1.2 – Changes in Accounting Principles

Accounting policies applied for the first time in 2019

IFRS 16 – Leases

IFRS 16 – Leases was endorsed by the European Union on October 31, 2017, and applied by BASF for the first time as of January 1, 2019. IFRS 16 requires an accounting model for a lessee that recognizes all right-of-use assets and liabilities from lease agreements in the balance sheet. As for the lessor, the new standard substantially carries forward the accounting requirements of IAS 17 – Leases because lessors must continue to classify leases as either finance or operating leases.

The effects of first-time application of IFRS 16 on BASF are presented in Note 28.

Amendments to IFRS 9 – Financial Assets with a Prepayment Feature with Negative Compensation

The amendments pertain to the relevant criteria for the classification of financial assets and were endorsed by the European Union on March 22, 2018. Financial assets with a prepayment feature with negative compensation may be recognized under certain conditions at amortized cost or at fair value through other comprehensive income instead of at fair value through profit and loss. The amendments have no effect on BASF.

IFRIC 23 – Uncertainty over Income Tax Treatments

IFRIC 23 expands on the requirements in IAS 12 on how to account for uncertainties surrounding the income tax treatment of circumstances and transactions with respect to both actual and deferred taxes. The amendments were endorsed by the European Union on October 23, 2018. They have no material effect on BASF.

Amendments to IAS 28 – Long-Term Interests in Associates and Joint Ventures

On October 12, 2017, the IASB published amendments with respect to the accounting treatment of long-term interests in associated companies and joint ventures. These amendments were endorsed by the European Union on February 8, 2019. They clarify that IFRS 9 is to be applied to long-term interests in associated companies or joint ventures that are not accounted for using the equity method. The amendments have no material effect on BASF.

Annual Improvements to IFRS 2015–2017

Four standards were amended in the Annual Improvements to IFRSs (2015–2017). The amendments were endorsed by the European Union on March 14, 2019. They have no material effect on BASF.

In IFRS 3 – Business Combinations, it was clarified that when a party to a joint arrangement obtains control of a business that is a joint operation and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. The acquirer shall therefore apply the requirements for a business combination achieved in stages, including remeasuring its previously held interest in the joint operation.

In IFRS 11 – Joint Arrangements, it was clarified that if an entity obtains joint control of a business that is a joint operation and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the previously held interest in that business is not remeasured.

IAS 12 – Income Taxes was amended to the extent that all income tax effects of dividend payments must be considered in the same way as the income on which the dividends are based.

In IAS 23 – Borrowing Costs, it was determined that when entities borrow funds in general for the acquisition of qualifying assets that those costs for capital borrowed specifically for the acquisition of qualifying assets should not be considered in the determination of the financing rate until their completion.

Improvements to IAS 19 – Plan Amendment, Curtailment or Settlement

The amendments relate to the measurement of pension obligations based on updated assumptions if plan amendment, curtailment or settlement occurs. After such an event, the past service cost as well as any gains or losses on the basis of current actuarial assumptions and a comparison of the resulting pension benefits must be calculated before and after the change. The periods before and after the plan amendment, curtailment or settlement are treated separately in subsequent measurement. The improvements were endorsed by the European Union on March 13, 2019. Only minor effects resulted from the improvements to IAS 19 for BASF in 2019.

IFRSs and IFRICs not yet to be considered but already endorsed by the E.U.

The effects on the BASF Group financial statements of the IFRSs and IFRICs not yet in force in 2019 but already endorsed by the European Union were reviewed and are explained below. BASF currently assumes that they will have no material effect on the Consolidated Financial Statements.

Amendments to References to the Conceptual Framework in IFRS Standards

The amendments update references to and quotes from the Conceptual Framework. The amendments were endorsed by the E.U. on November 29, 2019. The revised Conceptual Framework issued on March 29, 2018 replaces the previous Conceptual Framework from 2010. The main changes primarily relate to the definition, recognition and measurement of assets and liabilities, as well as the differentiation between income and expense and other comprehensive income. The amendments are to be applied for the first time in the first reporting period of the fiscal year beginning on or after January 1, 2020.

Amendments to IAS 1 – Financial Statement Presentation and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors

The amendments issued by the IASB on October 31, 2018 provide a uniform and more precise definition of the materiality of information provided in the financial statements, together with accompanying examples. In this connection, the definitions in the Conceptual Framework, IAS 1, IAS 8 and the IFRS Practice Statement 2 (Making Materiality Judgements) were harmonized. The amendments were endorsed by the E.U. on November 29, 2019 and are to be applied for the first time on or after January 1, 2020.

Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest Rate Benchmark Reform

The IASB issued amendments to IFRS 9, IAS 39 and IFRS 7 on September 26, 2019. They are based on existing uncertainties with regard to the IBOR reform. According to current hedge accounting policies, pending adjustments to benchmark interest rates would, in many cases, result in an end to hedging relationships. It is now possible to continue accounting for existing hedge accounting relationships during the transition period. The amendments stipulate specific mandatory exceptions to the previous hedge accounting rules, for example, the assessment of highly probable criteria for expected cash flow hedging transactions. The amendments were endorsed by the E.U. on January 15, 2020 and are to be applied for the first time on or after January 1, 2020.

IFRSs and IFRICs not yet to be considered and not yet endorsed by the E.U.

The IASB issued further amendments to standards and interpretations which are still subject to E.U. endorsement and whose application is not yet mandatory. These amendments are unlikely to have a material impact on the reporting of BASF. BASF does not plan on early adoption of these amendments.

Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The IASB issued amendments to IFRS 10 and IAS 28 on September 11, 2014. The amendments address a known inconsistency between the requirements of IFRS 10 and IAS 28 (2011) in the case of the sale of an asset to an associated company or a joint venture or the contribution of an asset to an associated company or a joint venture. Pursuant to IFRS 10, a parent company must recognize the total amount of any gains or losses in profit or loss from the sale of a subsidiary when control ceases to exist. By contrast, IAS 28.28 requires that profits from a disposal from a transaction between an investor and an associated company or joint venture must only be recognized in the amount of the others’ share in this company.

IASB has postponed the effective date of the changes indefinitely.

Amendments to IFRS 3 – Business Combinations

The amendments issued on October 22, 2018, clarify that a business is a set of activities and assets with at least one input and one substantive process that together significantly contribute to the ability to create outputs. Outputs are defined as the provision of goods and services to customers. The existing reference to cost reduction was removed. In addition, the new provisions also contain an optional concentration test designed to simplify identification of a business. Subject to adoption by EU legislation, the modified definition is to be applied to business combinations with an acquisition date on or after January 1, 2020.