Part of the Consolidated Financial Statements as of 31 December 2007, which were audited by KPMG Deutsche Treuhand AG.

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[44] Reconciliation of IFRS Comparables from Previous Gaap

Main Policy Differences between (Glossary)U.S. GAAP and (Glossary)IFRS

Until December 31, 2006, the Group prepared its consolidated financial statements in accordance with U.S. GAAP. The following sets out, by accounting topic, the main differences between the Group’s U.S. GAAP accounting policies applied at that date and the IFRS accounting policies set out in Note [1].

(Glossary)U.S. GAAP

IFRS

CONSOLIDATION (A)

Three models are used to assess consolidation status: voting rights, variable interest entities (‘VIEs’) and Qualifying Special Purpose Entities (‘QSPEs’).
Voting rights: Ownership of a majority voting interest (of over 50 %), directly or indirectly, of voting shares leads to consolidation, unless control does not rest with the majority owners.
VIEs: VIEs are consolidated by the interest holder that is exposed to the majority of the entity’s expected losses or residual returns, that is, the primary beneficiary.
QSPE: A special purpose entity (‘SPE’) that qualifies as a QSPE is not consolidated.

For operating companies, ownership of the majority of voting rights, either directly or indirectly, leads to consolidation. Potential voting rights are considered.
A SPE is consolidated by the Group where it is deemed to control it. Indicators of control include the SPE conducting activities on behalf of the Group and/or the Group holding the majority of the risks and rewards of the SPE.
There is no concept of a QSPE under (Glossary)IFRS.

LOAN ORIGINATION COSTS (B)

All cost of the loan origination activities, for example, the costs of evaluating a prospective borrower's financial condition, which are deemed directly attributable to loan origination, using a per unit cost calculation, are deferred regardless of whether they are incremental or not.

Only those costs associated with loan origination activities which are directly attributable and incremental to the origination of a loan are deferred together with the related fees and thus, included in the calculation of the effective yield.

(Glossary)FAIR VALUE (Glossary)OPTION (C)

The fair value option available in U.S. GAAP was never adopted as a U.S. GAAP policy for the Group reporting under U.S. GAAP.

Financial assets and financial liabilities may be designated as at fair value through profit or loss (the (Glossary)fair value option) on initial recognition/on transition to IFRS where;
— a measurement or recognition inconsistency (accounting mismatch) is significantly reduced that would otherwise arise from measuring financial assets or liabilities or recognizing the gains and losses on them on different bases;
— they are managed and their performance is evaluated on a fair value basis with a documented risk management or investment strategy and reported to key management personnel on that basis; or
— they contain one or more embedded (Glossary)derivatives that significantly modify the cash flows resulting from those financial instruments.
Transaction costs in relation to financial assets and financial liabilities designated as at fair value through profit or loss are recognized in the income statement at inception.
The decision to classify financial assets or financial liabilities under the fair value (Glossary)option is irrevocable.

(Glossary)EQUITY METHOD INVESTMENTS (D)

There is specific accounting guidance on limited partnerships and entities of similar nature. A 3-20 % or more interest is required to be accounted for under the equity method of accounting as it is deemed to represent an ‘other than minor influence’.

There is no specific guidance on accounting for limited partnerships and similar entities; significant influence is usually demonstrated by a holding of 20-50 % of voting rights including the consideration of potential voting rights.

DEFINITION OF A DERIVATIVE (E)

Derivative contracts must have a notional and a mechanism to settle net or alternatively the
(Glossary)derivative or the underlying asset is readily convertible to cash.

Derivative contracts are not required to have a mechanism to settle net to be classified as derivatives under IFRS.

(Glossary)HEDGE ACCOUNTING (P)

Under U.S. GAAP, the entire term of the hedged item must be considered when assessing hedge effectiveness, not only for a portion of the hedged item’s life. Where hedge accounting is achieved under IFRS but not under U.S. GAAP the hedge accounting has been reversed for U.S. GAAP.

IFRS permits more hedging relationships than U.S. GAAP. Under IFRS it is permitted to designate a derivative as hedging for only a portion of the time period to maturity of a hedged item in a fair value hedge.

LOANS HELD FOR SALE RECLASSIFIED TO TRADING (F)

Loans held for sale are held at lower of cost or market value. Loan origination fees and costs are recognized upon disposal of the loan.
Temporary impairment on loans held for sale under U.S. GAAP is taken through the income statement.

There is no ‘loans held for sale’ classification. Loans with the intention to sell or securitize in the near term are classified as trading.

FINANCIAL ASSETS CLASSIFIED AS AVAILABLE FOR SALE (G)

EQUITY INVESTMENTS
Equity securities that do not have a readily determinable fair value and other non-securitized equity interests are classified as other investments and carried at cost, less any other than temporary impairment.


Non-marketable equity investments and other non-securitized equity interests are classified as
(Glossary)financial assets available for sale and are accounted for at fair value unless it can not be reliably determined.

AVAILABLE-FOR-SALE SECURITIES – TREATMENT OF
FOREIGN EXCHANGE
Changes in the fair value of available for sale debt securities arising from changes in foreign exchange rates are recorded in accumulated other comprehensive income and transferred to income on disposal of the security.



Changes in the fair value of debt instruments classified as available for sale due to changes in foreign exchange rates are reflected in the income statement.

IMPAIRMENT OF ASSETS AVAILABLE FOR SALE
Impairments on available for sale debt securities cannot be subsequently reversed if they are no longer considered to be impaired.


Impairments on debt instruments classified as available for sale should be reversed if, in a subsequent period, the fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement.

INVESTMENT WITH A SALE RESTRICTION
In general, investments with a sale restriction of more than one year are classified as other investments and carried at cost, less any other than temporary impairment.
When an investment with a sale restriction is held by an entity that is regulated in the U.S. as a (Glossary)broker-dealer then it is carried at fair value with changes through the income statement.


Investments with a restriction on sale are classified as financial assets available for sale with changes through equity.

FINANCIAL ASSET DERECOGNITION (H)

Derecognition of financial assets is primarily based on control.
The relationship between true sale analysis and consolidation generally is that derecognition is considered first and then consolidation.
Special rules apply to accounting for repurchase and reverse (Glossary)repurchase agreements – a collateralization close to 100 % is required to preserve financing accounting.

Derecognition is based on risks and rewards. Control is only considered when substantially all risks and rewards have been neither transferred nor retained.
The consolidated group has to be determined prior to applying the derecognition criteria.
A partial derecognition of transferred financial assets may occur where the Group has a continuing involvement in them.

REAL ESTATE & LEASING (I)

GAINS ON SALE AND LEASEBACK
Gains arising from a sale and operating leaseback transaction are deferred and amortized over the period of the operating lease.


Gains arising from a sale and operating leaseback transaction are recognized immediately in profit or loss provided that the transaction has been entered into at fair value.

CONTINUING INVOLVEMENT IN SALE AND LEASEBACKS
Any form of continuing involvement precludes sales accounting.


If continuing involvement exists, this needs to be considered when determining the classification of the lease arrangement.

IMPAIRMENT OF INVESTMENT PROPERTIES
The assessment as to whether an investment property is impaired is calculated by assessing the undiscounted expected future cash flows arising from the property.


The assessment of impairment is performed on a net present value basis, applying a discounting factor to the expected future cash flows.

SHARE-BASED COMPENSATION (J)

SHARE AWARDS – ‘EARLY RETIREMENT’
Where plan rules allow staff of a certain age and/or service period to retain their awards on leaving, the expense is fully accelerated at the date the employee becomes eligible for early retirement. Early retirement rules were applied prospectively for awards granted after January 1, 2006.


Early retirement rules (accelerated amortization) are applied to all awards granted after November 7, 2002.

SHARE AWARDS – FORFEITURES
Amortization of the total number of shares expected to vest over the service period (net of expected forfeitures) is required. Forfeitures were no longer accounted for on an actual basis from
January 1, 2006.


The rules relating to expected forfeitures apply to all share awards granted after November 7, 2002.

PENSIONS (K)

PENSIONS – ACCUMULATED ACTUARIAL GAINS AND LOSSES
From December 31, 2006, any unrecognized gains/losses at year-end are reported as part of accumulated other comprehensive income (‘OCI’).
The Group used the corridor method whereby actuarial gains and losses exceeding 10 % of the greater of plan assets and plan liabilities are recognized in profit or loss in equal amounts over the remaining service lives of current employees.



On transition the Group recognized all cumulative actuarial gains and losses in shareholders’ equity in accordance with the transitional provisions of IFRS 1.
Since transition, the corridor approach is used for actuarial gains and losses.

PENSIONS – LONG-TERM EMPLOYEE BENEFITS
No specific valuation rules apply.


Long-Term Employee Benefits are required to be valued using actuarial methods.

DERIVATIVES ON DEUTSCHE BANK SHARES (L)

Put and call options indexed to Deutsche Bank shares which are physically settled are classified as derivatives.

Put and call options indexed to Deutsche Bank shares which are physically settled are classified as equity instruments. For the physically settled written put options on Deutsche Bank shares the present value of the redemption amount is recorded as a liability. The liability is accreted over the life of the options to the redemption amount recognizing interest expense in accordance with the effective interest rate method.

TAX (O)

DEFERRED TAX ON SHARE-BASED COMPENSATION
If a jurisdiction allows a tax deduction for expenses relating to share-based compensation the permissible amount for the tax deduction might differ from the cumulative remuneration expense recognized in the income statement and/or the deduction might be allowed in a later period (e.g. with delivery of the shares).
The difference between the tax deductible amount of compensation expense and the cumulative compensation expense recognized for financial reporting (tax benefit/shortfall) has to be recognized only at delivery of the shares to the employees. Benefits are recorded in additional paid-in capital (‘APIC’), and shortfalls are recognized through the income statement.
Any credit to APIC is conditional upon the tax-paying position of the respective entity/tax group.


Shortfalls can be offset against excess tax benefits recognized in the same accounting period and in prior accounting periods.








In addition to the recognition of excess tax benefits/shortfalls in taxes when shares are delivered the difference between the expected future tax deduction for share awards outstanding and the cumulative compensation expense recognized for financial reporting (tax benefit/shortfall) has to be (i) estimated based on the current share price and (ii) recognized at any reporting date.
As IFRS allows for recognition of the expected future tax deduction a credit to APIC would be disallowed only if it is expected that the entity will not be in the position to make use of the excess tax deduction.
Possibilities to offset shortfalls against excess tax benefits are limited.

(Glossary)DEFERRED TAXES AND TAX REVERSAL ON AVAILABLE FOR SALE SECURITIES
The impact of changes in tax rate/tax law are included in net income even if the original deferred taxes have been recognized in equity.



Tax rate/tax law changes are accounted for consistently with the accounting for the transaction itself. Therefore, if the underlying temporary difference and related deferred taxes have been recorded in equity, a change due to tax law/tax rates is recorded in equity as well.

The following tables show reconciliations from U.S. GAAP to IFRS for the income statement for the year ended December 31, 2006, the consolidated balance sheets as of January 1, 2006 and December 31, 2006 and the impacts on shareholders’ equity as of January 1, 2006 and December 31, 2006.

As the consolidated financial statements for the year ending December 31, 2007 were prepared, a number of adjustments relating to the 2006 transition year were identified and applied to the previously unaudited IFRS financial information that was presented in the Group’s Transition Report (which was published on April 19, 2007) and subsequent Interim Reports. These adjustments were limited to the balance sheet and had no effect on net income. These adjustments are indicated below and reflected in the following reconciliation tables. These adjustments should be considered when referring to the Transition Report for interim periods.

  • shareholders’ equity as of the transition date of January 1, 2006 increased by € 91 million;
  • total assets and total liabilities each increased by € 17.5 billion as of January 1, 2006 and by € 12.7 billion as of December 31, 2006, and there were similar effects as of each interim quarter end; and
  • several reclassification adjustments between asset and liability categories were made, all of which did not exceed € 16 billion in any category or period affected.

    Both the gross-up of assets and liabilities and the reclassifications between asset and liability categories were driven by the consolidation of certain (Glossary)securitization vehicles.

    Income Statement and Balance Sheet Reconciliations

    U.S.GAAP/IFRS RECONCILIATIONS

    [Enlarge table]

    Consolidated Statement of Income

    US GAAP

    Reclas-
    sifica-
    tion

    Revaluation by accounting topic

    IFRS

     

    Consoli-
    dation

    Loan origi-
    nation costs

    Fair value option

    Equity method invest-
    ments

    Defi-
    nition
    of a
    deriv-
    ative

    Hedge Ac-
    counting

    Loans held for sale re-
    classified to trading

    Financial assets available for sale

    Financial asset derecog-
    nition

    Real estate & leasing

    Share-
    based
    compen-
    sation

    Pen-
    sions

    Deriva-
    tives on Deutsche Bank shares

    Currency
    trans-
    lation adjust-
    ments

    Other

    Tax

    Total
    revalu-
    ation

    in € m.

     

     

    (A)

    (B)

    (C)

    (D)

    (E)

    (P)

    (F)

    (G)

    (H)

    (I)

    (J)

    (K)

    (L)

    (M)

    (N)

    (O)

     

     

    Year ended Dec 31, 2006

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Interest revenues

    55,217

    572

    2,203

    91

    –

    3

    –

    –

    (4)

    –

    132

    –

    –

    –

    –

    –

    28

    32

    2,486

    58,275

    Interest expense

    48,298

    630

    2,245

    –

    –

    –

    –

    –

    (1)

    –

    64

    (1)

    –

    –

    19

    –

    –

    13

    2,339

    51,267

    Net interest income

    6,919

    (57)

    (42)

    91

    –

    3

    –

    –

    (3)

    –

    68

    1

    –

    –

    (19)

    –

    28

    19

    146

    7,008

    Provision for loan losses

    330

    (330)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net interest income after provision for loan losses

    6,589

    (6,589)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Provision for credit losses

     

    268

    (3)

    –

    (1)

    –

    –

    –

    –

    –

    1

    –

    –

    –

    –

    –

    34

    –

    30

    298

    Net interest income after provision for credit losses

     

    6,594

    (38)

    91

    1

    3

    –

    –

    (3)

    –

    68

    1

    –

    –

    (19)

    –

    (5)

    19

    116

    6,710

    Commissions and fees from fiduciary activities

    3,995

    (3,995)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Commissions, broker’s fees, markups on securities underwriting and other securities activities

    5,019

    (5,019)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Fees for other customer services

    2,530

    (2,530)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Commissions and fee income

     

    11,123

    76

    –

    –

    –

    –

    –

    1

    –

    (4)

    –

    –

    –

    –

    –

    –

    –

    72

    11,195

    Trading revenues, net

    8,247

    (8,247)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net gains (losses) on financial assets/liabilities at fair value through profit or loss

     

    9,061

    53

    –

    (44)

    (11)

    61

    –

    (48)

    (35)

    (65)

    –

    –

    –

    (75)

    1

    (7)

    –

    (169)

    8,892

    Net gains on securities available for sale

    407

    (407)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Net gains (losses) on (Glossary)financial assets available for sale

    –

    582

    2

    –

    –

    1

    (1)

    –

    –

    7

    –

    –

    –

    –

    –

    –

    –

    –

    9

    591

    Net income (loss) from (Glossary)equity method investments

    512

    (53)

    (27)

    –

    –

    (19)

    –

    –

    –

    –

    –

    –

    –

    –

    –

    2

    3

    –

    (40)

    419

    Other revenues

    709

    (473)

    24

    32

    85

    –

    6

    –

    –

    (16)

    22

    (7)

    –

    –

    –

    (1)

    11

    –

    153

    389

    Total noninterest revenues

    21,419

    41

    127

    32

    41

    (29)

    66

    –

    (47)

    (45)

    (47)

    (7)

    –

    –

    (75)

    2

    8

    –

    26

    21,486

    Compensation and benefits

    12,649

    –

    –

    154

    –

    –

    –

    –

    –

    –

    –

    –

    (232)

    (73)

    –

    –

    –

    –

    (151)

    12,498

    Occupancy expense of premises

    1,020

    (1,020)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Furniture and equipment

    157

    (157)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    IT costs

    1,586

    (1,586)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Professional service fees

    1,202

    (1,202)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Communication and data services

    634

    (634)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Other expenses

    2,412

    (2,412)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    General and administrative expenses

     

    6,982

    57

    4

    –

    –

    –

    –

    –

    2

    1

    11

    –

    –

    –

    –

    13

    –

    87

    7,069

    Policyholder benefits and claims

     

    67

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    67

    Impairment of intangible assets

    31

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    31

    Restructuring activities

    192

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    192

    Total noninterest expenses

    19,883

    37

    57

    157

    –

    –

    –

    –

    –

    2

    1

    11

    (232)

    (73)

    –

    –

    13

    –

    (63)

    19,857

    Income before income tax expense

    8,125

    8

    32

    (34)

    42

    (26)

    66

    –

    (50)

    (46)

    20

    (17)

    232

    73

    (94)

    2

    (11)

    19

    206

    8,339

    Income tax expense

    2,186

    –

    (10)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    84

    74

    2,260

    Reversal of 1999/2000 credits for tax rate changes

    (1)

    –

    –

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    1

    1

    –

    Cumulative effect of accounting changes, net of tax

    46

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    (68)

    (8)

    –

    –

    –

    30

    (46)

    –

    Net income

    5,986

    8

    41

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    (37)

    85

    6,079

    Net income attributable to minority interest

    –

    9

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    9

    Net income attributable to Deutsche Bank’s shareholders

    5,986

    –

    41

    (34)

    42

    (26)

    66

    –

    (50)

    (46)

    20

    (17)

    163

    65

    (94)

    2

    (11)

    (37)

    84

    6,070

    [Enlarge table]

    Consolidated Balance Sheet

    U,S, GAAP

    Gross up

    Reclas-
    sifica-
    tion

    Revaluation by accounting topic

    IFRS

     

    Consoli-
    dation

    Loan origi-
    nation costs

    Fair value option

    Equity method invest-
    ments

    Defi-
    nition
    of a
    deriv-
    ative

    Hedge Ac-
    counting

    Loans held for sale re-
    classified to trading

    Financial assets available for sale

    Financial asset derecog-
    nition

    Real estate & leasing

    Share-
    based
    compen-
    sation

    Pen-
    sions

    Deriva-
    tives on Deutsche Bank shares

    Currency
    transla-
    tion
    adjust-
    ments

    Other

    Tax

    Total
    revalu-
    ation

    in € m.

     

     

     

    (A)

    (B)

    (C)

    (D)

    (E)

    (P)

    (F)

    (G)

    (H)

    (I)

    (J)

    (K)

    (L)

    (M)

    (N)

    (O)

     

     

    Balance at January 1, 2006

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Cash and due from banks

    6,571

    –

    –

    297

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    298

    6,869

    Interest-earning deposits with banks

    11,963

    –

    –

    160

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    160

    12,123

    Central bank funds sold and securities purchased under resale agreements

    130,993

    35,240

    (149,680)

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    16,553

    Securities borrowed

    101,125

    16,322

    (64,083)

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    53,364

    Trading assets

    448,393

     

    (448,393)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Financial assets at fair value through profit or loss

     

    313,717

    689,321

    22,996

    –

    (163)

    1

    55

    –

    44

    –

    1,907

    –

    –

    –

    (357)

    –

    15

    –

    24,497

    1,027,535

    Securities available for sale

    21,675

     

    (21,675)

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    Financial assets available for sale

     

    7

    23,536

    9,753

    –

    –

    60

    –

    –

    –

    263

    (564)

    –

    –

    –

    –

    –

    1

    –

    9,513

    33,055

    Other investments

    7,382

     

    (7,382)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Equity method investments

     

    –

    4,607

    (60)

    –

    –

    12

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    (5)

    –

    (53)

    4,554

    Loans

    151,355

    –

    (283)

    12,579

    (266)

    –

    –

    –

    –

    –

    (2)

    2,094

    –

    –

    –

    –

    –

    (1)

    (67)

    14,338

    165,411

    Premises and equipment

    5,079

    (97)

    (1,798)

    44

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    1

    –

    44

    3,228

    (Glossary)Goodwill

    7,045

     

    (7,045)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Other intangible assets, net

    1,198

     

    (1,198)

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Intangible assets

     

    –

    8,340

    1

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    –

    1

    8,341

    Other assets

    99,382

    42,676

    (29,657)

    1,333

    (6)

    –

    –

    –

    –

    –

    –

    (595)

    (74)

    –