Siemens 2006 Annual Report Download - page 248

International Financial Reporting Standards
(in millions of €)
244
Besides pensions, differences in the accounting for other long-term post-employment bene-
fits affected equity and net income. Other long-term post-employment benefits are employee
benefits that are paid regardless of the reason for the employee’s departure. Differences
between the aforementioned amounts and the amounts provided in the tables above resulted
primarily from such benefits.
g. Termination benefits
A significant portion of the adjustments resulting from termination benefits relates to the par-
tial retirement program available to Siemens’ employees in Germany. The majority of partici-
pants opted for a partial retirement arrangement that is typically composed of a full-time serv-
ice period and an inactive period, where the employee receives 50% of the salary for each year
during the entire partial retirement period. In addition, participants receive an annual bonus
and a severance payment at the end of the inactive period. While under U.S. GAAP both the
annual bonus to be paid in the inactive period and the severance payment are recognized as
expense on a pro rata basis over the service period, IFRS requires that these benefit elements
of the partial retirement arrangement are recognized in full as expense immediately when a
partial retirement agreement is established. Adjustments to partial retirement obligations
reduced equity under IFRS by €213, €296 and €369 as of September 30, 2006 and 2005, and
October 1, 2004, respectively, whereas net income increased by €82 and €73 in 2006 and 2005,
respectively.
Another difference between U.S. GAAP and IFRS arises from voluntary termination agree-
ments. Under U.S. GAAP, a liability is recognized only when a voluntary termination agree-
ment has been signed by both the employer and the employee. By contrast, under IFRS, a lia-
bility is recognized when the employer has irrevocably committed itself to grant a termination
benefit. Such agreements resulted in lower equity under IFRS than under U.S. GAAP by €319,
€8 and €5 as of September 30, 2006 and 2005, and October 1, 2004, respectively. Net income
decreased by €313 and €3 for the years ended September, 30, 2006 and 2005, respectively.
h. Provisions
Under IFRS, provisions generally must be discounted and recognized at present value at each
balance sheet date, i.e. the discount rate should be adjusted at each reporting date to reflect
current market conditions. In contrast, under U.S. GAAP, discounting of provisions is limited
to specific cases, such as to asset retirement obligations, whereby U.S. GAAP requires such
obligations be discounted only using the discount rate determined when the provision is ini-
tially recognized. With respect to asset retirement obligations, applicable interest rates were
therefore different for IFRS compared to U.S. GAAP. Due to a lower discount rate under IFRS,
the present values to be recognized under IFRS increased with a negative effect on equity of
€85 as of October 1, 2004. A continuing decline in the discount rate in fiscal 2005 led to a sig-
nificant increase in the present value with a corresponding decrease in equity of €219 as of
September 30, 2005 and in net income of €134 in 2005. As of September 30, 2006 equity under
IFRS was €157 lower than under U.S. GAAP, whereas net income was €62 higher due to an
increase in the discount rate in fiscal 2006 as compared to 2005.
This reconciling item contains various other differences with respect to recognition and
measurement of provisions, such as provisions for vacant property and contingent liabilities
with a range of possible outcomes where each point in that range is as likely as any other.