Siemens 2005 Annual Report Download - page 132

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Research and development costs – U.S. GAAP generally requires R&D costs to be expensed
as incurred. Separate rules apply to software development costs, which may qualify for capitaliza-
tion under certain circumstances. Under IFRS, a distinction is to be made between research and
development. All costs identified as research costs are to be expensed as incurred, whereas devel-
opment costs are to be capitalized and amortized if specified criteria are met.
Compound financial instruments – Convertible instruments – Under U.S. GAAP, convert-
ible instruments whose terms and conditions grant the issuer the right to settle the option in
cash upon conversion are treated as a unit and are recorded as a liability in the consolidated
financial statements. The conversion right is not accounted for separately. Under IFRS, a com-
pound financial instrument with a cash settlement option is divided into separate liability com-
ponents at inception. The conversion right component is considered a derivative instrument
which is reported as a liability at fair value. The residual liability component representing the
debt obligation is measured at fair value at inception and will accrete subsequently due to the
recognition of imputed discount calculated on the carrying amount of the residual liability com-
ponent at the beginning of each year.
Pension accounting – Fresh start – In accordance with IFRS 1, First-time Adoption of Inter-
national Financial Reporting Standards, Siemens will not retrospectively apply the provisions
of IAS 19 Employee Benefits to its defined benefit (DB) pension plans since their respective incep-
tion dates. Accordingly the net pension liability or asset for each DB pension plan will be based
on the actuarially determined defined benefit obligation (DBO) less the fair value of qualifying
pension assets as of October 1, 2004. Differences to the recorded amounts under U.S. GAAP will be
reflected in opening retained earnings. Due to the significance of unrecognized losses incurred
by Siemens in prior years, we anticipate the effect of this “fresh start” to result in the most signifi-
cant impact from our IFRS adoption on our financial position and results of operations.
Annual Report/Form 20-F disclosure differences
In addition to this Annual Report, Siemens prepares and files an “Annual Report on Form 20-F”
with the U.S. Securities and Exchange Commission (SEC) as a foreign private issuer. The Form
20-F and this Annual Report are not identical.
In particular, this Annual Report includes a quantification of our economic value added (EVA)
measure, because a significant portion of our management's incentive compensation is tied to
EVA targets. We provide disclosure of how the measure is calculated and how investors should use
this information. Form 20-F does not include this information.
Our Annual Report on Form 20-F is available on our website at www.siemens.com.
Management’s discussion and analysis
Accounting under International Financial Reporting
Standards (IFRS)
Annual Report/Form 20-F disclosure differences
Outlook