Published Financial Reporting Standards That Have Not yet Been Applied
IFRS 15 (Revenue from Contracts with Customers) is the new standard for revenue recognition that is to be applied for annual reporting periods beginning on or after January 1, 2018.
Bayer will implement IFRS 15 on the basis of the modified retrospective method, accounting for the aggregate amount of any transition effects by way of an adjustment to retained earnings as of January 1, 2018, and presenting the comparative period in line with previous rules. All of the established business models for the Bayer Group were examined in the course of the implementation project. The previous assessment that the new standard is not expected to materially affect the timing of revenue recognition for the transactions concerned or their components has been confirmed for companies examined since then. The analysis has not yet been completed in a number of material consolidated companies. Furthermore, the evaluation of certain individual licensing agreements has not yet been completed. With regard to total Group sales, there are indications of immaterial transition effects due to the different accounting of milestone payments in connection with right-to-access licenses and with regard to the recognition of revenues from trademark rights divested in the past. This is likely to result in an immaterial increase in retained earnings on the transition date. IFRS 15 clarifies the allocation of individual topics to (new) line items in the statement of financial position and to functional cost items in the income statement, and whether gross or net amounts are to be presented. Determination of the effects on the level of sales or selling expenses has since been completed. Overall, based on current knowledge, we do not anticipate any material effects on the presentation of the financial position or results of operations, or on earnings per share.
IFRS 9 (Financial Instruments) is the new standard for accounting for financial instruments that is to be applied for annual reporting periods beginning on or after January 1, 2018.
The evaluation of this standard’s impact on the presentation of Bayer’s financial position and results of operations has not yet been completed.IFRS 9 introduces new provisions for the classification and measurement of financial assets and replaces the current rules on the impairment of financial assets. The new standard requires a change in accounting methods for the effects resulting from a change in the company’s own credit risk for financial obligations classified at fair value and modifies the requirements for hedge accounting. In addition, the classification and measurement of financial obligations is largely unchanged from the current regulations.
According to IFRS 9, the classification and measurement of financial assets is determined by the company’s business model and the characteristics of the cash flows of each respective financial asset. Based on current knowledge, the effects of these changes in the classification of financial assets and the related impact on earnings are estimated to be immaterial. In the case of equity instruments held as of January 1, 2018, that are not held for trading, Bayer prospectively will uniformly opt to recognize future changes in their fair value as other comprehensive income in the statement of comprehensive income and to continue to classify these as equity upon the derecognition of the financial instrument. Furthermore, IFRS 9 will lead to an increase in accounting measures for defaults from expected credit risks of financial assets including trade accounts receivable. Based on our current analyses, accounting measures for expected credit risks from trade accounts receivable could increase by up to €100 million. Analysis of the measurement effects for other financial assets has not yet been completed. The actual impact of these measurement changes depends on the balance of trade accounts receivable and of other financial assets and on country-specific economic forecasts as of the date on which they go into effect. In the future, changes in the fair values of financial liabilities at fair value through profit or loss that result from Bayer’s own credit risk will be recognized as other comprehensive income in the statement of comprehensive income rather than in the income statement. At Bayer this change applies particularly to the debt instruments (exchangeable bond) issued in June 2017 that can also be converted into Covestro shares. Based on current knowledge, however, we do not anticipate any material effects on these items. If only the intrinsic value of an option is designated as a hedging instrument in a hedging relationship, IFRS 9 requires that changes in the fair value of the time value component of options initially be recognized as other comprehensive income in the statement of comprehensive income for the duration of the hedging relationship. Subsequent accounting depends on the type of the hedged transaction. The revised accounting method is to be applied retrospectively. Bayer is currently examining the effects of these changes on the presentation of the Group’s financial position and results of operations.