Siemens 2011 Annual Report Download - page 270

6 A. To our shareholders 51 C. Combined management’s discussion and analysis 23 B. Corporate Governance
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Derivative financial instruments – Derivative financial in-
struments, such as foreign currency exchange contracts and
interest rate swap contracts, are measured at fair value. Deriv-
ative financial instruments are classified as held for trading
unless they are designated as hedging instruments, for which
hedge accounting is applied. Changes in the fair value of de-
rivative financial instruments are recognized periodically ei-
ther in net income or, in the case of a cash flow hedge, in line
item Other comprehensive income, net of tax (applicable de-
ferred income taxes). Certain derivative instruments embed-
ded in host contracts are also accounted for separately as de-
rivatives.
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 firm commitment is designated as
hedged item, the subsequent cumulative change in its fair
value is recognized as a separate financial asset or liability
with corresponding gain or loss recognized in net income.
For hedged items carried at amortized cost, the adjustment is
amortized until maturity of the hedged item. For hedged firm
commitments the initial carrying amount of the assets or lia-
bilities that result from meeting the firm commitments are
adjusted to include the cumulative changes in the fair value
that were previously recognized as separate financial assets
or liabilities.
Cash flow hedges – The effective portion of changes in the
fair value of derivative instruments designated as cash flow
hedges are recognized in line item Other comprehensive in-
come, net of tax (applicable deferred income taxes), and any
ineffective portion is recognized immediately in net income.
Amounts accumulated in equity are reclassified into net in-
come in the same periods in which the hedged item affects
net income. For additional information see
Note 32 Deriva-
tive financial instruments and hedging activities.
Share-based payment – IFRS , Share-based payment, distin-
guishes between cash-settled and equity-settled share-based
payment transactions. For both types, the fair value is mea-
sured at grant date and compensation expense is recognized
over the vesting period during which the employees become
unconditionally entitled to the awards granted. Cash-settled
awards are re-measured at fair value at the end of each report-
ing period and upon settlement. Siemens uses an option pric-
ing model to determine the fair value of stock options. The
fair value of other share-based awards, such as stock awards,
matching shares, and shares granted under the Jubilee Share
Program, is determined as the market price of Siemens shares,
considering dividends during the vesting period the grantees
are not entitled to and market conditions and non-vesting
conditions, if applicable. See
Note 34 Share-based payment
for further information on share-based awards.
Prior-year information – The presentation of certain prior-
year information has been reclassified to conform to the cur-
rent year presentation. Specifically, gains from the sale of in-
vestments accounted for using the equity method were re-
classified to line item Income (loss) from investments ac-
counted for using the equity method amounting to € mil-
lion in fiscal . The fiscal  amounts of trade receivables
and trade payables from the sale of goods and services with
maturity dates of more than twelve months were reclassified
from non-current Other financial assets amounting to €
million and from non-current Other financial liabilities
amounting to € million, respectively, to current line items
Trade and other receivables and Trade Payables due to its
business operations reference. Siemens adjusted prior period
information on related party transactions to conform to the
current year presentation. In May , the IASB issued a
standard for improvements to International Financial Report-
ing Standards. In the Consolidated Statements of Cash Flow,
according to an amendment of IAS , Statement of Cash
Flows, cash flows to manufacture or acquire assets held for
rental and subsequent sale in the course of the ordinary activ-
ities are presented as cash flows from operating activities. Pre-
viously, cash outflows in the context of operating leases have
been presented as cash flows from investing activities.
RECENTLY ADOPTED ACCOUNTING
PRONOUNCEMENTS
In January , the IASB published the revised standards
IFRS , Business Combinations (IFRS  ()) and IAS , Con-
solidated and Separate Financial Statements (IAS  ())
which were endorsed in fiscal . The revised standards are
effective for business combinations in annual periods begin-
ning on or after July ,  and were applied by the Company
as of fiscal  including its consequential amendments to
IFRS , IFRS  and IAS , Financial Instruments: Recognition
and Measurement (IAS ).
IFRS  () reconsiders the application of acquisition ac-
counting for business combinations. Major changes relate to
the measurement of non-controlling interests, the accounting
for business combinations achieved in stages as well as the
treatment of contingent consideration and acquisition-related