Consolidation
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Accounting Principles for Consolidated Financial Statements (Revised 1997) by Business Accounting Deliberation Council
Chapter 1: Purpose of Consolidated Financial Statements The purpose of preparing consolidated financial statements is to report financial condition and operating result of a consolidated business group, which is assumed as one entity comprised of more than one companies (including entities other than "companies") under a common control. Chapter 2: General Principles I.
Consolidated financial statements should provide true and fair view of financial condition and operating result of the business group. (Note 1)
II.
Consolidated financial statements should be prepared based on legal-entity based financial statements of the parent and subsidiaries that belong to the business group, which are prepared in accordance with the generally accepted accounting principles. (Note 2)
III.
Consolidated financial statements should display clearly financial information necessary for interest parties not to mislead their judgments about the condition of the business group. (Note 1)
IV.
Policies and procedures used for preparing consolidated financial statements should be applied continuously and not be changed without reason.
Chapter 3: General Standards I.
Scope of Consolidation 1.
In principle, the parent should consolidate all subsidiaries.
2.
A parent is a company that controls effectively other companies, and the other companies are subsidiaries. (Note 3)
A company holds effectively the majority of the voting interests in the other company. (Note 4)
b.
A company holds less than 50 percent but significant minority of the voting interests in the other company, and there is certain facts that supports the existence of control over the decision making body of the other company. (Note 5)
If a parent and its subsidiaries or the subsidiaries control effectively other companies, the other companies are assumed as subsidiaries as well.
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3.
a.
1
An effective control is a control over the decision-making body of a company. A company that shows one of the following indications is assumed as a subsidiary, unless any counter evidence supports that no effective control exists over the decision making body:
4.
II.
III.
A subsidiary that meets one of the following conditions should not be consolidated: (Note 6) a.
The control over the subsidiary is temporal.
b.
Even if the subsidiary does not meet the condition (a), consolidation of the subsidiary would mislead significantly the judgments of the interest parties.
The Balance Sheet Date of the Business Group 1.
The accounting period for consolidated financial statements should be one year, of which the balance sheet date should be chosen from any one day of within the period, with reference to the accounting period of the parent.
2.
If the accounting periods of the subsidiaries differ from those of the parent, the subsidiaries should perform appropriate accounting procedures as of the balance sheet date of the consolidated entity, which are essentially the same as the formal accounting procedures in preparing financial statements. (Note 7)
Accounting Policies and Procedures of the Parent and Subsidiaries
In principle, accounting policies and procedures for similar transactions under similar circumstances should be unformed among the parent and subsidiaries. Chapter 4: Guidelines for Preparing Consolidated Balance Sheets I.
Basic Principles for Preparation of Consolidated Balance Sheets
A consolidated balance sheet should be prepared based on the amounts of the assets, liabilities, and capital on the legal-entity balance sheets of the parent and subsidiaries, with remeasuring assets and liabilities of the subsidiaries and offsetting the investments and net assets and rights and obligations among consolidated entities. Remeasurement of Assets and Liabilities of Subsidiaries
III.
Assets and liabilities of a subsidiary should be remeasured at fair value as of the date of acquisition of the control, based on the following alternative methods: a.
A portion of the assets and liabilities of the subsidiary that is attributed to the parent's interest is marked to fair value as of the dates of the investments, and the remaining portion of the assets and liabilities that is attributed to the minority interest is carried over with the book amounts on the legal-entity balance sheet. (hereafter, the "partial fair value method") (Note 8) (Note 9)
b.
Full portion of the assets and liabilities of the subsidiaries is marked to fair value as of the acquisition of the control (hereafter, "full fair value method"). (Note 9)
2.
The differences of fair values and book amounts of assets and liabilities of the subsidiary (hereafter, "remeasurement differences") should be included in capital of the subsidiary.
3.
If the remeasurement differences are immaterial, the assets and liabilities of the subsidiary may be carried over with the book amounts.
Offsetting Investments and Net Assets
2
1.
Page
II.
1.
Investments by a parent in its subsidiary and the corresponding net assets of the subsidiary should be offset and eliminated for consolidation purpose. (Note 10)
2.
If there is a difference between the investments by a parent in its subsidiary and the offsetting net assets of the subsidiary, the difference should be accounted for as a consolidation adjustment (goodwill).
A consolidation adjustment should be amortized over no more than 20 years after the acquisition by the straightline method or other appropriate methods. If the amount of the consolidation adjustment is immaterial, the amount may be recognized as a gain or loss of the period of the acquisition. 3.
IV.
V.
VI.
The investments and the net assets between subsidiaries should be offset, as if the offset is between a parent and its subsidiary.
The Minority Interest 1.
A portion of the net assets that is not attributed to the parent should be attributed to the minority interest. (Note 11)
2.
If accumulated losses of a subsidiary that would otherwise be attributed to the minority interest exceeds the accumulated amount of the minority interest should be attributed to the parent's interest. In this case, if the subsidiary raises net income in succeeding periods, the income should be attributed to the parent's interest until the accumulated losses that has previously been attributed to the parent are recovered.
Additions to and Selling of Investments in a Subsidiary (Note 9) 1.
If a parent acquires an additional investment in a subsidiary, the portion of the net assets that is additionally acquired should be eliminated from the minority interest and the incremental parent's interest from the additional acquisition (hereafter, "additionally acquired interest") should be offset with the cost of the investment. If there is a difference between the additionally acquired interest and the additional investment, the difference should be accounted for as a consolidated adjustment. (Note 12)
2.
If a parent sells a portion of the investment (as far as the parent-subsidiary relationship remains), the sold interest of the net assets of the subsidiary should be transferred from the parent's interest to the minority interest. If there is a difference between the transferred interest (hereafter, "sold interest") and the sold portion of the investment should be accounted for an adjustment to the gains or losses on the selling of the investment. The already-amortized consolidation adjustments, if any, of the sold portion should be accounted for in the same way. (Note 13)
3.
In such cases that the subsidiary raised capital at market value, any difference between the additional investment and changes in the parent's interest should be accounted for as a gain or loss. If such accounting may mislead significantly the judgments by the interest parties, the difference may be directly charged to the consolidated retained earnings. (Note 13)
Offsetting Rights and Obligations
Accounting for Income Taxes
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VII.
3
Rights and obligations among consolidated entities should be offset and eliminated for consolidation purposes. (Note 14)
1.
Any temporal differences that arise from income taxes or taxes imputed based on the net income of consolidated companies should be allocated over the periods.
2.
A temporal difference is the difference between the assets and liabilities on the consolidated financial statements and the assets and liabilities calculated as a result of determination of taxable income. (Note 15)
3.
Taxes on temporal differences should be recognized as deferred tax assets or liabilities unless the taxes would not be recovered or paid in the future consolidated accounting periods. (Note 16)
In principle, deferred tax assets and deferred tax liabilities should not be offset. VIII.
Application of Equity Method for Investments in Nonconsolidated Subsidiaries and Affiliates 1.
In principle, investments in nonconsolidated subsidiaries and affiliates should be accounted for by the equity method. (Note 17) (Note 18)
2.
An affiliate is a company other than a subsidiary that a parent and its subsidiaries are able to influence in material degree on financial and operating decision making through investment, personnel, finance, technology, trading or other relationships. (Note 19)
A company that shows one of the following indications are assumed as an affiliate unless any counter evidence supports that the company other than a subsidiary is not influenced in material degree on its financial and operating decision making:
3.
a.
A parent and its subsidiaries own in substance 20 percent or more of the voting interest of the company that is not a subsidiary (except that the ownership of 20 percent or more of the voting interest is temporal). (Note 4)
b.
A parent and its subsidiaries own less than 20 percent but certain level of the voting interest of the company, and evidences support that the parent is able to influence in material degree on the financial and operating decision making of the company. (Note 20)
If an invested company that used to be an affiliate but became no longer an affiliate as a result of selling the investments or other reasons, the remaining investments should be measured at the amount carried on the legal-entity financial statements.
If an invested company that used to be a subsidiary but is no longer a subsidiary or an affiliate as a result of selling the investments or other reasons, the remaining investments should be accounted for in the same way. IX.
Display (Note 21) 1.
A consolidated balance sheet should have sections of assets, liabilities, minority interests, and capital (shareholders' equity).
The section of assets should be displayed with categories of current assets, fixed assets, and deferred charges, and the category of fixed assets should further segmented into tangible fixed assets, intangible fixed assets, and investments and other assets.
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The minority interests should be displayed separately after the section of liabilities.
4
The section of liabilities should be displayed with categories of current liabilities and fixed liabilities.
The section of capital should be displayed with categories of stated capital, statutory capital provisions, and surplus other than statutory capital surplus (the last will be called hereafter "consolidated retained earnings"). 2.
Categories or subcategories of current assets, tangible fixed assets, intangible fixed assets, investments and other assets, deferred charges, current liabilities, and fixed liabilities should be in a consistent way displayed clearly with appropriate captions. Investments in nonconsolidated subsidiaries or affiliates, among others, should be displayed separately from other items or displayed clearly in the accompanying notes.
If the consolidated retained earnings include reserves for special purposes under contracts with the third parties, such as reserves for extinguishment of debts, the nature and amounts of those reserves should be disclosed in the accompanying notes. Chapter 5: Guidelines for Preparation of Consolidated Income Statements I.
Basic Principle for Preparation of Consolidated Income Statement
A consolidated income statement should be prepared based on the amounts of revenues and expenses on legalentity income statements of the parent and subsidiaries, with eliminating intercompany transactions among consolidated entities and unrealized gains and losses on the transactions and applying other related procedures. II.
Eliminating Intercompany Transactions among Consolidated Entities
Items related to intercompany transactions between the parent and its subsidiary or among the subsidiaries should be eliminated. (Note 22) III.
IV.
Eliminating Unrealized Gains and Losses 1.
Unrealized gains and losses included in inventories, fixed assets, or other assets that are obtained by intercompany transactions among consolidated entities should be eliminated. For unrealized losses, however, if the cost before eliminating the unrealized losses is not recoverable, the unrealized losses should not be eliminated.
2.
Immaterial unrealized gains or losses may not be eliminated.
3.
If there is a minority interest in the selling subsidiary, the unrealized gains and losses should be allocated between the parent's interest and the minority interest based on the proportionate ownership of the parent's interest and the minority interest.
Display (Note 23) 1.
A consolidated income statement should be displayed with stages of operating income, recurring income, and net income.
The stage of operating income should first display gross selling profits by deducting cost of goods sold from sales, and next display operating income by deducting sales and operating expenses from the gross selling profits.
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The stage of net income should first display, after the stage of recurring income, net income before taxes by adding extraordinary gains and deducting extraordinary losses, and next display net income by adding or deducting income taxes (including local taxes and other business taxes imputed based on the income) and gains or losses attributable to minority interest.
5
The stage of recurring income should display, after the stage of operating income, recurring income by adding nonoperating revenues and deducting nonoperating expenses.
2.
Sales and operating expenses, nonoperating revenues, nonoperating expenses, extraordinary gains, and extraordinary losses should be displayed clearly in a consistent way with appropriate captions.
Chapter 6: Guidelines for Preparation of Consolidated Statements of Retained Earnings I.
II.
Preparation of Consolidated Statements of Retained Earnings 1.
For consolidated retained earnings carried on the consolidated balance sheet, a consolidated statement of retained earnings, which display changes in the earnings, should be prepared.
2.
Changes in consolidated retained earnings should be calculated based on legal-entity consolidated income statements and the appropriations of retained earnings of the parent and its subsidiaries, with eliminating intercompany payments and receipts of dividends among consolidated entities.
3.
Consolidated amounts of appropriations of retained earnings should be calculated based on the appropriations of the parent and its subsidiaries that are performed during the consolidated accounting period. However, the consolidated amounts may be calculated based on the appropriations of the parent and its subsidiaries that relate to the earnings of the accounting period.
Display 1.
A consolidated statement of retained earnings should display, in principle, the beginning balance of consolidated retained earnings, additions to consolidated retained earnings, deductions from consolidated retained earnings, net income, and the ending balance of consolidated retained earnings.
Deductions from consolidated retained earnings should be displayed with categories of dividends (including interim dividends), executives' bonuses, and transfers into stated capital. 2.
A consolidated statement of retained earnings may be combined with a consolidated income statement. In this case, the title of the combined statement should be "consolidated statement of income and retained earnings." (Note 23)
Chapter 7: Notes to Consolidated Financial Statements The following information should be noted. 1.
Consolidation Policy and Related Information
Information about consolidated subsidiaries, nonconsolidated subsidiaries, and nonconsolidated subsidiaries and affiliates in which investments are accounted for by the equity method, and other important information about consolidation policy, as well as material changes, if any, in the consolidation policy. 2.
Differences in Balance Sheet Dates
Accounting Principles and Procedures and Related Information
Page
3.
6
If the balance sheet date of a subsidiary differs from that of the parent, the balance sheet dates and a summary description of accounting procedures applied to the subsidiary for consolidation purposes.
4.
a.
Measurements of important assets, depreciation methods, and other accounting methods, and changes in such methods, if any, as well as the reasons and influences of the changes.
b.
Summary description of differences in accounting principles and procedures, if any, between the parent and its subsidiaries.
c.
Remeasurements of assets and liabilities of subsidiaries
Appropriations of Retained Earnings
Accounting policy for appropriations of retained earnings for consolidation purposes. 5.
Other Important Information
Page
7
Other important information for judgments about financial positions and operating results of the business group. (Note 24)
Interpretive Notes to Accounting Principles for Consolidated Financial Statements (Revised 1997)
by Business Accounting Deliberation Council June 6, 1997
Note 1: Applicability of Materiality (Chapter 2. I and III) In preparing consolidated financial statements, unless interest parties' judgments about financial condition and operating result of a business group are not mislead, the principle of materiality is applicable to determination of the scope of consolidations, determination of the scope of investments accounted for by the equity method, preparation of subsidiary's statements for a period which corresponds to the parent's balance sheet date for consolidation purposes, modification of legal-entity financial statements for consolidation purposes, measurement of assets and liabilities of subsidiaries, amortization of consolidation adjustments, elimination of unrealized gains and losses, and display of consolidated financial statements. Note 2: Modification of Legal-Entity Financial Statements for Consolidation Purposes (Chapter 2. II) If financial statements of parent and subsidiaries do not display appropriately financial condition and operating result because of under-depreciation, over- or under-valuation of assets or liabilities, or other reasons, those financial statements should be modified appropriately for consolidation purposes. However, if the modifications would not affect consolidated financial statements in material respects, those modifications may not be required for consolidation purposes. Note 3: Companies That Do Not Meet the Definition of Subsidiary (Chapter 3. I. 2) If a company is a reorganized, liquidated, bankrupt or other similar company and there is no unity of organization because of no effective control, the company is not a subsidiary. Note 4: In-Substance Ownership of Voting Shares or Interest (Chapter 3. I. 2(a)) If voting shares or interest is owned in a company's account, whomever the ownership is titled to, such as executives of the company, the shares or interest is supposed to be owned in substance by the company. Note 5: Evidence of Control (Chapter 3. I. 2(b))
Because of the existence of shareholders that do not use their votes, the company is able to continuously own the majority of voting shares at the general meetings of the other company.
2.
Because of the existence of related shareholders, such as executives and affiliates, the company is able to continuously own the majority of voting shares at the general meetings of the other company.
4.
Current or former executives or employees of the investing company share the majority of the board of directors of the other company.
5.
There are contracts that control important financial and operating policies of the other company.
Note 6: Nonconsolidation of Small Subsidiaries (Chapter 3. I. 4)
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1.
8
The followings are examples of cases where sufficient evidence exists that a company controls the decision making body of other company:
If a subsidiary is immaterial in assets, sales, and other elements, so that nonconsolidation of the subsidiary would not affect rational judgments about financial conditions and operating result of the business group, the subsidiary may not be consolidated. Note 7: Differences in Balance Sheet Dates (Chapter 3. II. 2) If a difference in the balance sheet dates does not exceed three months, the consolidation may be based on the unmodified financial statements of the subsidiary. In this case, only material differences in accounting records related to intercompany transactions that arise from the difference in balance sheet dates should be modified. Note 8: Remeasurement of Assets and Liabilities of Subsidiary (Chapter 4. II. 1) Even when a reporting entity adopts the partial fair value method, the portion of assets and liabilities of the subsidiary that is attributed to the parent may be remeasured at the date of acquisition of the control if such procedure does not affect in material respects the result of consolidation. Note 9: Acquisition Date of Shares or Control That Differs from the Balance Sheet Date of the Subsidiary (Chapter 4. II. 1 and 2 and Chapter 4. V) If an acquisition date of shares or control differs from the balance sheet date of the subsidiary, the acquisition may be supposed to be done at the nearest balance sheet date from the acquisition date. Note 10: Elimination of Investment and Net Assets (Chapter 4. III. 1) 1.
If a reporting entity adopts the partial fair value method, the portion attributed to the parent of the net assets as of each acquisition date of shares should be offset with the investment and eliminated. The portion attributed to the parent of the retained earnings earned after the acquisition date of shares should be included in the consolidated retained earnings.
2.
If a reporting entity adopts the full fair value method, the portion attributed to the parent of the net assets as of acquisition date of control should be offset with the investment and eliminated. The portion attributed to the parent of the retained earnings earned after the acquisition date of control should be included in the consolidated retained earnings.
Note 11: Minority Interest (Chapter 4. IV. 1) 1.
Stated and additional paid-in capital and retained earnings as of acquisition date of shares or control should be divided into the portion attributed to the parent and the portion attributed to the minority shareholders. The former portion should be offset with the investment by the parent and eliminated, and the latter portion should be accounted for as the minority interest.
2.
Retained earnings earned after the acquisition date of shares or control that are attributed to the minority shareholders should be accounted for as minority interest.
Note 12: Additional Investments in Subsidiaries (Chapter 4. V. 1)
9
If a reporting entity adopts the partial fair value method, the additionally acquired interest of the subsidiary that is attributed to the parent should be marked to fair value, and the decreased minority interest should be calculated based on the net assets carried on the legal-entity financial statements of the subsidiary. However, the remeasurement differences are immaterial, the additionally acquired interest may be determined based on the net assets carried on the legal-entity financial statements.
Page
1.
2.
If a reporting entity adopts the full fair value method, the additionally acquired interest and the decreased minority interest should be determined based on the amount of the accumulated minority interest as of the additional acquisitions.
Note 13: Selling of Investments of the Subsidiaries (Chapter 4. V. 2 and 3) 1.
The sold interest should be determined as the portion corresponding to the sold investments that are previously part of parent's interest.
If a reporting entity adopts the partial fair value method, the increased minority interest should be determined based on legal-entity financial statements of the subsidiary, and the remeasurement differences included in the sold interest should be offset with the corresponding assets and liabilities of the subsidiary. If a reporting entity adopts the full fair value method, the increased minority interest should be the same as the sold interest. Consolidation adjustments that are to be written off as an adjustment to the gains or losses on sales of the investments in subsidiary should be determined as the sold portion of the unamortized consolidation adjustments. 2.
Changes in interest arising from raising capital at market of the subsidiary should be accounted for in a manner similar to the above.
Note 14: Offsetting Rights and Obligations (Chapter 4. VI) 1.
The rights and obligations to be offset include accrued or deferred revenues or expenses that have arisen from intercompany transactions.
2.
If a note issued by a consolidated company is refunded at a bank by another consolidated company, the note should be transferred into debt account on the consolidated balance sheet.
3.
Provisions for credit losses should be reconciled to the amount corresponding to the consolidated loans after the offset of rights and obligations between consolidated companies.
4.
Provisions for which it is clear to be recognized for consolidated companies should be eliminated for consolidation purposes.
5.
If a consolidated company acquires temporally any debt securities issued by another consolidated company, the debt securities may not be offset.
Note 15: Temporal Differences (Chapter 4. VII. 2)
a.
Differences between taxable income and pretax net income that have arisen from the differences in attribution to fiscal periods of revenues and expenses.
b.
Gains or losses on the remeasurement of assets and liabilities of the subsidiary that are not included in taxable income.
Deferred net losses that are probable to be offset with the future taxable income should be accounted for in a way similar to temporal differences.
Note 16: Deferred Taxes (Chapter 4. VII. 3)
10
2.
The followings are examples of temporal differences:
Page
1.
1.
The measurement of deferred tax assets or liabilities should be based on the effective tax rate applicable to the fiscal periods when the assets or liabilities would be recovered or repaid. The recoverability of the deferred tax assets should be reviewed every fiscal year.
2.
Immaterial temporal differences may not be subject to the recognition of deferred tax assets or liabilities.
Note 17: The Equity Method (Chapter 4. VIII. 1) 1.
The equity method is an accounting method under which an investment is modified at every balance sheet date in proportion with changes in the portion of the net assets of the invested company that are attributed to the parent.
2.
Financial statements of an invested company in which an investment is accounted for by the equity method should be modified as if the financial statements are those of a subsidiary. Such procedures include remeasurement of assets and liabilities, inter-period allocation of income taxes, and others. If modification procedures, if any, have only immaterial effect, such procedures may not be applied.
3.
The followings are the procedures of the equity method: a.
Differences between investment at the investment date and the corresponding net assets of the invested company, if any, should be included in the investment account, and accounted for in a manner similar to accounting for consolidation adjustments.
b.
The investing company should recognize a portion attributed to the investing company of the net income or loss of the invested company earned after the investment date, add the amount of the recognized portion to its book amount of the investment, and include the amount in its net income. The amortization of the amount assumed as if consolidation adjustments should be included in the recognized portion.
c.
In recognizing changes in investments and changes to the reporting net income, unrealized gains or losses, if any, on the transactions between investing and invested companies should be modified to eliminate the effect of the unrealized gains or losses.
d.
For applying the equity method, the investing company should use financial statements of the subsidiary for the latest accounting period. However, if there is a difference in accounting period between investing and invested companies, any material transactions or events occurred during the differential period should be considered into modification of the financial statements or disclosure in the accompanying notes.
Note 18: Non-Application of the Equity Method (Chapter 4. VIII. 1) If changes in the investments that would be otherwise arisen from the application of the equity method have only immaterial effect on the consolidated financial statements, the equity method may not be applied. Note 19: Companies That Are Not Affiliates (Chapter 4. VIII. 2)
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Note 20: Evidence to Support Material Influences (Chapter 4. VIII. 2(b))
11
If a company is a reorganized, liquidated, bankrupt or other similar company and there is no material influences on financial and operational policy making of the company, the company is not an affiliate.
Evidence that supports the existence of the material influences on the financial and operating policy making of the other company exists when, for example, there are any contracts that have material influences on the financial and operating policy making of the other company. Note 21: Display of Consolidated Balance Sheet (Chapter 4. IX) 1.
Categories of captions on the consolidated balance sheets should be based on the categories that are used for legal-entity financial statements, but may be aggregated unless the aggregation would cause misunderstanding about financial condition of the business group.
2.
Consolidation adjustments should be displayed as intangible fixed assets or fixed liabilities. If consolidation adjustments occur on both debit and credit, those adjustments may be offset and displayed net.
3.
Investments in own stock or subsidiary's investments in parent's stock should be displayed as deductions from capital in the bottom of the section of capital.
Note 22: Eliminating Transactions between Consolidated Companies (Chapter 5. II) Even when transactions between consolidated companies are performed through any unrelated companies, the transactions should be accounted for as if they are related transactions between consolidated companies, if the transactions are clear to be in substance related transactions. Note 23: Display of Consolidated Income Statement and Consolidated Statement of Retained Earnings (Chapter 5. IV and Chapter 6. II. 2) 1.
Categories of captions on the consolidated income statement should be based on the categories that are used for legal-entity financial statements, but may be aggregated unless the aggregation would cause misunderstanding about operating result of the business group.
2.
If main businesses of a reporting entity include both sales of commodities or products and revenues from services, sales and their costs should be categorized into portions of sales of commodities or products and revenues from services.
3.
Amortization of consolidated adjustments assets should be displayed in the category of sales and administration expenses, and amortization of consolidated adjustments liabilities should be displayed in the category of the nonoperating revenues.
Gains and losses on investments accounted for by the equity method should be displayed in one line in the category of nonoperating revenues or expenses. 4.
If a reporting entity prepares consolidated statement of income and retained earnings, the statement should be displayed in the following format:
Net Income
XXX
Beginning Balance of Consolidated Retained Earnings
XXX XXX
......
XXX XXX
Deductions from Consolidated Retained Earnings Dividends
XXX
Executives' Bonuses
XXX
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......
12
Additions to Consolidated Retained Earnings
Stated Capital
XXX
.......
XXX XXX XXX
Ending Balance of Consolidated Retained Earnings
XXX
Note 24: Notes about Material Subsequent Events (Chapter 7. V) Material subsequent events that have occurred before the preparation date of the consolidated financial statements should be disclosed in the notes to the consolidated statements.
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13
Subsequent events are events that have occurred after the consolidated balance sheet date (for subsidiaries whose balance sheet dates defer from that of the parent, events that have occurred after the balance sheet date of those subsidiaries) and affects financial conditions and operating results for the future accounting periods.
Chapter 1: Purpose of Consolidated Financial Statements The purpose of preparing consolidated financial statements is to report financial condition and operating result of a consolidated business group, which is assumed as one entity comprised of more than one companies (including entities other than "companies") under a common control. Chapter 2: General Principles I.
Consolidated financial statements should provide true and fair view of financial condition and operating result of the business group. (Note 1)
II.
Consolidated financial statements should be prepared based on legal-entity based financial statements of the parent and subsidiaries that belong to the business group, which are prepared in accordance with the generally accepted accounting principles. (Note 2)
III.
Consolidated financial statements should display clearly financial information necessary for interest parties not to mislead their judgments about the condition of the business group. (Note 1)
IV.
Policies and procedures used for preparing consolidated financial statements should be applied continuously and not be changed without reason.
Chapter 3: General Standards I.
Scope of Consolidation 1.
In principle, the parent should consolidate all subsidiaries.
2.
A parent is a company that controls effectively other companies, and the other companies are subsidiaries. (Note 3)
A company holds effectively the majority of the voting interests in the other company. (Note 4)
b.
A company holds less than 50 percent but significant minority of the voting interests in the other company, and there is certain facts that supports the existence of control over the decision making body of the other company. (Note 5)
If a parent and its subsidiaries or the subsidiaries control effectively other companies, the other companies are assumed as subsidiaries as well.
Page
3.
a.
1
An effective control is a control over the decision-making body of a company. A company that shows one of the following indications is assumed as a subsidiary, unless any counter evidence supports that no effective control exists over the decision making body:
4.
II.
III.
A subsidiary that meets one of the following conditions should not be consolidated: (Note 6) a.
The control over the subsidiary is temporal.
b.
Even if the subsidiary does not meet the condition (a), consolidation of the subsidiary would mislead significantly the judgments of the interest parties.
The Balance Sheet Date of the Business Group 1.
The accounting period for consolidated financial statements should be one year, of which the balance sheet date should be chosen from any one day of within the period, with reference to the accounting period of the parent.
2.
If the accounting periods of the subsidiaries differ from those of the parent, the subsidiaries should perform appropriate accounting procedures as of the balance sheet date of the consolidated entity, which are essentially the same as the formal accounting procedures in preparing financial statements. (Note 7)
Accounting Policies and Procedures of the Parent and Subsidiaries
In principle, accounting policies and procedures for similar transactions under similar circumstances should be unformed among the parent and subsidiaries. Chapter 4: Guidelines for Preparing Consolidated Balance Sheets I.
Basic Principles for Preparation of Consolidated Balance Sheets
A consolidated balance sheet should be prepared based on the amounts of the assets, liabilities, and capital on the legal-entity balance sheets of the parent and subsidiaries, with remeasuring assets and liabilities of the subsidiaries and offsetting the investments and net assets and rights and obligations among consolidated entities. Remeasurement of Assets and Liabilities of Subsidiaries
III.
Assets and liabilities of a subsidiary should be remeasured at fair value as of the date of acquisition of the control, based on the following alternative methods: a.
A portion of the assets and liabilities of the subsidiary that is attributed to the parent's interest is marked to fair value as of the dates of the investments, and the remaining portion of the assets and liabilities that is attributed to the minority interest is carried over with the book amounts on the legal-entity balance sheet. (hereafter, the "partial fair value method") (Note 8) (Note 9)
b.
Full portion of the assets and liabilities of the subsidiaries is marked to fair value as of the acquisition of the control (hereafter, "full fair value method"). (Note 9)
2.
The differences of fair values and book amounts of assets and liabilities of the subsidiary (hereafter, "remeasurement differences") should be included in capital of the subsidiary.
3.
If the remeasurement differences are immaterial, the assets and liabilities of the subsidiary may be carried over with the book amounts.
Offsetting Investments and Net Assets
2
1.
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II.
1.
Investments by a parent in its subsidiary and the corresponding net assets of the subsidiary should be offset and eliminated for consolidation purpose. (Note 10)
2.
If there is a difference between the investments by a parent in its subsidiary and the offsetting net assets of the subsidiary, the difference should be accounted for as a consolidation adjustment (goodwill).
A consolidation adjustment should be amortized over no more than 20 years after the acquisition by the straightline method or other appropriate methods. If the amount of the consolidation adjustment is immaterial, the amount may be recognized as a gain or loss of the period of the acquisition. 3.
IV.
V.
VI.
The investments and the net assets between subsidiaries should be offset, as if the offset is between a parent and its subsidiary.
The Minority Interest 1.
A portion of the net assets that is not attributed to the parent should be attributed to the minority interest. (Note 11)
2.
If accumulated losses of a subsidiary that would otherwise be attributed to the minority interest exceeds the accumulated amount of the minority interest should be attributed to the parent's interest. In this case, if the subsidiary raises net income in succeeding periods, the income should be attributed to the parent's interest until the accumulated losses that has previously been attributed to the parent are recovered.
Additions to and Selling of Investments in a Subsidiary (Note 9) 1.
If a parent acquires an additional investment in a subsidiary, the portion of the net assets that is additionally acquired should be eliminated from the minority interest and the incremental parent's interest from the additional acquisition (hereafter, "additionally acquired interest") should be offset with the cost of the investment. If there is a difference between the additionally acquired interest and the additional investment, the difference should be accounted for as a consolidated adjustment. (Note 12)
2.
If a parent sells a portion of the investment (as far as the parent-subsidiary relationship remains), the sold interest of the net assets of the subsidiary should be transferred from the parent's interest to the minority interest. If there is a difference between the transferred interest (hereafter, "sold interest") and the sold portion of the investment should be accounted for an adjustment to the gains or losses on the selling of the investment. The already-amortized consolidation adjustments, if any, of the sold portion should be accounted for in the same way. (Note 13)
3.
In such cases that the subsidiary raised capital at market value, any difference between the additional investment and changes in the parent's interest should be accounted for as a gain or loss. If such accounting may mislead significantly the judgments by the interest parties, the difference may be directly charged to the consolidated retained earnings. (Note 13)
Offsetting Rights and Obligations
Accounting for Income Taxes
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VII.
3
Rights and obligations among consolidated entities should be offset and eliminated for consolidation purposes. (Note 14)
1.
Any temporal differences that arise from income taxes or taxes imputed based on the net income of consolidated companies should be allocated over the periods.
2.
A temporal difference is the difference between the assets and liabilities on the consolidated financial statements and the assets and liabilities calculated as a result of determination of taxable income. (Note 15)
3.
Taxes on temporal differences should be recognized as deferred tax assets or liabilities unless the taxes would not be recovered or paid in the future consolidated accounting periods. (Note 16)
In principle, deferred tax assets and deferred tax liabilities should not be offset. VIII.
Application of Equity Method for Investments in Nonconsolidated Subsidiaries and Affiliates 1.
In principle, investments in nonconsolidated subsidiaries and affiliates should be accounted for by the equity method. (Note 17) (Note 18)
2.
An affiliate is a company other than a subsidiary that a parent and its subsidiaries are able to influence in material degree on financial and operating decision making through investment, personnel, finance, technology, trading or other relationships. (Note 19)
A company that shows one of the following indications are assumed as an affiliate unless any counter evidence supports that the company other than a subsidiary is not influenced in material degree on its financial and operating decision making:
3.
a.
A parent and its subsidiaries own in substance 20 percent or more of the voting interest of the company that is not a subsidiary (except that the ownership of 20 percent or more of the voting interest is temporal). (Note 4)
b.
A parent and its subsidiaries own less than 20 percent but certain level of the voting interest of the company, and evidences support that the parent is able to influence in material degree on the financial and operating decision making of the company. (Note 20)
If an invested company that used to be an affiliate but became no longer an affiliate as a result of selling the investments or other reasons, the remaining investments should be measured at the amount carried on the legal-entity financial statements.
If an invested company that used to be a subsidiary but is no longer a subsidiary or an affiliate as a result of selling the investments or other reasons, the remaining investments should be accounted for in the same way. IX.
Display (Note 21) 1.
A consolidated balance sheet should have sections of assets, liabilities, minority interests, and capital (shareholders' equity).
The section of assets should be displayed with categories of current assets, fixed assets, and deferred charges, and the category of fixed assets should further segmented into tangible fixed assets, intangible fixed assets, and investments and other assets.
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The minority interests should be displayed separately after the section of liabilities.
4
The section of liabilities should be displayed with categories of current liabilities and fixed liabilities.
The section of capital should be displayed with categories of stated capital, statutory capital provisions, and surplus other than statutory capital surplus (the last will be called hereafter "consolidated retained earnings"). 2.
Categories or subcategories of current assets, tangible fixed assets, intangible fixed assets, investments and other assets, deferred charges, current liabilities, and fixed liabilities should be in a consistent way displayed clearly with appropriate captions. Investments in nonconsolidated subsidiaries or affiliates, among others, should be displayed separately from other items or displayed clearly in the accompanying notes.
If the consolidated retained earnings include reserves for special purposes under contracts with the third parties, such as reserves for extinguishment of debts, the nature and amounts of those reserves should be disclosed in the accompanying notes. Chapter 5: Guidelines for Preparation of Consolidated Income Statements I.
Basic Principle for Preparation of Consolidated Income Statement
A consolidated income statement should be prepared based on the amounts of revenues and expenses on legalentity income statements of the parent and subsidiaries, with eliminating intercompany transactions among consolidated entities and unrealized gains and losses on the transactions and applying other related procedures. II.
Eliminating Intercompany Transactions among Consolidated Entities
Items related to intercompany transactions between the parent and its subsidiary or among the subsidiaries should be eliminated. (Note 22) III.
IV.
Eliminating Unrealized Gains and Losses 1.
Unrealized gains and losses included in inventories, fixed assets, or other assets that are obtained by intercompany transactions among consolidated entities should be eliminated. For unrealized losses, however, if the cost before eliminating the unrealized losses is not recoverable, the unrealized losses should not be eliminated.
2.
Immaterial unrealized gains or losses may not be eliminated.
3.
If there is a minority interest in the selling subsidiary, the unrealized gains and losses should be allocated between the parent's interest and the minority interest based on the proportionate ownership of the parent's interest and the minority interest.
Display (Note 23) 1.
A consolidated income statement should be displayed with stages of operating income, recurring income, and net income.
The stage of operating income should first display gross selling profits by deducting cost of goods sold from sales, and next display operating income by deducting sales and operating expenses from the gross selling profits.
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The stage of net income should first display, after the stage of recurring income, net income before taxes by adding extraordinary gains and deducting extraordinary losses, and next display net income by adding or deducting income taxes (including local taxes and other business taxes imputed based on the income) and gains or losses attributable to minority interest.
5
The stage of recurring income should display, after the stage of operating income, recurring income by adding nonoperating revenues and deducting nonoperating expenses.
2.
Sales and operating expenses, nonoperating revenues, nonoperating expenses, extraordinary gains, and extraordinary losses should be displayed clearly in a consistent way with appropriate captions.
Chapter 6: Guidelines for Preparation of Consolidated Statements of Retained Earnings I.
II.
Preparation of Consolidated Statements of Retained Earnings 1.
For consolidated retained earnings carried on the consolidated balance sheet, a consolidated statement of retained earnings, which display changes in the earnings, should be prepared.
2.
Changes in consolidated retained earnings should be calculated based on legal-entity consolidated income statements and the appropriations of retained earnings of the parent and its subsidiaries, with eliminating intercompany payments and receipts of dividends among consolidated entities.
3.
Consolidated amounts of appropriations of retained earnings should be calculated based on the appropriations of the parent and its subsidiaries that are performed during the consolidated accounting period. However, the consolidated amounts may be calculated based on the appropriations of the parent and its subsidiaries that relate to the earnings of the accounting period.
Display 1.
A consolidated statement of retained earnings should display, in principle, the beginning balance of consolidated retained earnings, additions to consolidated retained earnings, deductions from consolidated retained earnings, net income, and the ending balance of consolidated retained earnings.
Deductions from consolidated retained earnings should be displayed with categories of dividends (including interim dividends), executives' bonuses, and transfers into stated capital. 2.
A consolidated statement of retained earnings may be combined with a consolidated income statement. In this case, the title of the combined statement should be "consolidated statement of income and retained earnings." (Note 23)
Chapter 7: Notes to Consolidated Financial Statements The following information should be noted. 1.
Consolidation Policy and Related Information
Information about consolidated subsidiaries, nonconsolidated subsidiaries, and nonconsolidated subsidiaries and affiliates in which investments are accounted for by the equity method, and other important information about consolidation policy, as well as material changes, if any, in the consolidation policy. 2.
Differences in Balance Sheet Dates
Accounting Principles and Procedures and Related Information
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3.
6
If the balance sheet date of a subsidiary differs from that of the parent, the balance sheet dates and a summary description of accounting procedures applied to the subsidiary for consolidation purposes.
4.
a.
Measurements of important assets, depreciation methods, and other accounting methods, and changes in such methods, if any, as well as the reasons and influences of the changes.
b.
Summary description of differences in accounting principles and procedures, if any, between the parent and its subsidiaries.
c.
Remeasurements of assets and liabilities of subsidiaries
Appropriations of Retained Earnings
Accounting policy for appropriations of retained earnings for consolidation purposes. 5.
Other Important Information
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Other important information for judgments about financial positions and operating results of the business group. (Note 24)
Interpretive Notes to Accounting Principles for Consolidated Financial Statements (Revised 1997)
by Business Accounting Deliberation Council June 6, 1997
Note 1: Applicability of Materiality (Chapter 2. I and III) In preparing consolidated financial statements, unless interest parties' judgments about financial condition and operating result of a business group are not mislead, the principle of materiality is applicable to determination of the scope of consolidations, determination of the scope of investments accounted for by the equity method, preparation of subsidiary's statements for a period which corresponds to the parent's balance sheet date for consolidation purposes, modification of legal-entity financial statements for consolidation purposes, measurement of assets and liabilities of subsidiaries, amortization of consolidation adjustments, elimination of unrealized gains and losses, and display of consolidated financial statements. Note 2: Modification of Legal-Entity Financial Statements for Consolidation Purposes (Chapter 2. II) If financial statements of parent and subsidiaries do not display appropriately financial condition and operating result because of under-depreciation, over- or under-valuation of assets or liabilities, or other reasons, those financial statements should be modified appropriately for consolidation purposes. However, if the modifications would not affect consolidated financial statements in material respects, those modifications may not be required for consolidation purposes. Note 3: Companies That Do Not Meet the Definition of Subsidiary (Chapter 3. I. 2) If a company is a reorganized, liquidated, bankrupt or other similar company and there is no unity of organization because of no effective control, the company is not a subsidiary. Note 4: In-Substance Ownership of Voting Shares or Interest (Chapter 3. I. 2(a)) If voting shares or interest is owned in a company's account, whomever the ownership is titled to, such as executives of the company, the shares or interest is supposed to be owned in substance by the company. Note 5: Evidence of Control (Chapter 3. I. 2(b))
Because of the existence of shareholders that do not use their votes, the company is able to continuously own the majority of voting shares at the general meetings of the other company.
2.
Because of the existence of related shareholders, such as executives and affiliates, the company is able to continuously own the majority of voting shares at the general meetings of the other company.
4.
Current or former executives or employees of the investing company share the majority of the board of directors of the other company.
5.
There are contracts that control important financial and operating policies of the other company.
Note 6: Nonconsolidation of Small Subsidiaries (Chapter 3. I. 4)
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1.
8
The followings are examples of cases where sufficient evidence exists that a company controls the decision making body of other company:
If a subsidiary is immaterial in assets, sales, and other elements, so that nonconsolidation of the subsidiary would not affect rational judgments about financial conditions and operating result of the business group, the subsidiary may not be consolidated. Note 7: Differences in Balance Sheet Dates (Chapter 3. II. 2) If a difference in the balance sheet dates does not exceed three months, the consolidation may be based on the unmodified financial statements of the subsidiary. In this case, only material differences in accounting records related to intercompany transactions that arise from the difference in balance sheet dates should be modified. Note 8: Remeasurement of Assets and Liabilities of Subsidiary (Chapter 4. II. 1) Even when a reporting entity adopts the partial fair value method, the portion of assets and liabilities of the subsidiary that is attributed to the parent may be remeasured at the date of acquisition of the control if such procedure does not affect in material respects the result of consolidation. Note 9: Acquisition Date of Shares or Control That Differs from the Balance Sheet Date of the Subsidiary (Chapter 4. II. 1 and 2 and Chapter 4. V) If an acquisition date of shares or control differs from the balance sheet date of the subsidiary, the acquisition may be supposed to be done at the nearest balance sheet date from the acquisition date. Note 10: Elimination of Investment and Net Assets (Chapter 4. III. 1) 1.
If a reporting entity adopts the partial fair value method, the portion attributed to the parent of the net assets as of each acquisition date of shares should be offset with the investment and eliminated. The portion attributed to the parent of the retained earnings earned after the acquisition date of shares should be included in the consolidated retained earnings.
2.
If a reporting entity adopts the full fair value method, the portion attributed to the parent of the net assets as of acquisition date of control should be offset with the investment and eliminated. The portion attributed to the parent of the retained earnings earned after the acquisition date of control should be included in the consolidated retained earnings.
Note 11: Minority Interest (Chapter 4. IV. 1) 1.
Stated and additional paid-in capital and retained earnings as of acquisition date of shares or control should be divided into the portion attributed to the parent and the portion attributed to the minority shareholders. The former portion should be offset with the investment by the parent and eliminated, and the latter portion should be accounted for as the minority interest.
2.
Retained earnings earned after the acquisition date of shares or control that are attributed to the minority shareholders should be accounted for as minority interest.
Note 12: Additional Investments in Subsidiaries (Chapter 4. V. 1)
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If a reporting entity adopts the partial fair value method, the additionally acquired interest of the subsidiary that is attributed to the parent should be marked to fair value, and the decreased minority interest should be calculated based on the net assets carried on the legal-entity financial statements of the subsidiary. However, the remeasurement differences are immaterial, the additionally acquired interest may be determined based on the net assets carried on the legal-entity financial statements.
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1.
2.
If a reporting entity adopts the full fair value method, the additionally acquired interest and the decreased minority interest should be determined based on the amount of the accumulated minority interest as of the additional acquisitions.
Note 13: Selling of Investments of the Subsidiaries (Chapter 4. V. 2 and 3) 1.
The sold interest should be determined as the portion corresponding to the sold investments that are previously part of parent's interest.
If a reporting entity adopts the partial fair value method, the increased minority interest should be determined based on legal-entity financial statements of the subsidiary, and the remeasurement differences included in the sold interest should be offset with the corresponding assets and liabilities of the subsidiary. If a reporting entity adopts the full fair value method, the increased minority interest should be the same as the sold interest. Consolidation adjustments that are to be written off as an adjustment to the gains or losses on sales of the investments in subsidiary should be determined as the sold portion of the unamortized consolidation adjustments. 2.
Changes in interest arising from raising capital at market of the subsidiary should be accounted for in a manner similar to the above.
Note 14: Offsetting Rights and Obligations (Chapter 4. VI) 1.
The rights and obligations to be offset include accrued or deferred revenues or expenses that have arisen from intercompany transactions.
2.
If a note issued by a consolidated company is refunded at a bank by another consolidated company, the note should be transferred into debt account on the consolidated balance sheet.
3.
Provisions for credit losses should be reconciled to the amount corresponding to the consolidated loans after the offset of rights and obligations between consolidated companies.
4.
Provisions for which it is clear to be recognized for consolidated companies should be eliminated for consolidation purposes.
5.
If a consolidated company acquires temporally any debt securities issued by another consolidated company, the debt securities may not be offset.
Note 15: Temporal Differences (Chapter 4. VII. 2)
a.
Differences between taxable income and pretax net income that have arisen from the differences in attribution to fiscal periods of revenues and expenses.
b.
Gains or losses on the remeasurement of assets and liabilities of the subsidiary that are not included in taxable income.
Deferred net losses that are probable to be offset with the future taxable income should be accounted for in a way similar to temporal differences.
Note 16: Deferred Taxes (Chapter 4. VII. 3)
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2.
The followings are examples of temporal differences:
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1.
1.
The measurement of deferred tax assets or liabilities should be based on the effective tax rate applicable to the fiscal periods when the assets or liabilities would be recovered or repaid. The recoverability of the deferred tax assets should be reviewed every fiscal year.
2.
Immaterial temporal differences may not be subject to the recognition of deferred tax assets or liabilities.
Note 17: The Equity Method (Chapter 4. VIII. 1) 1.
The equity method is an accounting method under which an investment is modified at every balance sheet date in proportion with changes in the portion of the net assets of the invested company that are attributed to the parent.
2.
Financial statements of an invested company in which an investment is accounted for by the equity method should be modified as if the financial statements are those of a subsidiary. Such procedures include remeasurement of assets and liabilities, inter-period allocation of income taxes, and others. If modification procedures, if any, have only immaterial effect, such procedures may not be applied.
3.
The followings are the procedures of the equity method: a.
Differences between investment at the investment date and the corresponding net assets of the invested company, if any, should be included in the investment account, and accounted for in a manner similar to accounting for consolidation adjustments.
b.
The investing company should recognize a portion attributed to the investing company of the net income or loss of the invested company earned after the investment date, add the amount of the recognized portion to its book amount of the investment, and include the amount in its net income. The amortization of the amount assumed as if consolidation adjustments should be included in the recognized portion.
c.
In recognizing changes in investments and changes to the reporting net income, unrealized gains or losses, if any, on the transactions between investing and invested companies should be modified to eliminate the effect of the unrealized gains or losses.
d.
For applying the equity method, the investing company should use financial statements of the subsidiary for the latest accounting period. However, if there is a difference in accounting period between investing and invested companies, any material transactions or events occurred during the differential period should be considered into modification of the financial statements or disclosure in the accompanying notes.
Note 18: Non-Application of the Equity Method (Chapter 4. VIII. 1) If changes in the investments that would be otherwise arisen from the application of the equity method have only immaterial effect on the consolidated financial statements, the equity method may not be applied. Note 19: Companies That Are Not Affiliates (Chapter 4. VIII. 2)
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Note 20: Evidence to Support Material Influences (Chapter 4. VIII. 2(b))
11
If a company is a reorganized, liquidated, bankrupt or other similar company and there is no material influences on financial and operational policy making of the company, the company is not an affiliate.
Evidence that supports the existence of the material influences on the financial and operating policy making of the other company exists when, for example, there are any contracts that have material influences on the financial and operating policy making of the other company. Note 21: Display of Consolidated Balance Sheet (Chapter 4. IX) 1.
Categories of captions on the consolidated balance sheets should be based on the categories that are used for legal-entity financial statements, but may be aggregated unless the aggregation would cause misunderstanding about financial condition of the business group.
2.
Consolidation adjustments should be displayed as intangible fixed assets or fixed liabilities. If consolidation adjustments occur on both debit and credit, those adjustments may be offset and displayed net.
3.
Investments in own stock or subsidiary's investments in parent's stock should be displayed as deductions from capital in the bottom of the section of capital.
Note 22: Eliminating Transactions between Consolidated Companies (Chapter 5. II) Even when transactions between consolidated companies are performed through any unrelated companies, the transactions should be accounted for as if they are related transactions between consolidated companies, if the transactions are clear to be in substance related transactions. Note 23: Display of Consolidated Income Statement and Consolidated Statement of Retained Earnings (Chapter 5. IV and Chapter 6. II. 2) 1.
Categories of captions on the consolidated income statement should be based on the categories that are used for legal-entity financial statements, but may be aggregated unless the aggregation would cause misunderstanding about operating result of the business group.
2.
If main businesses of a reporting entity include both sales of commodities or products and revenues from services, sales and their costs should be categorized into portions of sales of commodities or products and revenues from services.
3.
Amortization of consolidated adjustments assets should be displayed in the category of sales and administration expenses, and amortization of consolidated adjustments liabilities should be displayed in the category of the nonoperating revenues.
Gains and losses on investments accounted for by the equity method should be displayed in one line in the category of nonoperating revenues or expenses. 4.
If a reporting entity prepares consolidated statement of income and retained earnings, the statement should be displayed in the following format:
Net Income
XXX
Beginning Balance of Consolidated Retained Earnings
XXX XXX
......
XXX XXX
Deductions from Consolidated Retained Earnings Dividends
XXX
Executives' Bonuses
XXX
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......
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Additions to Consolidated Retained Earnings
Stated Capital
XXX
.......
XXX XXX XXX
Ending Balance of Consolidated Retained Earnings
XXX
Note 24: Notes about Material Subsequent Events (Chapter 7. V) Material subsequent events that have occurred before the preparation date of the consolidated financial statements should be disclosed in the notes to the consolidated statements.
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Subsequent events are events that have occurred after the consolidated balance sheet date (for subsidiaries whose balance sheet dates defer from that of the parent, events that have occurred after the balance sheet date of those subsidiaries) and affects financial conditions and operating results for the future accounting periods.
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