Siemens 2008 Annual Report Download - page 228

132 Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
Financial liabilities – Siemens measures nancial liabilities, except for derivative nancial instruments,
at amortized cost using the effective interest method.
Derivative nancial instruments – Derivative nancial instruments, such as foreign currency exchange con-
tracts and interest rate swap contracts, are measured at fair value. Derivative instruments are classied as held
for trading unless they are designated as hedging instruments, for which hedge accounting is applied. Changes
in the fair value of derivative nancial instruments are recognized periodically either in net income or, in the
case of a cash ow hedge, in Other components of equity, net of applicable deferred income taxes. Certain deriva-
tive instruments embedded in host contracts are also accounted for separately as derivatives.
Fair value hedges – The carrying amount of the hedged item is adjusted by the gain or loss attributable to the
hedged risk. Where an unrecognized rm commitment is designated as the hedged item, the subsequent cumu-
lative change in its fair value is recognized as a separate nancial asset or liability with corresponding gain or
loss recognized in net income.
For hedged items carried at amortized cost, the adjustment is amortized such that it is fully amortized by matu-
rity of the hedged item. For hedged rm commitments the initial carrying amount of the assets or liabilities that
result from meeting the rm commitments are adjusted to include the cumulative changes in the fair value that
were previously recognized as separate nancial assets or liabilities.
Cash ow hedges – The effective portion of changes in the fair value of derivative instruments designated as
cash ow hedges are recognized in Other components of equity, net of applicable deferred income taxes, and any
ineffective portion is recognized immediately in net income. Amounts accumulated in equity are reclassied
into net income in the same periods in which the hedged item affects net income (see Note 32 for further infor-
mation).
Share-based payment – As permitted under IFRS 1, First-time Adoption of International Financial Reporting
Standards, IFRS 2, Share-based Payment, has not been retrospectively applied to all share-based payment
awards. This exemption has been applied for all equity awards which were granted prior to November 7, 2002, as
well as those equity awards granted prior to October 1, 2003, which vested before January 1, 2005. IFRS 2 distin-
guishes between cash-settled and equity-settled share-based payment transactions. For both types, the fair value
is measured at grant date and the compensation expense is allocated over the period during which the employ-
ees become unconditionally entitled to the awards. Cash-settled awards are remeasured at fair value on each
reporting date until the award is settled. Siemens uses an option pricing model to determine the fair value of its
share-based payment plans. See Note 34 for further information on share-based payment transactions.
Prior year information – The presentation of certain prior year information has been reclassied to conform to
the current year presentation.
Recently adopted accounting pronouncements
In August 2005, the International Accounting Standards Board (IASB) issued IFRS 7, Financial Instruments:
Disclosures. This standard requires extensive disclosures about the signicance of nancial instruments for an
entity’s nancial position and results of operations, and qualitative and quantitative disclosures on the nature
and extent of risks arising from nancial instruments. The standard is effective for scal periods beginning on
or after January 1, 2007. Siemens decided to early adopt IFRS 7 in its 2006 nancial statements. IFRS 7 was also
considered in determining the presentation of items on the face of the Consolidated Balance Sheets and the
Consolidated Statements of Income.