Changes in accounting and presentation in 2005

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UBS Reporting Structure

On 12 April 2005, we published restated figures for 2004 and 2003 that align these comparative prior periods to the changes we undertook in accounting and presentation on 1 January 2005 on adoption of new and revised International Financial Reporting Standards (IFRS).

The overall impact of these changes is to decrease net profit attributable to UBS shareholders by CHF 73 million and CHF 335 million for 2004 and 2003, respectively.

The restatement reflected the following accounting changes:

IAS 1, Presentation of Financial Statements. The adoption of revised IAS 1 requires the inclusion of minority interests in both net profit and equity. The newly defined net profit is then allocated into “net profit attributable to UBS shareholders” and “net profit attributable to minority interests”. When analyzing our performance, our focus will, as before, be on “net profit attributable to UBS shareholders” (attributable profit) and “equity attributable to UBS shareholders” (shareholders’ equity).
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. This new standard requires that subsidiaries acquired exclusively with the intent of future sale be presented as “discontinued operations” from the time a sale is highly likely to occur. Certain of our previously held private equity investments (now reported in Industrial Holdings) met these criteria and were reclassified accordingly.
IFRS 2 Share-based Payment. IFRS 2 requires entities to recognize the fair value of share-based payments made to employees as compensation expense, recognized over the service period, which is generally equal to the vesting period.
IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries and IAS 28 Accounting for Investments in Associates. In the past, we treated all our private equity investments as “Financial investments available-for-sale”. The revised IAS 27 and IAS 28 required us to change the accounting treatment for some of our private equity investments, consolidating those that we control, and using the equity method of accounting where we exercise significant influence.
IFRS 4 Insurance Contracts. The new standard requires that insurance contracts that include a deposit component be separated into the two components.

The restatement also reflected the following changes in our presentation:

The transfer of the private equity business from the Investment Bank to the Industrial Holdings segment.
A redefinition of recurring income for the Wealth Management USA unit to include interest income, bringing it in line with the definition of recurring income for the Wealth Management unit.

We have briefly described the changes here. For a more comprehensive and extensive discussion of them, you can refer to the 'Quarterly Themes' section.

Cessation of goodwill amortization

With the introduction of IFRS 3 Business Combinations, we stopped amortizing goodwill at the beginning of this year. Instead, from now on, we will test goodwill annually for impairment. In our quarterly reports for this year, our result and analysis commentary will compare current results to prior year periods on a pre-goodwill basis.

New disclosure

As part of our continuing effort to improve the transparency of our financial reporting and provide the best possible understanding of our business, we have also made a number of enhancements to our disclosure this quarter.

We will split our personnel expenses into cash and share-based components. This will help to distinguish between cash payments paid or accrued during the quarter and deferred payments which are driven by option and share grants made in previous periods.

In our Information Technology Infrastructure (ITI) unit, we have introduced a new Key Performance Indicator (KPI) that shows the cost of IT infrastructure per UBS employee. The ratio will help us to track the success of the new unit.

We will also provide a new capital ratio, the return on adjusted regulatory capital, shown as a KPI for the Investment Bank and the Business Banking Switzerland unit.

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