Epson 2007 Annual Report Download - page 62

60 Seiko Epson Corporation
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 appli-
cation 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 accor-
dance with accounting principles generally accepted in Japan while its foreign subsidiaries maintain their records
and prepare their financial statements in conformity with accounting principles generally accepted in their respective
country of domicile.
The accompanying consolidated financial statements of the Company and its consolidated subsidiaries and
affiliates (collectively “Epson”) are prepared on the basis of accounting principles generally accepted in Japan, which
are different in certain respects as to application and disclosure requirements of International Financial Reporting
Standards, and are compiled from the consolidated financial statements prepared by the Company as required by
the Securities and Exchange Law of Japan.
The accompanying consolidated financial statements incorporate certain reclassifications and rearrangements
in order to present them in a form that is more familiar to readers outside Japan. In addition, the notes to the con-
solidated financial statements include information that is not required under accounting principles generally
accepted in Japan, but which is provided herein as additional information. However, none of the reclassifications
nor rearrangements have a material effect on the financial statements.
2. 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 asset of investments in subsidiaries is recognized as
“goodwill” and is included in intangible assets account (if the cost is in excess) or in other long-term 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 taken into income currently.
All the assets and liabilities of foreign subsidiaries and affiliates are translated at the foreign exchange rates pre-
vailing at the respective balance sheet dates, and all the income and expense accounts are translated at the
Notes to Consolidated Financial Statements
Seiko Epson Corporation and Subsidiaries