SMFG Notes to Consolidated Financial Statements As for the individual hedges, SMBC assesses the  effectiveness of such individual hedges. As a result of the application of JICPA Industry Audit  Committee Report No. 24, SMBC discontinued the  application of hedge accounting or applied fair value hedge  accounting to a portion of the hedging instruments using  “macro hedge,” which had been applied in order to manage  interest rate risk arising from large-volume transactions  in loans, deposits and other interest-earning assets and  interest-bearing liabilities as a whole using derivatives  pursuant to “Temporary Treatment for Accounting and  Auditing of Application of Accounting Standard for  Financial Instruments in Banking Industry” (JICPA  Industry Audit Committee Report No. 15). The deferred  hedge losses and gains related to such a portion of hedging  instruments are charged to “Interest income” or “Interest  expenses” over a 12-year period (maximum) according to  their maturity from the fiscal year ended March 31, 2004.  Gross amounts of deferred hedge losses on “macro hedge”  (before deducting tax effect) at March 31, 2011 and 2010  were ¥999 million ($12 million) and ¥2,470 million,  respectively. Gross amounts of deferred hedge gains on  “macro hedge” (before deducting tax effect) at March  31, 2011 and 2010 were ¥960 million ($12 million) and  ¥2,416 million, respectively. and other accounts (or among internal sections), SMBC  manages the interest rate swaps and currency swaps that  are designated as hedging instruments in accordance with  the non-arbitrary and strict criteria for external transac- tions stipulated in JICPA Industry Audit Committee  Report No. 24 and No. 25. Therefore, SMBC accounts for  the gains or losses that arise from interest rate swaps and  currency swaps in its earnings or defers them, rather than  eliminating them. Certain other consolidated subsidiaries apply the  deferred hedge accounting, fair value hedge accounting or  the special treatment for interest rate swaps. A consolidated  domestic subsidiary (a leasing company) partly applies  the accounting method that is permitted by “Temporary  Treatment for Accounting and Auditing of Application of  Accounting Standard for Financial Instruments in Leasing  Industry” (JICPA Industry Audit Committee Report  No. 19). SMBC applies deferred hedge accounting stipulated in  “Treatment of Accounting and Auditing Concerning  Accounting for Foreign Currency Transactions in Banking  Industry” (JICPA Industry Audit Committee Report  No. 25) to currency swap and foreign exchange swap trans- actions executed for the purpose of lending or borrowing  funds in different currencies. Pursuant to JICPA Industry Audit Committee Report  No. 25, SMBC assesses the effectiveness of currency swap  and foreign exchange swap transactions executed for  the purpose of offsetting the risk of changes in currency  exchange rates by verifying that there are foreign-currency  monetary claims and debts corresponding to the foreign- currency positions. In order to hedge risk arising from volatility of exchange  rates for stocks of subsidiaries and affiliates and other  securities (excluding bonds) denominated in foreign  currencies, SMBC applies deferred hedge accounting or  fair value hedge accounting, on the conditions that the  hedged securities are designated in advance and that suf- ficient on-balance (actual) or off-balance (forward) liability  exposure exists to cover the cost of the hedged securities  denominated in the same foreign currencies. SMBC applies fair value hedge accounting to individual  hedges offsetting the price fluctuation of the shares that are  classified under other securities, and that are held for the  purpose of strategic investment, and accordingly evaluates  the effectiveness of such individual hedges. As for derivative transactions between consolidated sub- sidiaries or internal transactions between trading accounts  For the purposes of presenting the consolidated statements of  cash flows, cash and cash equivalents represent cash and due  from banks. National and local consumption taxes of SMFG and its  consolidated domestic subsidiaries are accounted for using the  tax-excluded method. Assets and liabilities of consolidated subsidiaries including the  portion attributable to the minority stockholders are valued  for consolidation at fair value when SMFG acquires control. Goodwill on SMBC Friend Securities Co., Ltd., Sumitomo  Mitsui Finance and Leasing Company, Limited, Nikko Cordial  Securities Inc., Kansai Urban Banking Corporation and  Cedyna Financial Corporation is amortized using the straight- line method over 20 years. Goodwill on other companies  is charged or credited to income directly when incurred or  benefited. (18) Amortization of goodwill (b) Hedging against currency fluctuations (c) Hedging against share price fluctuations (d) Transactions between consolidated subsidiaries (22) Application of new accounting standards (21) Valuation of consolidated subsidiaries’ assets and liabilities (20) Consumption taxes (19) Statements of cash flows SMFG  2011 81 Millions of yen Monetary claims bought ................................... ¥ 8,710 Securities .......................................................... 41,914 Net unrealized gains (losses) on other securities ........................................... 39,315 Deferred tax assets ............................................ (27,056) Reserve for possible loan losses ......................... (34,999) (a) Accounting standard for financial instruments “Accounting Standard for Financial Instruments” (ASBJ  Statement No. 10, partially revised on March 10, 2008)  and “Implementation Guidance on Disclosures about Fair  Value of Financial Instruments” (ASBJ Guidance No. 19,  issued on March 10, 2008) became effective from the  fiscal year ending on and after March 31, 2010. SMFG  has applied them from the fiscal year ended March 31,  2010. Accordingly, this accounting change had the fol- lowing impact on the consolidated financial statements as  compared with the previous accounting method: