Sony 2003 Annual Report Download - page 130

Consolidated Financial Information 2003
44
Critical Accounting Policies
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, 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. On an ongoing basis, Sony evaluates its estimates which are based on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances. The
results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities
and the reported amounts of expenses that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions. Sony believes that the following represent critical accounting
policies of the company that require significant management judgments and estimates.
Impairment of long-lived assets
Sony reviews the carrying value of its long-lived assets held and used and long-lived assets to be disposed of
whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.
This review is performed using estimates of future cash flows by product category (e.g. 15 inch computer display
CRT) or entity (e.g. semiconductor manufacturing division in the U.S.). If the carrying value of the asset is considered
impaired, an impairment charge is recorded for the amount by which the carrying value of the asset exceeds its fair
value. Fair value is determined using the present value of estimated net cash flows or comparable market values.
Management believes that the estimates of future cash flows and fair value are reasonable; however, changes in
estimates resulting in lower future cash flows and fair value due to unforeseen changes in business assumptions
such as a drastic decline of demand for computer display CRTs due to a change in the tastes of consumers could
negatively affect the valuations of those long-lived assets.
In the year ended March 31, 2003, Sony recorded impairment charges for long-lived assets totaling 12.4 billion
yen. It included 8.1 billion yen for the impairment of semiconductor and computer display CRT manufacturing
equipment to be abandoned or sold in connection with certain Electronics restructuring activities. It also included 2.7
billion yen for the impairment of a CD manufacturing facility in the U.S., of which the fair value was estimated by using
such methods as a survey of the local real estate market.
Goodwill and other intangible assets
Goodwill and other intangible assets that are determined to have an indefinite life are not amortized and are
tested for impairment in accordance with FAS No. 142 on an annual basis and between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair value of these assets below their
carrying value. Such an event would include unfavorable variances from established business plans or significant
changes in forecasted results, which are periodically reviewed by management. Specifically, goodwill impairment is
determined using a two-step process. The first step of the goodwill impairment test is used to identify potential