Epson 2015 Annual Report Download - page 66

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65
4. Significant Accounting Estimates and Judgments
The preparation of Epson’s consolidated financial statements includes management estimates and assumptions in
order to measure income, expenses, assets and liabilities, and disclosed contingencies as of the fiscal year end date.
These estimates and assumptions are based on the best judgment of management in light of historical experience
and various factors deemed to be reasonable as of the fiscal year end date. Given their nature, actual results may
differ from those estimates and assumptions.
The estimates and assumptions are continuously reviewed by management. The effects of a change in estimates and
assumptions are recognised in the period of the change and subsequent periods.
Among the above estimates and assumptions, the following were items that may have a material effect on the
amounts recognised in Epson’s consolidated financial statements:
(1) Impairment of Property, Plant and Equipment, Goodwill, Intangible Assets and Investment
Property
Epson performs an impairment test for property, plant and equipment, goodwill, intangible assets and investment
property when there is any indication that the recoverable amount has fallen below the carrying amount of the
assets.
The impairment test is performed by comparing the carrying amount and the recoverable amount of assets. If the
recoverable amount falls below the carrying amount, impairment losses are recognised. The recoverable amount is
mainly calculated based on the discounted cash flow model. Certain assumptions are made for the useful lives and
the future cash flows of the assets, discount rates and long-term growth rates. These assumptions are based on the
best estimates and judgments of management, but they could be affected by variable and uncertain future economic
conditions. Any changes in these assumptions could have a material impact on Epson’s consolidated financial
statements in future periods.
The method for calculating the recoverable amount is stated in “13. Property, Plant and Equipment.”
(2) Post-employment Benefits
Epson has several types of post-employment benefit plans, including defined benefit plans.
The present value of defined benefit obligations on each of these plans and the related service costs and others are
calculated based on actuarial assumptions. These actuarial assumptions require estimates and judgments on
variables, such as discount rates.
The actuarial assumptions are determined based on the best estimates and judgments of management, but they
could be affected by variable and uncertain future economic conditions. Any changes in these assumptions could
have a material impact on Epson’ s consolidated financial statements in future periods.
These actuarial assumptions and related sensitivity analysis are stated in “23. Post-employment Benefits.”
(3) Provisions
Epson recognises various provisions, including provisions for product warranties and provisions for loss on
litigation, in the consolidated statement of financial position.
These provisions are recognised based on the best estimates of the expenditures required to settle the obligations,
taking into account risks and uncertainty related to the obligations as of the fiscal year end date.
Expenditures necessary for settling the obligations are calculated by taking all possible future results into account;
however, they may be affected by unexpected events or changes in conditions which may have a material impact
on Epson’ s consolidated financial statements in future periods.
The nature and amount of recognised provisions are stated in “21. Provisions.”
(4) Income Taxes
Epson, which conducts business around the world, makes reasonable estimates of income tax to be paid to local tax
authorities in accordance with local laws and regulations, and recognises income taxes payable and current tax
expense based on these estimates.
Calculating income taxes payable and current tax expense requires estimates and judgments on various factors,
including, for example, the interpretation of tax regulations by taxable entities and the tax authority in the
jurisdiction or experience of prior tax investigation.
Therefore, there may be differences between the amount recognised as income taxes payable and current tax
expense and the amount of actual income taxes payable and current tax expense. These differences may have a
material impact on Epson’ s consolidated financial statements in future periods.
In addition, deferred tax assets are recognised to the extent that it is probable that taxable income will be available
against which deductible temporary differences can be utilised. In recognizing the deferred tax assets, Epson judges