Siemens 2015 Annual Report Download - page 71

Consolidated Financial Statements 
quoted market price in an active market, and decisive parame-
ters cannot be reliably estimated to be used in valuation mod-
els for the determination of fair value. Siemens considers all
available evidence such as market conditions and prices, in-
vestee-specific factors and the duration as well as the extent to
which fair value is less than acquisition cost in evaluating po-
tential impairment of its available-for-sale financial assets. The
Company considers a decline in fair value as objective evidence
of impairment, if the decline exceeds  % of costs or continues
for more than six months.
Loans and receivables – Financial assets classified as loans
and receivables are measured at amortized cost using the ef-
fective interest method less any impairment losses. Impair-
ment losses on trade and other receivables are recognized us-
ing separate allowance accounts. The allowance for doubtful
accounts involves significant management judgment and re-
view of individual receivables based on individual customer
creditworthiness, current economic trends and analysis of his-
torical bad debts on a portfolio basis. For the determination of
the country-specific component of the individual allowance,
Siemens also considers country credit ratings, which are cen-
trally determined based on information from external rating
agencies. Regarding the determination of the valuation allow-
ance derived from a portfolio-based analysis of historical bad
debts, a decline of receivables in volume results in a corre-
sponding reduction of such provisions and vice versa. As of
September ,  and , Siemens recorded a valuation
allowance for trade and other receivables (including leases) of
€ , million and € , million, respectively.
Financial liabilities – Siemens measures financial liabilities,
except for derivative financial instruments, at amortized cost
using the effective interest method.
Derivative financial instruments – Derivative financial in-
struments, such as foreign currency exchange contracts and
interest rate swap contracts are measured at fair value and clas-
sified as held for trading unless they are designated as hedging
instruments, for which hedge accounting is applied. Changes
in the fair value of derivative financial instruments are recog-
nized either in net income or, in the case of a cash flow hedge,
in line item Other comprehensive income, net of income taxes
(applicable deferred income tax). Certain derivative instru-
ments embedded in host contracts are also accounted for sep-
arately 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 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 liabil-
ities that result from meeting the firm commitments are ad-
justed to include the cumulative changes in the fair value that
were previously recognized as separate financial assets or lia-
bilities.
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 income, net
of income taxes (applicable deferred income tax), and any inef-
fective 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.
Share-based payment – Share-based payment awards at
Siemens are predominately designed as equity-settled. Fair
value is measured at grant date and is expensed over the vest-
ing period. Fair value 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.
Prior-year information – The presentation of certain pri-
or-year information has been reclassified to conform to the cur-
rent year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS,
NOT YET ADOPTED
The following pronouncements, issued by the IASB, are not yet
effective and have not yet been adopted by the Company:
In July , the IASB issued IFRS , Financial Instruments.
IFRS  introduces a single approach for the classification and
measurement of financial assets according to their cash flow
characteristics and the business model they are managed in,
and provides a new impairment model based on expected
credit losses. IFRS  also includes new regulations regarding
the application of hedge accounting to better reflect an entity’s
risk management activities especially with regard to managing
non-financial risks. The new standard is effective for annual re-
porting periods beginning on or after January , , while
early application is permitted. The Company is currently assess-
ing the impacts of adopting IFRS  on the Company’s Consoli-
dated Financial Statements.
In May , the IASB issued IFRS , Revenue from Contracts
with Customers. According to the new standard, revenue is rec-
ognized to depict the transfer of promised goods or services to