Engineering

3.6 Consolidated financial statements Notes to the consolidated financial statements
management believes that its estimates of the relevant expected useful
lives, its assumptions concerning the economic environment and
developments in the industries in which the Group operates and its
estimations of the discounted future cash flows are appropriate,
changes in the assumptions or circumstances could require changes in
the analysis. This could lead to additional impairment charges in the
future or to reversal of impairments if the trends identified by
management reverse or the assumptions or estimates prove incorrect.
Revenue recognition on construction contracts
Certain Group entities, particularly in the Elevator Technology, Plant
Technology and Marine Systems business areas, conduct a portion of
their business under construction contracts which are accounted for
using the percentage-of-completion method, recognizing revenue as
performance on the contract progresses. This method requires
accurate estimates of the extent of progress towards completion.
Depending on the methodology to determine contract progress, the
significant estimates include total contract costs, remaining costs to
completion, total contract revenues, contract risks and other
judgements. The managements of the operating companies
continually review all estimates involved in such construction contracts
and adjust them as necessary.
Income taxes
The Group operates and earns income in numerous countries and is
subject to changing tax laws in multiple jurisdictions within the
countries. Significant judgements are necessary in determining the
worldwide income tax liabilities. Although management believes they
have made reasonable estimates about the ultimate resolution of tax
uncertainties, no assurance can be given that the final tax outcome of
these matters will be consistent with what is reflected in the historical
income tax provisions. Such differences could have an effect on the
income tax liabilities and deferred tax liabilities in the period in which
such determinations are made.
At each balance sheet date, the Group assesses whether the
realization of future tax benefits is sufficiently probable to recognize
deferred tax assets. This assessment requires the exercise of
judgement on the part of management with respect to, among other
things, benefits that could be realized from available tax strategies and
future taxable income, as well as other positive and negative factors.
Consolidated financial statements
192 | 193
The recorded amount of total deferred tax assets could be reduced if
estimates of projected future taxable income and benefits from
available tax strategies are lowered, or if changes in current tax
regulations are enacted that impose restrictions on the timing or extent
of the Group’s ability to utilize future tax benefits. See Note 31 for
further information on potential tax benefits for which no deferred tax
asset is recognized.
Employee benefits
The Group accounts for pension and other postretirement benefits in
accordance with actuarial valuations. These valuations rely on
statistical and other factors in order to anticipate future events. These
factors include key actuarial assumptions including the discount rate,
expected return on plan assets, expected salary increases, mortality
rates and health care cost trend rates. These actuarial assumptions
may differ materially from actual developments due to changing
market and economic conditions and therefore result in a significant
change in postretirement employee benefit obligations and the related
future expense. (See Note 15 for further information regarding
employee benefits).
Legal contingencies
ThyssenKrupp companies are parties to litigations related to a number
of matters as described in Note 21. The outcome of these matters may
have a material effect on the financial position, results of operations or
cash flows. Management regularly analyzes current information about
these matters and provides provisions for probable contingent losses
including the estimate of legal expense to resolve the matters. For the
assessments internal and external lawyers are used. In making the
decision regarding the need for loss provisions, management
considers the degree of probability of an unfavourable outcome and
the ability to make a sufficiently reliable estimate of the amount of loss.
The filing of a suit or formal assertion of a claim against ThyssenKrupp
companies or the disclosure of any such suit or assertions, does not
automatically indicate that a provision of a loss may be appropriate.