1.3 – Changes in accounting principles

Accounting regulations with first-time application in 2014

IFRS Annual Improvements: Cycle 2011–2013

The standards IFRS 3, IFRS 13 and IAS 40 were amended as part of the Annual Improvements project. The amendments address details of the recognition, measurement and disclosure of business transactions or serve to standardize terminology. These changes have no material impact on the Consolidated Financial Statements of the BASF Group.

IFRSs and IFRICs not yet to be considered

The effects on the BASF Group financial statements of the IFRSs and IFRICs not yet in force or not yet endorsed by the European Union in 2014 were reviewed and are explained below. Other new standards or interpretations and amendments of existing standards and interpretations have no material impact on the BASF Group. Early implementation of the standards before endorsement by the European Union is not planned.

IFRS 9 – Financial Instruments

On July 24, 2014, the IASB issued the final version of IFRS 9 – Financial Instruments, concluding the multiyear project to replace IAS 39 – Financial Instruments: Recognition and Measurement. IFRS 9 contains new requirements for the classification and measurement of financial instruments, fundamental changes regarding the accounting treatment of financial asset impairments, and a reformed approach to hedge accounting.

IFRS 9 retains “amortized cost” and “fair value” as the criteria for measuring financial instruments. Whether financial assets are measured at amortized cost or fair value depends on two factors: the entity’s business model for managing the portfolio to which the financial asset belongs and the contractual cash flow characteristics of the financial asset.

According to IFRS 9, the recognition of financial asset impairments is to be based on expected losses, whereas IAS 39 had only allowed impairments for losses that had already been incurred. The general approach adopts a three-stage model to assess the provisions for risks. The model requires different degrees of impairment based on the credit default risk of the counterparties. For certain financial instruments, such as trade accounts receivable, operational simplifications for recognizing impairment losses apply.

The IFRS 9 regulations on hedge accounting aim for a closer alignment of hedge accounting with the entity’s risk management strategy.

The new standard will be effective for reporting periods beginning on or after January 1, 2018. An endorsement by the European Union is still pending. The potential impact on BASF is being analyzed.

IFRS 15 – Revenues from Contracts with Customers

The IASB published the new standard on revenue recognition, IFRS 15 – Revenues from Contracts with Customers, on May 28, 2014. The revised standard particularly aims to standardize existing regulations and thus improve transparency and the comparability of financial information. The rules and definitions of IFRS 15 supersede the content of IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18, and SIC 31.

The new standard does not differentiate between different types of contracts and services, but rather introduces uniform criteria for the timing of revenue recognition. According to IFRS 15, sales revenue is recognized when control of the agreed-upon goods or services and the benefits obtainable from them are transferred to the customer. The transfer of major risks and rewards of ownership of the goods is no longer the deciding factor. Sales revenue is measured as the amount the entity expects to receive in exchange for goods and services.

The new model involves five steps for the recognition of sales revenue with the first steps being the identification of the contract with the customer and the separate performance obligations it contains. The transaction price is then determined and allocated to the performance obligations in the contract. Finally, sales are recognized for each performance obligation in the amount of the allocated portion of the transaction price as soon as the agreed-upon good or service has been provided or the customer receives control over it. Principles are set out for determining whether the good or service has been provided over time or at one point in time.

The new standard will be effective for reporting periods beginning on or after January 1, 2017. An endorsement by the European Union is still pending. The potential impact on BASF is currently being analyzed.

Amendments to IAS 1: Disclosure Initiative

On December 18, 2014, the IASB issued amendments made to IAS 1. The revisions pertain to various disclosure requirements, and clarify that information needs to be disclosed in the notes only if it is not immaterial. Materiality considerations also explicitly apply if a standard calls for a list of minimum disclosures. Explanations are moreover provided on the aggregation and disaggregation of line items in the balance sheet and income statement. Furthermore, the revised standard clarifies how an entity’s share of the other comprehensive income of equity-accounted companies is to be presented in the income statement. Finally, the structure of the notes can be designed in a manner relevant for each individual company. The changes will be effective for reporting periods beginning on or after January 1, 2016. An endorsement by the European Union is still pending. The amendments are not expected to have a material effect on BASF.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization

The IASB issued amendments to IAS 16 and IAS 38 on May 12, 2014. These revisions provide further guidance on determining an acceptable method of depreciation and amortization. Revenue-based methods are not permissible for property, plant and equipment and are only permissible for intangible assets in specific exceptional cases (rebuttable presumption of inappropriateness). The changes will be effective for reporting periods beginning on or after January 1, 2016. An endorsement by the European Union is still pending. The potential impact on BASF is currently being analyzed.

Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions

The IASB issued amendments to IAS 19 on November 11, 2013. The revisions clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. In addition, practical expedients are permitted if the amount of the contributions is independent of the number of years of service. The European Union endorsed the changes on January 9, 2015. In a deviation from the IASB’s effective date (reporting periods beginning on or after July 1, 2014), IFRS-based financial statements of the European Union must apply the changes for reporting periods beginning on or after February 1, 2015. The potential impact on BASF is currently being analyzed.

IFRS Annual Improvements: Cycle 2010–2012

Under its Annual Improvement Project, the IASB issued amendments to several standards on December 12, 2013. The affected standards are IFRS 2, IFRS 3, IFRS 8, IAS 16, IAS 24, and IAS 38. The amendments address details of the recognition, measurement and disclosure of business transactions or serve to standardize terminology. The European Union endorsed the changes on January 9, 2015. In a deviation from the IASB’s effective date (reporting periods beginning on or after July 1, 2014), IFRS-based financial statements of the European Union must apply the changes for reporting periods beginning on or after February 1, 2015. The amendments are not expected to have a material effect on BASF.

IFRS Annual Improvements: Cycle 2012–2014

Under its Annual Improvement Project, the IASB issued amendments to several standards on September 25, 2014. The affected standards are IAS 19, IAS 34, IFRS 5 and IFRS 7. The amendments address details of the recognition, measurement and disclosure of business transactions or serve to standardize terminology. The changes will be effective for reporting periods beginning on or after January 1, 2016. An endorsement by the European Union is still pending. The amendments are not expected to have a material effect on BASF.