Siemens 2005 Annual Report Download - page 122
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122
The assumptions used for the calculation of net periodic pension cost in fiscal 2006 have
already been determined. A one percentage point increase (decrease) in the discount rate
assumption would result in a decrease (increase) in net periodic pension cost of €255 (€328) mil-
lion. A one percentage point change in the assumption for expected return on plan assets would
result in a decrease (increase) of €200 million. A one percentage point increase (decrease) in the
rates of compensation increase and pension progression would result in a combined increase
(decrease) of €313 (€265) million. If more than one of these assumptions were changed simulta-
neously, the cumulative impact would not necessarily be the same as if only one assumption was
changed in isolation. For a discussion of our current funding status and the impact of these criti-
cal assumptions, see “Notes to Consolidated Financial Statements.”
Accruals – Significant estimates are involved in the determination of provisions related to
contract losses and warranty costs. A significant portion of the business of certain of our operat-
ing Groups is performed pursuant to long-term contracts, often for large projects, in Germany
and abroad, awarded on a competitive bidding basis. Siemens records an accrual for contract
losses when current estimates of total contract costs exceed contract revenue. Such estimates are
subject to change based on new information as projects progress toward completion. Loss con-
tracts are identified by monitoring the progress of the project and updating the estimate of total
contract costs which also requires significant judgment relating to achieving certain perform-
ance standards, for example in the IT service business, and estimates involving warranty costs.
Management’s discussion and analysis
Critical accounting estimates
Risk management