Siemens 2006 Annual Report Download - page 164

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
160
Basis of consolidation – The Consolidated Financial Statements include the accounts of
Siemens AG and subsidiaries which are directly or indirectly controlled. Control is generally
conveyed by ownership of the majority of voting rights. Additionally, the Company consoli-
dates variable interest entities (VIE’s) for which it is deemed to be the primary beneficiary.
VIE’s are entities for which either the equity investment at risk is not sufficient to permit the
entity to finance its activities without additional subordinated financial support, or the equity
investors lack an essential characteristic of a controlling financial interest, or the investors’
economic interests are disproportionate to the attached voting rights and substantially all of
the entity’s activities involve or are conducted for an investor with disproportionately few
voting rights. Associated companies – companies in which Siemens has the ability to exercise
significant influence over operating and financial policies (generally through direct or indi-
rect ownership of 20% to 50% of the voting rights) – are recorded in the Consolidated Finan-
cial Statements using the equity method of accounting.
A list of Siemens’ subsidiaries and associated companies is being filed with the Commercial
Registers of the Berlin-Charlottenburg and Munich District Courts.
Business Combinations – All business combinations are accounted for under the purchase
method. The cost of an acquisition is measured at the fair value of the assets given and liabili-
ties incurred or assumed at the date of exchange plus costs directly attributable to the acquisi-
tion. The Company’s share of the identifiable assets and contingent assets acquired, as well as
its share of the liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. The excess of the cost of acquisi-
tion over the fair value of the Company’s share of the identifiable net assets acquired is record-
ed as goodwill.
Foreign currency translation – The assets and liabilities of foreign subsidiaries, where
the functional currency is other than the euro, are translated using period-end exchange rates,
while the statements of income are translated using average exchange rates during the period.
Differences arising from such translations are included as a separate component of share-
holders’ equity.
The exchange rates of the significant currencies of non-euro countries used in the prepara-
tion of the Consolidated Financial Statements were as follows:
Year-end exchange Annual average rate
rate 1 € quoted into 1 € quoted into
currencies specified currencies specified
below below
September 30, Fiscal year
Currency ISO Code 2006 2005 2006 2005
U.S. Dollar USD 1.266 1.204 1.230 1.273
British pound GBP 0.678 0.682 0.685 0.688