## Notes to Consolidated Financial Statements 

DAIWA SECURITIES GROUP INC. 

Years ended March 31, 2012 and 2011 

## 1. Basis of financial statements 

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: 

– Daiwa Securities Co. Ltd. (“Daiwa Securities”) (Note) 

– Daiwa Securities Capital Markets Co. Ltd. (“Daiwa Securities CM”) (Note) 

– Daiwa Asset Management Co. Ltd. (“DAM”) 

– Daiwa Institute of Research Holdings Ltd. 

– Daiwa Corporate Investment Co., Ltd. 

 (Note) Daiwa Securities (surviving company of merger), and Daiwa Securities CM were merged in an absorption type merger on April 1, 2012. 

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 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 

## 2. Significant accounting policies 

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. 

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 

(“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. 

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. 

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. 

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. 

