Siemens 2007 Annual Report Download - page 223

Notes to Consolidated Financial Statements 223
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
scope of IFRIC 12 are excluded from the scope of IFRIC 4 “Determining whether an
Arrangement Contains a Lease”. The Company plans to adopt IFRIC 12 beginning
October 1, 2008. The involvement of the Company in public-to-private service con-
cession arrangements is currently being evaluated.
In September 2007, the International Accounting Standards Board (IASB) issued
IAS 1, Presentation of Financial Statements (IAS 1). IAS 1 replaces IAS 1, Presentation
of Financial Statements (revised in 2003), as amended in 2005. The revision is
aimed at improving users’ ability to analyze and compare the information given in
fi nancial statements. IAS 1 sets overall requirements for the presentation of fi nan-
cial statements, guidelines for their structure and minimum requirements for
their content. The new standard is effective for fi scal periods beginning on or after
January 1, 2009, early adoption being permitted. The Company will determine the
expected effect of the revised IAS 1 and determine an adoption date.
3 Management estimates and judgments
Certain of these accounting policies require critical accounting estimates that
involve complex and subjective judgments and the use of assumptions, some of
which may be for matters that are inherently uncertain and susceptible to change.
Such critical accounting estimates could change from period to period and have a
material impact on fi nancial condition or results of operations. Critical accounting
estimates could also involve estimates where management reasonably could have
used a different estimate in the current accounting period. Management cautions
that future events often vary from forecasts and that estimates routinely require
adjustment.
Revenue recognition on construction contracts – The Company’s Groups, par-
ticularly PG, TS, I&S, PTD and SBT, conduct a signifi cant portion of their business
under construction contracts with customers. The Company generally accounts for
construction projects using the percentage-of-completion method, recognizing
revenue as performance on a contract progresses. This method places considerable
importance on accurate estimates of the extent of progress towards completion.
Depending on the methodology to determine contract progress, the signifi cant
estimates include total contract costs, remaining costs to completion, total con-
tract revenues, contract risks and other judgments. Management of the operating
Groups continually reviews all estimates involved in such construction contracts
and adjusts them as necessary. The Company also uses the percentage-of-comple-
tion method for projects fi nanced directly or indirectly by Siemens. In order to
qualify for such accounting, the credit quality of the customer must meet certain
minimum parameters as evidenced by the customer’s credit rating or by a credit
analysis performed by Siemens Financial Services (SFS), which performs such
reviews in support of the Company’s Corporate Executive Committee. At a mini-
mum, a customer’s credit rating must be single B from external rating agencies,
or an equivalent SFS-determined rating. In cases where the credit quality does not
meet such standards, the Company recognizes revenue for construction contracts
and fi nanced projects based on the lower of cash if irrevocably received, or con-
tract completion. The Company believes the credit factors used provide a reason-
able basis for assessing credit quality.