Siemens 2006 Annual Report Download - page 232

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
228
Accrued pension costs
Under U.S. GAAP, as set forth in SFAS 87, Employers’ Accounting for Pensions, pension obliga-
tions are recorded based on the “Projected Unit Credit Method”. Due to interest rates applied
based on current market rates and the accounting for compensation increases and pension
trends, this method allows to better approximate the fair value of the pension obligation than
the German tax driven methodology.
At the end of March 2000, the Company formed a pension trust to which it transferred cer-
tain assets to fully cover its domestic pension obligations. The pension trust meets the criteria
of a funded pension plan under U.S. GAAP. As a result, accrued liabilities and total assets are
reduced on the Company’s U.S. GAAP balance sheet, resulting in changed balance sheet ratios.
The formation of the pension trust has no impact on the Company’s accounting for domestic
pension assets and pension obligations under German GAAP.
Other accruals
Under U.S. GAAP, contingent losses are accrued when an obligation towards a third party
exists, it is probable that a contingent loss exists and the amount of the obligation can be rea-
sonably estimated as stipulated in SFAS 5, Accounting for Contingencies. The accrued amount
is determined using the most probable estimate or, if there is a range of equally probable
amounts, the lowest amount is accrued. Under German GAAP contingent losses are measured
following the principle of conservatism.
Intangible assets
As set forth in SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use, and SFAS 86, Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed, development costs for software to be marketed or for internal
use are to be capitalized. Under German GAAP, costs for internally generated intangible assets
qualifying as long-term assets (for internal use) shall not be capitalized.
In accordance with SFAS 142, Goodwill and Other Intangible Assets, intangible assets with
finite useful lives are amortized on a straight-line basis over their respective estimated useful
lives to their estimated residual values. Goodwill and intangible assets other than goodwill
which are determined to have indefinite useful lives are not amortized, but instead tested for
impairment at least annually and, if applicable, written down to their respective fair value.
Under German GAAP, goodwill and other intangible assets are amortized over their respec-
tive useful lives which generally do not exceed 20 years.
Leasing
Valuation differences between U.S. GAAP and German GAAP resulting from operating leases
and capital leases entered into by Siemens Financial Services (SFS) are not significant, since
the Company’s accounting procedures – in the absence of explicit regulations under German
GAAP – generally reflect U.S. GAAP rules (SFAS 13, Accounting for Leases).