Sony 2015 Annual Report Download - page 159

SONY CORPORATION AND CONSOLIDATED SUBSIDIARIES
Income taxes -
The provision for income taxes is computed based on the pretax income included in the consolidated
statements of income, and the tax liability attributed to undistributed earnings of subsidiaries and affiliated
companies accounted for by the equity method expected to be remitted in the foreseeable future. The asset and
liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Carrying amounts of deferred tax assets require a reduction by a valuation allowance if, based on the
available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to
establish valuation allowances for deferred tax assets is assessed periodically with appropriate consideration
given to all positive and negative evidence related to the realization of the deferred tax assets. Management’s
judgments related to this assessment consider, among other matters, the nature, frequency and severity of current
and cumulative losses on an individual tax jurisdiction basis, forecasts of future profitability after consideration
of uncertain tax positions, excess of appreciated asset value over the tax basis of net assets, the duration of
statutory carryforward periods, the past utilization of net operating loss carryforwards prior to expiration, as well
as prudent and feasible tax planning strategies which would be employed by Sony to prevent net operating loss
and tax credit carryforwards from expiring unutilized.
Sony records assets and liabilities for unrecognized tax benefits resulting from uncertain tax positions taken
or expected to be taken in a tax return. Sony continues to recognize interest and penalties, if any, with respect to
income taxes, including unrecognized tax benefits, as interest expense and as income tax expense, respectively,
in the consolidated statements of income. The amount of income taxes Sony pays is subject to ongoing audits by
various taxing authorities, which may result in proposed assessments. In addition, several significant items
related to intercompany transfer pricing are currently the subject of negotiations between taxing authorities in
different jurisdictions as a result of pending advance pricing agreement applications and competent authority
requests. Sony’s estimate for the potential outcome for any uncertain tax issues is judgmental and requires
significant estimates. Sony assesses its income tax positions and records tax benefits for all years subject to
examinations based upon the evaluation of the facts, circumstances and information available at that reporting
date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, Sony records
the amount that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that
has full knowledge of all relevant information. If Sony does not believe that it is more likely than not that a tax
benefit will be sustained, no tax benefit is recognized. However, Sony’s future results may include favorable or
unfavorable adjustments to Sony’s estimated tax liabilities due to closure of income tax examinations, the
outcome of negotiations between taxing authorities in different jurisdictions, new regulatory or judicial
pronouncements or other relevant events. As a result, the amount of unrecognized tax benefits, and the effective
tax rate, may fluctuate significantly.
Net income (loss) attributable to Sony Corporation’s stockholders per share (“EPS”) -
Basic EPS is computed based on the weighted-average number of shares of common stock outstanding
during each period. The computation of diluted EPS reflects the maximum possible dilution from conversion,
exercise, or contingent issuance of securities. All potentially dilutive securities are excluded from the calculation
in a situation where there is a net loss attributable to Sony Corporation’s stockholders.
(2) Recently adopted accounting pronouncements
Reporting discontinued operations and disclosures of disposals of components of an entity -
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-08 that changes the requirements for reporting discontinued operations and requires additional
disclosures about discontinued operations. Under the ASU, only disposals representing a strategic shift in
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