Sony 2001 Annual Report Download - page 100

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Sony Corporation Annual Report 2001
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sony Corporation and Consolidated Subsidiaries
1. Nature of operations
Sony Corporation and consolidated subsidiaries (hereinafter collectively referred to as “Sony”) are engaged in the
development, design, manufacture, and sale of various kinds of electronic equipment, instruments, and devices for
consumer and industrial markets. Sony also develops, produces, manufactures, and markets home-use game
consoles and software. Sony’s principal manufacturing facilities are located in Japan, the United States of America,
Europe, and Asia. Its electronic products are marketed throughout the world and game products are marketed
mainly in Japan, the United States of America and Europe by sales subsidiaries and unaffiliated local distributors as
well as direct sales via the Internet. Sony is engaged in the development, production, manufacture, and distribution
of recorded music, in all commercial formats and musical genres. Sony is also engaged in the development, produc-
tion, manufacture, marketing, distribution and broadcasting of image-based software, including film, video, and
television. Further, Sony conducts insurance operations through a Japanese life insurance subsidiary and non-life
insurance subsidiaries. In addition to the above, Sony is engaged in a financial business through leasing and credit
financing operations in Japan, satellite distribution services including program supplying businesses in Japan, an
advertising agency business in Japan, Internet-related businesses, location-based entertainment businesses in
Japan, the United States of America and Germany, and others.
2. Summary of significant accounting policies
Sony Corporation and its subsidiaries in Japan maintain their records and prepare their financial statements in
accordance 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 the
countries of their domiciles. Certain adjustments and reclassifications have been incorporated in the accompanying
consolidated financial statements to conform with accounting principles generally accepted in the United States of
America (“U.S. GAAP”). These adjustments were not recorded in the statutory books of account.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
(1) Accounting changes:
Film accounting—
In June 2000, Sony elected early adoption of Statement of Position (“SOP”) 00-2, “Accounting by Producers or
Distributors of Films” issued by the Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants (“AcSEC”). SOP 00-2 established new film accounting standards, including changes
in revenue recognition and accounting for advertising, development and overhead costs. Specifically, SOP 00-2
requires all exploitation costs, such as advertising expenses and marketing costs, for theatrical and television
product to be expensed as incurred. This compares to Sony’s previous policy of first capitalizing and then
expensing advertising costs for theatrical and television product over the related revenue streams. In addition,
SOP 00-2 requires development costs for abandoned projects and certain indirect overhead costs to be charged
directly to expense, instead of those costs being capitalized to film costs, which was required under the previous
accounting standards. SOP 00-2 also requires all film costs to be classified in the balance sheet as non-current
assets. The provisions of SOP 00-2 in other areas, such as revenue recognition, generally are consistent with
Sony’s existing accounting policies.