FAQ on the IFRS conversion
- Why has ThyssenKrupp changed its accounting from US GAAP to IFRS in fiscal year 2005/2006?
- Is US GAAP accounting being continued?
- What are the fundamental differences between US GAAP and IFRS accounting?
- Have there been significant changes in reporting under IFRS?
- Under IFRS the balance sheet has to be classified into current and non-current. How will the new balance sheet items be derived?
- Has there been a reconciliation from US GAAP to IFRS for the capital market?
- Has the switch from US GAAP to IFRS accounting had effects on the company’s key performance indicators?
- What is the reason for the significant increase in pension liabilities?
- The balance sheet total in the opening IFRS balance sheet at October 01, 2004 has decreased by only €657 million compared with the US GAAP balance sheet at September 30. What is the reason for this?
Why has ThyssenKrupp changed its accounting from US GAAP to IFRS in fiscal year 2005/2006?
In July 2002 the European Parliament and the Council adopted Regulation No. 1606/2002 on the Application of International Accounting Standards (IAS). This regulation requires companies publicly traded and domiciled in the European Union to prepare their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) for fiscal years starting on or after January 01, 2005. Accordingly, ThyssenKrupp AG is required to prepare its consolidated financial statements for fiscal year 2005/2006 in accordance with IFRS.
Is US GAAP accounting being continued?
US GAAP accounting is discontinued. The consolidated financial statements for the fiscal year ending September 30, 2005 were our final US GAAP financial statements. Nor will there be any more US GAAP quarterly statements.
What are the fundamental differences between US GAAP and IFRS accounting?
As with US GAAP, the purpose of IFRS accounting is to provide decision-relevant information for investors. Whereas US GAAP follows a largely casuistic approach, IFRS is more principle-oriented. The latter can, in principle, result in greater scope for interpretation. However, it is not possible to speak about the fundamental differences between US GAAP and IFRS. Moreover, the FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) are anxious to achieve convergence between the two sets of rules in areas where there are still differences.
Have there been significant changes in reporting under IFRS?
With regard to principles of presentation there are no significant differences between US GAAP and IFRS. However, there are some differences within the individual standards, e.g. with regard to the netting of items etc.
Under IFRS the balance sheet has to be classified into current and non-current. How will the new balance sheet items be derived?
In previously published consolidated financial statements the balance sheet classification followed the 4th and 7th directive of the EU with additional disclosures required by US GAAP included in the Notes to the consolidated financial statements. Under IFRS, assets and liabilities are classified as current or non-current in the balance sheet.
To simplify the reconciliations of the consolidated balance sheets, the US GAAP presentation has been adjusted to the IFRS current/non-current classification.
Has there been a reconciliation from US GAAP to IFRS for the capital market?
On February 01, 2006 a Virtual Classroom Meeting took place at which key aspects of the IFRS conversion were presented. The major aspects of IFRS accounting were described, the IFRS opening balance sheet as of October 01, 2004 was presented, and the reconciliation of the 2004/2005 consolidated statements from US GAAP to IFRS was explained.
A replay of the audio/video stream of the Virtual Classroom Meeting along with the presentation documents and a factbook on the IFRS conversion are available on the internet for download.
Has the switch from US GAAP to IFRS accounting had effects on the company’s key performance indicators?
The switch from US GAAP to IFRS accounting had no impact on the key performance indicators. Of course there will be various differences or shifts in the figures due to conceptual differences between US GAAP and IFRS. The company’s operating performance has not been affected by the IFRS conversion. An overview of the key figures is provided on the internet.
What is the reason for the significant increase in pension liabilities?
The significant increase in pension liabilities is due to the different approach to pensions taken by IFRS. The following changes were key to the increase in pension liabilities in the IFRS opening balance sheet at October 01, 2004:
- Whereas under US GAAP the Group measured its pension plans at June 30 (early measurement), under IFRS the measurement date must coincide with the company’s balance sheet date. At October 01, 2004 the discount rate was lower than the one applied under US GAAP at the early measurement date of June 30, 2004.
- All actuarial gains and losses accumulated up to the date of transition from US GAAP to IFRS, October 01, 2004, were recognized directly in equity when drawing up the opening balance sheet. Similarly, all actuarial gains and losses after October 01 are recognized directly in equity.
These two factors resulted in an increase in accrued pension and similar obligations. In this connection it should also be mentioned that transparency and balance sheet clarity are improved by full presentation of the obligations in the balance sheet.
The balance sheet total in the opening IFRS balance sheet at October 01, 2004 has decreased by only €657 million compared with the US GAAP balance sheet at September 30. What is the reason for this?
Compared with US GAAP, the balance sheet total in the opening IFRS balance sheet is €657 million lower (-2.1%). On the assets side, the main reasons for this decrease were impairment of goodwill and long-term assets and the reduction in deferred taxes. Opposing effects were caused, for example, by capitalization of development costs and by the reversal of the derecognition of receivables sold.
Note also that different accounting approaches between US GAAP and IFRS did not always have an effect on the amounts stated in the balance sheet but in some cases resulted only in reclassifications (e.g. minority shares, other accrued liabilities, investment property).
