1 – Basis of Presentation

The Consolidated Financial Statements of the BASF Group for the year ending December 31, 2019, were prepared in accordance with the International Financial Reporting Standards (IFRS) in effect as of the balance sheet date. The Consolidated Half-Year Financial Statements as of June 30, 2020, have been prepared – in line with the rules of International Accounting Standard 34 – in abbreviated form and largely continuing the same accounting policies.

One change arose with respect to the presentation of some of the investments accounted for using the equity method that are not an integral part of the BASF Group. These include, in particular, the shares in Wintershall Dea GmbH, Kassel/Hamburg, Germany, and Solenis UK International Ltd., London, United Kingdom. To increase reporting transparency, these will be classified in the future as purely financial investments and reported separately from the shareholdings that are integral to the main business activities of the BASF Group. One material equity-accounted interest that has been classified as integral is BASF-YPC Company Ltd., Nanjing, China. Consequently, income from non-integral companies accounted for using the equity method is not presented in the BASF Group’s EBIT and EBIT before special items, but under net income from shareholdings. Due to its increased significance, this will be presented as a separate subtotal within income before income taxes and is no longer part of the financial result. Integral and non-integral investments accounted for using the equity method will also be shown separately in the balance sheet. The statement of income for 2019 has been restated accordingly.

In the second half of 2019, the gain on the disposal of the oil and gas business was adjusted retroactively as of May 1, 2019. This led to changes to income after taxes from discontinued operations, non-integral investments accounted for using the equity method, and deferred tax liabilities. In addition, the statement of income for 2019 was adjusted retroactively on presentation of the construction chemicals activities as a discontinued operation from December 21, 2019, onward.

The Condensed Consolidated Half-Year Financial Statements and the Consolidated Interim Management’s Report have not been audited, nor have they undergone an auditor’s review.

Accounting policies applied for the first time in 2020

Amendments to References to the Conceptual Framework in IFRS Standards

The amendments update references to and quotes from the Conceptual Framework and 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. They have no effect on BASF’s Consolidated Financial Statements.

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. They have no effect on the reporting of BASF.

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, completing Phase 1 of the Interest Rate Benchmark Reform project. The amendments relate to existing uncertainties surrounding the interest rate benchmark reform. According to the original hedge accounting policies, pending adjustments to interest rate benchmarks would, in many cases, have resulted in an end to hedging relationships. The amendments to IFRS 9 and IAS 39 ensure the continuity of hedging relationships despite existing uncertainties regarding interest rate benchmarks, for example by defining that the highly probable requirement is always considered to be met. In connection with the amendments to IFRS 9 and IAS 39, additional disclosure requirements were added to IFRS 7. The amendments were endorsed by the E.U. on January 15, 2020. This change does not have any impact on BASF as of June 30, 2020, as no hedging relationships affected by interest rate benchmarks were subject to hedge accounting.

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. The modified definition was endorsed by the E.U. on April 21, 2020, and is to be applied to business combinations with an acquisition date on or after January 1, 2020. These amendments have no material effect on the reporting of BASF.

The IASB has proposed a further amendment to IFRS 16 – Leases relating to COVID-19-related rent concessions. This amendment is to be applied from June 1, 2020, onward but has not yet been endorsed by the E.U. These amendments are not expected to have any effect on the reporting of BASF.