees.
(x) New Accounting Standards
In November 2004, the FASB issued SFAS No. 151, “Inventory
Costs-an amendment of ARB No. 43, Chapter 4” (“SFAS 151”).
SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inven-
tory Pricing,” to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material
(spoilage). Among other provisions, the new rule requires that
items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs be recognized as current-period
charges regardless of whether they meet the criterion of “so
abnormal” as stated in ARB No. 43. Additionally, SFAS 151
requires that the allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the pro-
duction facilities. SFAS 151 is effective for fiscal years beginning
after June 15, 2005 and is required to be adopted by Canon in the
first quarter beginning January 1, 2006. Canon is currently evaluat-
ing the effect that the adoption of SFAS 151 will have on its con-
solidated results of operations and financial condition but does not
expect SFAS 151 to have a material impact.
In December 2004, the FASB issued SFAS No. 153, “Exchanges
of Nonmonetary Assets-an amendment of APB Opinion No. 29”
(“SFAS 153”). SFAS 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive
assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for
Nonmonetary Transactions,” and replaces it with an exception for
exchanges that do not have commercial substance. SFAS 153 spec-
ifies that a nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly
as a result of the exchange. SFAS 153 is effective for the fiscal peri-
ods beginning after June 15, 2005 and was adopted by Canon in
the third quarter ended September 30, 2005. The adoption of
SFAS 153 did not have a material impact on the consolidated
results of operations and financial condition of Canon.
In May 2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections—a replacement of APB Opinion
No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154
replaces APB Opinion No. 20, “Accounting Changes” and SFAS
No. 3 “Reporting Accounting Changes in Interim Financial State-
ments,” and provides guidance on the accounting for and report-
ing of accounting changes and error corrections. SFAS 154
establishes retrospective application, or the latest practicable date,
as the required method for reporting a change in accounting prin-
ciple and the reporting of a correction of an error. SFAS 154 is
effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005 and is required to
be adopted by Canon in the first quarter beginning January 1,
2006. Canon is currently evaluating the effect that the adoption of
SFAS 154 will have on its consolidated results of operations and
financial condition but does not expect SFAS 154 to have a mate-
rial impact.
In June 2005, the FASB issued FSP FAS 143-1, “Accounting for
Electronic Equipment Waste Obligations” (“FSP 143-1”). FSP 143-1
provides guidance on the accounting for certain obligations associ-
ated with the Waste Electrical and Electronic Equipment Directive
(the “Directive”), adopted by the European Union (“EU”). Under
the Directive, the waste management obligation for historical
equipment (products put on the market on or prior to August 13,
2005) remains with the commercial user until the customer
replaces the equipment. FSP 143-1 is required to be applied to the
later of the first reporting period ending after June 8, 2005 or the
date of the Directive’s adoption into law by the applicable EU
member countries. Canon adopted FSP 143-1 in the third quarter
ended September 30, 2005 and has determined that its effect did
not have a material impact on its consolidated results of operations
and financial condition in 2005.
In November 2005, the FASB issued FSP FAS 115-1 and FAS
124-1, “The Meaning of Other-Than-Temporary Impairment and
Its Application to Certain Investments” (“FSP 115-1”). FSP 115-1
provides guidance on determining when investments in certain
debt and equity securities are considered impaired, whether that
impairment is other-than-temporary, and on measuring such
impairment loss. FSP 115-1 also includes accounting considerations
subsequent to the recognition of an other-than-temporary impair-
ment and requires certain disclosures about unrealized losses that
have not been recognized as other-than-temporary impairments.
FSP 115-1 is required to be applied to reporting periods beginning
after December 15, 2005 and is required to be adopted by Canon
in the first quarter beginning January 1, 2006. Canon is currently
evaluating the effect that the adoption of FSP 115-1 will have on
its consolidated results of operations and financial condition but
does not expect FSP 115-1 to have a material impact.