7. Consolidated Statements of Cash Flows |
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 Significant Matters Pertaining to the Preparation of Consolidated Financial Statements The consolidated financial statements of NTT have been prepared in conformity with accounting principles generally accepted in the United States of America (Accounting Principles Board Opinions, Statements of Financial Accounting Standards, etc.) 1. Change in Accounting Policy NTT changed its accounting policy in the second half of the year ended March 31, 2004 with regards to accounting for transactions where subsidiaries issue shares to third parties at amounts in excess of or less than NTT's average carrying value. The effect of this accounting change was to adopt the policy as of the beginning of the year ended March 31, 2004. Previously, NTT recognized gains and losses arising from these transactions in income for the year in which the change in interest occurred. NTT has changed its policy to recognize these gains and losses in equity, as permitted by Staff Accounting Bulletin ("SAB") No. 51, "Accounting for sales of stock by a subsidiary." This change has been made because, based on the current year's activity and potential future transactions, NTT concluded it probable that similar future transactions in respect of a change in interest in investee companies may occur twice or more in a short period. As a result, NTT believes these gains are more appropriately recorded in equity. Adoption of this change in policy does not require a cumulative effect change as equity appropriately reflects prior gains. However, as the change is effective from April 1, 2003, a gain of yen49,269 million recorded in earnings for the six months ended September 30, 2003 is recognized in equity under the revised policy. 2. Application of New Accounting Standard Accounting for Asset Retirement Obligations Effective April 1, 2003, NTT Group adopted Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations." SFAS 143 requires that legal obligations associated with the retirement of tangible long-lived assets be recorded as liabilities, measured at fair value, when those obligations are incurred if a reasonable estimate of fair value can be made. Upon initially recognizing the liability for asset retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. NTT Group's asset retirement obligations subject to SFAS 143 primarily relate to those to restore leased land and buildings for NTT Group's telecommunications equipment to their original condition. However, NTT concluded that the fair value of the liabilities would be immaterial. The adoption of SFAS 143 did not have a material impact on the results of operations or the financial position of NTT Group. 3. Principal Accounting Policies (1) Marketable Securities SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities" applies. (2) Inventories Inventories are stated at cost, not in excess of market value. The cost of telecommunications equipment to be sold is determined by the first-in first-out method. (3) Property, Plant, and Equipment and Depreciation Property, plant, and equipment are stated at cost. Depreciation is computed principally using the declining-balance method with the exception of buildings for which the straight-line method. (4) Goodwill and Other Intangible Assets SFAS 142, "Goodwill and Other Intangible Assets" applies. (5) Liabilities for Employees' Severance Payments SFAS 87, "Employers' Accounting for Pensions" and SFAS 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination of Benefits" apply. (6) Derivative Financial Instruments SFAS 133, "Accounting for Derivatives Instruments and Hedging Activities," SFAS 138 "Accounting for Certain Derivatives Instruments and Certain Hedging Activities, an amendment of SFAS No. 133" and SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" apply. (7) Income Taxes Income taxes are computed on income (loss) before income taxes in the consolidated statements of income. According to the asset and liability approach, the expected future consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and of operating loss carryforward are recognized as deferred tax assets or liabilities. [Reference] Details of "Cost of services," "Cost of equipment sold," "Cost of system integration" and "Selling, general and administrative expenses" ![[Reference]](gif/040514b_09b.gif)
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