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Preparation of consolidated financial statements pursuant to IFRS requires assumptions and estimates to be made, which have an impact on the recognized value of the assets and liabilities carried on the balance sheet, on income and expenses and on the disclosure of contingent liabilities.
Amongst other things, these assumptions and estimates relate to the accounting and measurement of provisions. With regard to pension provisions and similar obligations, the discount rate is one of the very important estimates. The discount rate for pension obligations is determined on the basis of yields on senior, fixed-rate corporate bonds on the financial markets as of the balance-sheet date. Due to the current financial market crisis, the yield spreads of corporate bonds compared to government bonds have increased sharply. At the same time, the range of yields on high-quality corporate bonds observed on the market has also widened significantly and these yields are used as the basis for determining the discount rate. The rise in the discount rate has resulted in a reduction in the present value of the pension obligations and an increase in equity. In Germany, an increase or decrease of one percentage point in the discount rate would result in a reduction of €1,057 million or an increase of €1,269 million, respectively, in the present value of the obligations of our pension plans. For the Group companies in the UK, identical changes in the discount rate would reduce or increase pension obligations by €367 million or €451 million, respectively.
The impairment test for goodwill is based on certain assumptions pertaining to the future, which are regularly adjusted. Based on current knowledge, there are not expected to be any changes in these assumptions which would cause the recoverable amounts to fall below the carrying amounts of the cash-generating units in fiscal 2009.
Deferred tax assets are recognized if realization of future tax benefits is probable. Actual future income for tax purposes and hence the actual realizability of deferred tax assets, however, may deviate from the estimation made when the deferred taxes are capitalized.
Further explanation of the assumptions and estimates upon which these consolidated financial statements are based can be found in the notes to the individual items in the financial statements.
All assumptions and estimates are based on the circumstances and forecasts prevailing on the balance-sheet date. Furthermore, as of the balance-sheet date realistic assessments of overall economic conditions in the sectors and regions in which the Group conducts operations are taken into consideration with regard to the prospective development of business. Actual amounts may deviate from the estimated amounts if the overall conditions develop differently than our assumptions. In such cases, the assumptions, and, if necessary, the carrying amounts of the affected assets and liabilities are adjusted.
As of the date of preparation of the consolidated financial statements, it is not presumed that there will be a material change in the assumptions and estimates.
