1.2 – Changes in Accounting Principles

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 had no material effect on BASF’s Consolidated Financial Statements.

Amendments to IAS 1 – Presentation of Financial Statements 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 had no material effect on the reporting of BASF.

Amendments to IFRS 9 – Financial Instruments, IAS 39 – Financial Instruments: Recognition and Measurement, and IFRS 7 – Financial Instruments: Disclosures – 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, disclosure requirements were added to IFRS 7. The amendments were endorsed by the E.U. on January 15, 2020. This change did not have a material impact on BASF 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 specify 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 as a characteristic of business combinations 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. These amendments had no material effect on the reporting of BASF.

Amendments to IFRS 16 – Leases Relating to Coronavirus-Related Rent Concessions

On May 28, 2020, the IASB issued an amendment to IFRS 16 aimed at simplifying lessees’ accounting of concessions, such as deferments of rent payment or deductions in rent prices, which are granted as a direct result of the coronavirus pandemic. If certain requirements are met, lessees may forego the determination of whether a coronavirus-related rent concession presents a modification of the lease agreement. These amendments were endorsed by the E.U. on October 9, 2020. They had no material effect on BASF.

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 2020 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. It does not plan on early adoption of these amendments.

Amendments to IFRS 4 – Insurance Contracts – Extension of Temporary Exemption from Application of IFRS 9

The amendments to IFRS 4 issued on June 25, 2020 are aligned with the two-year postponement of the date on which IFRS 17 will come into force to reporting periods beginning on or after January 1, 2023. They include an analog extension of the temporary exemption period for certain insurance companies from application of IFRS 9 – Financial Instruments, requiring these insurance companies to apply IFRS 9 for the first time in fiscal years beginning on or after January 1, 2023. The amendments were endorsed by the E.U. on December 15, 2020 and are to be applied for the first time on or after January 1, 2021.

Amendments to IFRS 9 – Financial Instruments, IAS 39 – Financial Instruments: Recognition and Measurement, IFRS 7 – Financial Instruments: Disclosure, IFRS 4 – Insurance Contracts, and IFRS 16 – Leases – Interest Rate Benchmark Reform – Phase 2

The amendments from phase 2 of the Interest Rate Benchmark Reform, which were issued on August 27, 2020, are intended to simplify accounting during the IBOR reform. They supplement the requirements from the first phase and generally deal with the replacement of one benchmark interest rate with another. With respect to the presentation of financial instruments, it was clarified that in the case of changes to contractual cash flows, the carrying amount of financial instruments is not to be adjusted or derecognized. Under certain conditions, the effective interest rate can be changed to reflect the change in the alternative interest rate benchmark. Similarly, with respect to the accounting treatment of hedging transactions, under certain conditions, it is not necessary to end a hedge accounting relationship designated for hedge accounting purposes due to changes arising from the IBOR reform. In addition, minor changes to IFRS 16 and IFRS 4 as well as additional IFRS 7 disclosure requirements were adopted. The amendments were endorsed by the E.U. on January 13, 2021 and will come into force for fiscal years beginning on or after January 1, 2021.

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 IAS 1 – Presentation of Financial Statements – Classification of Liabilities

The IASB issued amendments to IAS 1 on January 23, 2020. The amendments pertain to a limited modification of the relevant criteria used to classify liabilities as current or noncurrent. They specify that the classification of liabilities as current depends on the company’s rights as of the balance sheet date to postpone settlement of the liability by a minimum of 12 months after the end of the reporting period. If such rights exist, the liability is classified as noncurrent. Otherwise, it is classified as current. Classification is irrespective of management’s expectations and of possible events after the balance sheet date. It also specifies that settlement of a liability is defined as the repayment of a liability using cash, other economic resources or a company’s own equity instruments. The IASB issued a further amendment on July 15, 2020 whereby the date of initial application of the amendment on classification of liabilities will be postponed by one year to January 1, 2023 – subject to endorsement by the E.U.

Amendments to IFRS 3 – Business Combinations, IAS 16 – Property, Plant and Equipment, IAS 37 – Provisions, Contingent Liabilities and Contingent Assets as well as Annual Improvements to IFRS 2018–2020

These amendments were issued on May 14, 2020 and – subject to E.U. endorsement – will come into force on January 1, 2022.

The amendments to IFRS 3 include an update of the reference to the Conceptual Framework in IFRS standards. Furthermore, an additional provision will be added to IFRS 3 stating that an acquirer must apply the provisions from IAS 37 and IFRIC 21 rather than the Conceptual Framework when identifying assumed liabilities within the scope of these standards. The content of the accounting rules for business combinations will not change.

The amendments to IAS 16 specify that income received by a company through the sale of items produced while the asset is being brought to its location and into working order must be recognized with the associated costs in profit or loss. Including these items in the cost of the asset is not permissible.

The amendments to IAS 37 pertain to the definition of the costs a company includes when determining if a contract will cause losses. Accordingly, settlement costs are all costs that would not be incurred without the contract (incremental cost) as well as other costs directly attributable to the contract.

The annual improvements to IFRS 2018–2020 pertain to amendments to IFRS 9 – Financial Instruments, whereby only such costs and fees which are paid to the lender by the company and vice versa are to be included in the “10% test” for the purpose of derecognition of financial liabilities. Costs or fees paid to other third parties may not to be included. Moreover, they pertain to minor amendments to IFRS 1 – First-Time Adoption of International Financial Reporting Standards, IAS 41 – Agriculture, and to the explanatory examples of IFRS 16 – Leases.

IFRS 17 – Insurance Contracts, including amendments to IFRS 17

On March 18, 2020, the IASB decided to postpone the date on which IFRS 17 will enter into force to fiscal years beginning on or after January 1, 2023. The amendment was issued on June 25, 2020. It has not yet been endorsed by the E.U. IFRS 17 was issued on May 18, 2017 and provides requirements on recognition, measurement and presentation of insurance contracts within the scope of the standard. IFRS 17 will replace IFRS 4.

Amendments to IAS 1 – Presentation of Financial Statements and IFRS Practice Statement 2 – Making Materiality Judgements

The amendments were issued on February 12, 2021. The amendments to IAS 1 – Disclosure of Accounting Policies – requires that only material accounting policies shall be disclosed in the notes in the future. Accounting policy information is material if it relates to material transactions or events and there is a reason to consider materiality (for example a change in accounting policy). The guidelines in IFRS Practice Statement 2 were accordingly adjusted. The amendments are to be applied in the fiscal year beginning on or after January 1, 2023 - subject to endorsement by the E.U. The effect on the reporting of BASF will be examined.

Amendments to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors

The amendments issued on February 12, 2021, clarify how entities can better distinguish between changes resulting from changes in accounting policies from changes in accounting estimates. For this purpose, accounting estimates are defined as “monetary amounts in financial statements that are subject to measurement uncertainty”. The amendments are to be applied in the fiscal year beginning on or after January 1, 2023 – subject to endorsement by the E.U. The effect on the reporting of BASF will be examined.