Daiwa Securities Group Annual Report 2012 Notes to Consolidated Financial Statements DAIWA SECURITIES GROUP INC. Years ended March 31, 2012 and 2011 The consolidated financial statements include the accounts of Daiwa  Securities Group Inc. (“the Company”), established in Japan, and its  subsidiaries (collectively “Daiwa”). Daiwa’s principal subsidiaries include: (“Japanese GAAP”), which are different in certain respects as to  application and disclosure requirements of International Financial  Reporting Standards (“IFRS”). The financial statements prepared by  foreign subsidiaries in accordance with IFRS or the generally  accepted accounting principles in the United States (U.S. GAAP)  tentatively can be used for the consolidation process with adjusting  certain items such as amortization of goodwill. The accounts of  other overseas consolidated subsidiaries are maintained in confor- mity with generally accepted accounting principles and practices  prevailing in the respective countries of domicile. The accompany- ing consolidated financial statements have been prepared by  adjusting the difference in accounting policies from Japanese  GAAP, if any.  (Note) Daiwa Securities (surviving company of merger), and Daiwa  Securities CM were merged in an absorption type merger on April 1,  2012. 1. Basis of financial statements – Daiwa Securities Co. Ltd. (“Daiwa Securities”) (Note) – Daiwa Securities Capital Markets Co. Ltd. (“Daiwa Securities CM”)  (Note) – Daiwa Asset Management Co. Ltd. (“DAM”) – Daiwa Corporate Investment Co., Ltd. – Daiwa Institute of Research Holdings Ltd. The accompanying consolidated financial statements have been  restructured and translated into English (with some additional expla- nations described solely for the convenience of the readers outside  of Japan) from the consolidated financial statements prepared by  the Company in accordance with Japanese GAAP and filed to the  appropriate Local Finance Bureau of the Ministry of Finance as  required by the Financial Instruments and Exchange Act. Some  supplementary information included in the statutory Japanese   language consolidated financial statements, but not considered  necessary for fair presentation, is not presented in the accompany- ing consolidated financial statements. Daiwa Securities is a retail broker-dealer. Daiwa Securities operates  through a network of 120 offices as well as non-face-to-face channels,  including the Internet and a full-fledged call center to provide online and  telephone-based securities-related services. Daiwa Securities CM  operates our wholesale business, encompassing global capital markets  business and global investment banking business. DAM is the asset  management company of Daiwa. Daiwa is primarily engaged in the business of a securities broker- dealer, pursuant to which Daiwa provides services including brokerage,  trading, underwriting, strategic advice, product development, and  structured finance. In addition, Daiwa provides asset management,  investment business and other business through a network in major  capital markets. The translations of the yen amounts into U.S. dollars are included  solely for the convenience of the reader, using the prevailing exchange  rate at March 31, 2012, which was ¥82 to U.S.$1. The convenience  translations should not be construed as representations that the yen  amounts have been, could have been, or could be, converted into U.S.  dollars at this or any other rate of exchange. The Company and its domestic consolidated subsidiaries main- tain their official accounting records in yen and in accordance with  the provisions set forth in the Japanese Financial Instruments and  Exchange Act and its related accounting regulations, and in con- formity with generally accepted accounting principles in Japan  Consolidation— The consolidated financial statements include the  accounts of the Company and the entities which are controlled by the  Company, directly or indirectly. Control exists generally when Daiwa  holds more than 50% of the voting rights of the entity. Also, control is  regarded to exist when Daiwa holds 40% or more of the voting rights  of an entity and there are certain facts and circumstances which  indicate that Daiwa controls the decision making body of the entity.  significant influence over the entity’s operating and financial policies.  The ability to exercise such significant influence is generally regarded to  exist when Daiwa holds 20% or more but 50% or less of the voting  rights of the entity, or 15% or more of the voting rights coupled with  certain facts and circumstances which indicate that Daiwa can   exercise significant influence over the entity’s operating and financial  policies. As with the policy and considerations for consolidation,  investee entities are excluded from the scope of the equity method  even though Daiwa holds significant influence, when the investee entity  is held as part of the principal investment or for venture capital invest- ment business purposes. Goodwill and negative goodwill which was generated before March  31, 2010 are amortized under the straight-line method within 20 years.  In case of no materiality, it is amortized in a lump sum when it accrues. Material inter-company balances, transactions and profits have  been eliminated in consolidation. Investee entities which meet the conditions of “Guidance on   Determining a Subsidiary and an Affiliate” (Accounting Standards  Board of Japan (“ASBJ”) Guidance No. 22, issued on May 13, 2008)  are excluded from the consolidation even though Daiwa has control of  them such as when the investee entity is held for principal investment  or venture capital investment business purposes where the objective  for Daiwa to have control of the investee entity is merely to seek capi- tal gain opportunities and, Daiwa does not intend to operate its busi- ness with the entity as a part of the group. Daiwa accounts for its investment by the equity method of account- ing if Daiwa does not have control of an entity but can exercise  67 2. Significant accounting policies