1. Summary of Accounting Policies

1.1 General information

BASF SE (registered at the district trade register, or Amtsgericht, for Ludwigshafen am Rhein, number HRB 6000) is a publicly listed corporation headquartered in Ludwigshafen am Rhein, Germany. Its official address is Carl-Bosch-Str. 38, 67056 Ludwigshafen am Rhein, Germany.

The Consolidated Financial Statements of BASF SE as of December 31, 2023, have been prepared in accordance with the International Financial Reporting Standards (IFRS) of the International Accounting Standards Board (IASB), and section 315e (1) of the German Commercial Code (HGB). IFRSs are generally only applied after they have been endorsed by the European Union. For the 2023 fiscal year, all of the binding IFRSs and pronouncements of the International Financial Reporting Interpretations Committee (IFRIC) were applied. The Consolidated Financial Statements are for the period from January 1, 2023 to December 31, 2023, and are presented in euros. They are written in German and translated into English. All amounts, including the figures for previous years, are given in million euros unless otherwise indicated.

Due to rounding, individual figures in this report may not add up to the totals shown and percentages may not correspond exactly to the figures shown.

The individual financial statements of the consolidated companies are prepared as of the balance sheet date of the Consolidated Financial Statements. Business continuity is assumed. The accounting policies applied are largely the same as those used in 2022.

For more information, see:

• Note 1.3
• Note 10

On February 19, 2024, the Board of Executive Directors prepared the Consolidated Financial Statements, submitted them to the Supervisory Board for review and approval, and released them for publication.

1.2 Changes in accounting principles

Accounting policies applied for the first time in 2023

The amendments presented in the following table had no material effect on the Consolidated Financial Statements of BASF SE. Especially transactions within the scope of application of IFRS 17 were identified for BASF to a minor extent only.

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 2023 but already endorsed by the European Union were reviewed. The amendments to IFRS 16 and IAS 1 are unlikely to have a material impact on the reporting of BASF and were not adopted early.

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 not likely to have a material impact on BASF’s reporting. BASF does not plan on early adoption of these amendments.

1.3 Group accounting principles

Scope of consolidation: The scope of consolidation is based on the application of the standards IFRS 10 and 11.

According to IFRS 10, a group consists of a parent entity and the subsidiaries controlled by the parent. “Control” of an investee assumes the simultaneous fulfillment of the following three criteria:

• The parent company holds decision-making power over the relevant activities of the investee
• The parent company has rights to variable returns from the investee
• The parent company can use its decision-making power to affect the variable returns

Fulfillment of these three criteria is analyzed based on the corporate governance structure of the companies.

According to IFRS 11, which regulates the accounting of joint arrangements, a distinction must be made between joint ventures and joint operations. In the case of a joint venture, the parties that have joint control of a legally independent company have rights to the net assets of that arrangement. In joint operations, the parties that have joint control have direct rights to the assets and obligations for the liabilities relating to the arrangement. This requirement is particularly fulfilled if the production output of the joint arrangement is almost entirely transferred to the partners, through which the partners guarantee the joint arrangements’ ongoing financing.

Companies whose corporate governance structures classify them as joint arrangements are analyzed to determine if they meet the criteria for joint ventures or joint operations in accordance with IFRS 11. Should the arrangement be structured through a separate vehicle, its legal form, contractual arrangements and all other facts and circumstances are reviewed.

In addition to BASF SE, the Consolidated Financial Statements include all material subsidiaries on a fully consolidated and all material joint operations on a proportionally consolidated basis. Companies of minor importance for the presentation of a true and fair view of the net assets, financial position and results of operations, are not consolidated, but rather are reported under other shareholdings. These companies are carried at amortized cost and are written down in the case of an impairment. The aggregate assets and equity of these companies amount to less than 1% of the corresponding value at Group level.

Joint ventures and associated companies are accounted for using the equity method in the Consolidated Financial Statements. Associated companies are entities that are not subsidiaries, joint ventures or joint operations, and over whose operating and financial policies significant influence can be exercised. In general, this applies to companies in which BASF has an investment of between 20% and 50%. Associated companies and joint ventures that are fully or predominantly allocated to operating divisions are classified as integral because they are integrated into the value chain of the respective division; are controlled by the divisions; and they generate their income in close cooperation with the other assets of the BASF Group and/or of these divisions. Equity-accounted income from integral joint ventures or associated companies is reported as part of income from operations (EBIT). Equity-accounted income from non-integral associated companies is reported in net income from shareholdings.

• For more information, see Note 10

Consolidation methods: Assets and liabilities of consolidated companies are uniformly recognized and measured in accordance with the principles described herein. For companies accounted for using the equity method, material deviations in measurement resulting from the application of other accounting principles than those applied by BASF are adjusted.

Transactions between consolidated companies as well as intercompany profits resulting from trade between consolidated companies are eliminated in full. Sales and material other balances and transactions between joint operations and fully consolidated Group companies are also eliminated. Material intercompany profits related to companies accounted for using the equity method are eliminated.

Capital consolidation is conducted at the acquisition date according to the purchase method. Initially, all assets, liabilities and additional intangible assets that are to be capitalized are measured at fair value regardless of the scope of any noncontrolling interests. Subsequently, the cost of acquiring the company is compared with the proportional share of the fair value of the net assets acquired. The resulting positive differences are capitalized as goodwill. Negative differences are reviewed once more, then recognized directly in the income statement.

Non-controlling interests are measured at fair value on the date of acquisition proportional to the assets acquired and liabilities assumed (partial goodwill method).

The incidental acquisition costs of a business combination are recognized in the income statement under other operating expenses.

• For more information, see Note 13

Foreign currency translation: The cost of assets acquired in foreign currencies and revenue from sales in foreign currencies are determined by the exchange rate on the date the transaction is recognized. Foreign currency receivables and liabilities are valued at the exchange rates on the balance sheet date. Changes in assets and liabilities arising from foreign currency translation are recognized in the income statement. They are then reported under other operating income or expenses, other financial result, and, in the case of financial assets measured at fair value through other comprehensive income, in other comprehensive income.

Translation of foreign currency financial statements: The translation of foreign currency financial statements depends on the functional currency of the consolidated companies. For companies whose functional currency is not the euro, translation into the reporting currency is based on the closing rate method: Balance sheet items are translated into euros using closing rates on the balance sheet date; expenses and income are translated into euros at monthly average rates and accumulated for the year. The difference between a company’s equity translated at historical rates at the time of acquisition or retention and its equity translated at closing rates on the balance sheet date is reported under other comprehensive income (translation adjustments) and is recognized in the income statement only upon the disposal of the company or a foreign business.

For certain companies outside the eurozone or U.S. dollar zone, the euro or U.S. dollar is the functional currency (among others, BASF Tuerk Kimya Sanayi ve Ticaret Ltd. Sti., Istanbul, Turkey, and BASF Argentina S.A., Buenos Aires, Argentina). In such cases, financial statements prepared in the local currency are translated into the functional currency using the temporal method: All nonmonetary assets and related depreciation and amortization as well as equity are translated at the exchange rate applying to the respective transactions. All other balance sheet items are translated using closing rates on the balance sheet date; other expenses and income are translated at monthly average rates. The resulting translation differences are recognized in the income statement under other operating income or expenses. If necessary, financial statements in the functional currency are translated into the presentation currency according to the closing rate method.

1.4 Accounting policies

The accounting policies for the individual items in the balance sheet and the income statement are presented in the respective sections of the Notes.

Business combinations: In business combinations, the acquired assets and liabilities are recognized at fair value on the date the acquirer effectively obtains control. The fair value of acquired assets and assumed liabilities at the date of acquisition, as well as the useful lives of the acquired assets, are largely based on projected cash flows. Actual cash flows can deviate significantly from those. Independent external appraisals are typically used for the purchase price allocation of material business combinations. Valuations in the course of business combinations are based on existing information as of the acquisition date.

Use of estimates and assumptions in preparing the Consolidated Financial Statements

The carrying amount of assets, liabilities and provisions, contingent liabilities and other financial obligations reported in the Consolidated Financial Statements depends on the use of estimates, assumptions and discretionary scope. Specific estimates or assumptions used in individual accounting or valuation methods are disclosed in their respective sections of the Notes to the Consolidated Financial Statements. They are based on the circumstances and estimates on the balance sheet date and thus affect the amounts of income and expenses shown for the reporting periods presented. These assumptions primarily relate to the determination of discounted cash flows in the context of impairment tests and purchase price allocations; the useful lives of depreciable property, plant and equipment and intangible assets; the carrying amount of shareholdings; and the measurement of provisions for items such as employee benefits, warranties, trade discounts, environmental protection or the extent of recognition of assets, liabilities and provisions for taxes. Although uncertainty is appropriately incorporated in the valuation factors, actual results can differ from these estimates. Furthermore, extraordinary challenges resulting from current geopolitical and economic developments are also considered. Current inflation developments were taken into account both in the measurement of pension provisions and other provisions as well as in the fixed asset impairment tests.

Climate and sustainability-related developments: The chemical industry is resource-intensive. BASF is committed to the Paris Climate Agreement: Using resources as efficiently and responsibly as possible and the concept of a circular economy are firmly embedded in BASF’s strategy and its actions. BASF pursues clearly defined goals to reduce CO₂ as well regarding the use of renewable and recycled raw materials. In this context, BASF always strives to employ raw materials more efficiently and improve production processes as well as to continually seek ways to use non-fossil, renewable or recycled feedstocks. Despite the current global political situation, the path to climate neutrality is resolutely being pursued. For this reason, current developments and measures relating to climate change and sustainability do not lead to fundamentally changed expectations with regard to useful lives or recoverability of the majority of noncurrent assets. There is also no material need for adjustments to provisions for environmental and restoration obligations. In individual cases, however, plants may be shut down if necessary for reasons of environmental protection. Climate policies are also causing fundamental changes in the automotive industry, one of BASF’s key customer industries. The transition to electromobility will have a long-term negative impact on the emissions catalyst business. This development was reflected in a negative long-term growth rate used in the goodwill impairment test for the Catalysts (excluding battery materials) cash-generating unit without leading to an impairment. Other BASF businesses will benefit from this transformation; for example, demand for innovative lightweight components and battery materials will grow.