Siemens 2006 Annual Report Download - page 231

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts) 227
Significant differences between German GAAP (HGB) and U.S. GAAP
Basic differences and significant accounting policies
Accounting in accordance with U.S. GAAP varies from German GAAP in its objectives. While
U.S. GAAP focuses on providing useful and beneficial information to investors, German GAAP
emphasizes protection of creditors and pursues a more conservative approach. In addition,
companies listed on a U.S. stock exchange are required to comply with accounting and disclo-
sure rules and regulations released by the Securities and Exchange Commission (SEC). Unlike
German GAAP, U.S. GAAP also requires consolidation of entities based on variable interests
(VIE’s) for which the Company is deemed to be the primary beneficiary disregarding voting
interests.
Presentation of Balance Sheet and Statement of Income
Under U.S. GAAP, assets are presented based on liquidity criteria and liabilities are primarily
presented based on their maturity dates. Balance sheet presentation for German GAAP purpos-
es is set forth in Par. 266 HGB. It classifies assets based on the time the asset is intended to be
used by the Company and distinguishes between equity and liability based on the nature of
the financial source. In addition, U.S. GAAP requires separate income statement disclosure of
discontinued operations for current and prior years while German GAAP requires separate
disclosure for the current year only provided it meets the definition of extraordinary items.
Revenue recognition
Under U.S. GAAP, the Company applies the percentage-of-completion method of accounting
for project businesses. In accordance with Accounting Research Bulletin (ARB) 45, Long-Term
Construction-Type Contracts, and AICPA Statement of Position (SOP) 81-1, Accounting for Per-
formance of Construction-Type and Certain Production-Type Contracts, revenue and gain are
recognized as the project progresses. Under German GAAP, generally, revenue and gain are
recognized at the time the project is complete.
Inventories
In compliance with U.S. GAAP, Siemens applies a full cost recovery basis for inventory valua-
tion purposes. The lower of cost or market principle stipulated in Accounting Research Bul-
letin (ARB) No. 43 results in inventory measurement based on the selling-market more fre-
quently than German GAAP. Accordingly, in certain circumstances, inventory under U.S. GAAP
exceeds inventory under German GAAP.
Marketable securities
Under German GAAP, equity and debt securities are measured at the lower of cost or market.
Under U.S. GAAP, pursuant to Statement of Financial Accounting Standards (SFAS) 115,
Accounting for Certain Investments in Debt and Equity Securities, the Company’s securities
are segregated into available-for-sale securities and trading securities. Those securities are
recognized at fair value under U.S. GAAP. In accordance with SFAS 115, differences between
cost and fair value and changes in fair value of available-for-sale securities are reported in
shareholders’ equity, net of applicable deferred tax, as a component of accumulated other com-
prehensive income until such securities are sold. Changes in fair value of trading securities
are recorded in income at the time those changes occur.
Notes to Consolidated Financial Statements