IAS 11 paras 39, 40 disclosures, potential effects of adoption of IFRS 15 in the future

Siemens AG – Annual report – 30 September 2017

Industry: manufacturing


NOTE 2 Significant accounting policies and critical accounting estimates (extract)

Revenue recognition (extract)

Sales from construction contracts: When the outcome of a construction contract can be estimated reliably, revenues from construction-type projects are recognized under the percentage-of-completion method, based on the percentage of costs incurred to date compared to the total estimated contract costs. An expected loss on the construction contract is recognized as an expense immediately. Siemens applies the requirements of IAS 11 regarding contract variations to contract terminations, since contract terminations are also changes to the agreed delivery and service scope.

The percentage-of-completion method places considerable importance on accurate estimates of the extent of progress towards completion and may involve estimates on the scope of deliveries and services required for fulfilling the contractually defined obligations. These significant estimates include total contract costs, total contract revenues, contract risks, including technical, political and regulatory risks, and other judgments. Under the percentage-of-completion method, changes in estimates may lead to an increase or decrease of revenue. The creditworthiness of our customers is taken into account in estimating the probability that economic benefits associated with a contract will flow to the Company. In addition, we need to assess whether the contract is expected to continue or to be terminated. In determining whether the continuation or termination of a contract is expected to be the most likely scenario, all relevant facts and circumstances relating to the contract are considered on an individual basis.

Rendering of services: For long-term service contracts, revenues are recognized on a straight-line basis over the term of the contract or, if the performance pattern is other than straight-line, as the services are provided, i. e. under the percentage-of-completion method as described above.


In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. According to the new standard, revenue is recognized to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Revenue is recognized when, or as, the customer obtains control of the goods or services. IFRS 15 supersedes IAS 11, Construction Contracts and IAS 18, Revenue as well as related interpretations. The standard is effective for annual periods beginning on or after January 1, 2018; early application is permitted. The Company will adopt the standard for the fiscal year beginning as of October 1, 2017 retrospectively, i. e. the comparable period will be presented in accordance with IFRS 15. Further assessments resulting from the implementation of IFRS 15 confirmed that there will be no significant impacts on Siemens’ Consolidated Financial Statements. Retained earnings as of October 1, 2016 will increase by € 0.18 billion. The increase mainly results from a change in the timing of recognizing revenue for certain types of contracts, in particular, revenue may be recognized earlier if variable consideration components exist, re-allocations of the transaction price between performance obligations take place or licenses are transferred to the customer. In the comparable period fiscal 2017, changes in the total amount of revenue to be recognized for a customer contract are very limited. The vast majority of construction-type contracts currently accounted for under the percentage-of-completion method fulfills the requirements for revenue recognition over time. Besides, there will be changes to the Statement of Financial Position, e. g. separate line items for contract assets and contract liabilities are required, and quantitative and qualitative disclosures are added.

NOTE 10 Inventories (extract)

Cost of sales include inventories recognized as expense amounting to € 57,171 million and € 54,706 million, respectively, in fiscal 2017 and 2016. Compared to prior year, write-downs increased (decreased) by € 15 million and €(3) million as of September 30, 2017 and 2016.

Construction contracts, here and as follows, include service contracts accounted for under the percentage of completion method. The aggregate amount of costs incurred and recognized profits less recognized losses for construction contracts in progress, as of September 30, 2017 and 2016 amounted to € 88,571 million and € 83,789 million, respectively. Revenue from construction contracts amounted to € 34,280 million and € 32,695 million, respectively, for fiscal 2017 and 2016. Advance payments received on construction contracts in progress were € 7,791 million and € 8,749 million as of September 30, 2017 and 2016. Retentions in connection with construction contracts were € 217 million and € 288 million in fiscal 2017 and 2016, respectively.