Notes

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Effects of new and amended IFRSs

Volkswagen AG has applied all accounting pronouncements adopted by the EU and effective for periods beginning in fiscal year 2022.

As of January 1, 2022, a number of new rules entered into force following the issuance of Annual Improvements to International Financial Reporting Standards 2018-2020. They include amendments clarifying IFRS 1, IFRS 9, IFRS 16 and IAS 41. As IFRS 1 governs the first-time adoption of IFRSs and IAS 41 deals with accounting in agriculture, these amendments to standards do not have any effect on the Volkswagen Group. The amendment to IFRS 9 provides clarification of the fees that a company should include when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. An example in the Illustrative Examples accompanying IFRS 16 was removed; it had repeatedly caused confusion with regard to leasehold improvements.

In addition to this, amendments were made to IAS 16, that have also been applicable since January 1, 2022. Pursuant to these amendments, the proceeds from the sale of goods produced in the testing phase of property, plant and equipment are now recognized in profit or loss rather than as a deduction from cost. This means that costs and revenue resulting from the production of goods during the testing phase of property, plant and equipment are now recognized separately in expense and income.

Amendments to IAS 37 have also been applicable since January 1, 2022. These clarify that when assessing whether a contract is an onerous contract, the cost of fulfilling the contract must include not only the incremental costs but also other costs that relate directly to fulfilling the contract (e.g. the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

Finally, IFRS 3 was amended with an updated reference to the Conceptual Framework and clarifications were added to ensure that the accounting practice pursuant to IFRS 3 can essentially remain unchanged.

As from January 1, 2021, the application of amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Interest Rate Benchmark Reform – Phase 2) became mandatory.

The Volkswagen Group is exposed to the interest rate benchmark reform regarding its variable IBOR-related transactions. To avoid any material risk arising from the transition to alternative benchmark rates (interest rate basis risk, liquidity risk, litigation risk, operational risk) risk management strategies and procedures have been implemented. The Volkswagen Group has closely monitored the market and the output from the various industry working groups managing the transition to new benchmark interest rates. This includes announcements made by the IBOR regulators. 

Regarding financial instruments that reference discontinued benchmark rates, the Volkswagen Group aims to complete its transition process prior to their official cessation dates, i.e. any existing derivatives transactions (“legacy trades”) have been or will be transitioned to alternative benchmark rates (active approach) rather than relying on the incorporation of a contractual fallback language made available by the International Swaps and Derivatives Association (ISDA) via ISDA 2020 IBOR Fallbacks Protocol or respective bilateral agreements with the Group’s counterparties (passive approach). For new derivatives transactions that reference discontinued rates (if any), respective fallback mechanisms have been incorporated into the relevant framework agreements with the Group’s counterparties via ISDA 2020 IBOR Fallbacks Supplement to the 2006 ISDA Definitions, the 2021 ISDA Interest Rate Derivatives Definitions and/or the 2018 ISDA Benchmark Supplement.

The exposures of financial instruments that are still affected by the interest rate benchmark reform at the reporting date arise on derivative and non-derivative financial assets and liabilities. They are exposed to the following significant benchmark rates. From the Volkswagen Group’s point of view, EURIBOR is not affected by a replacement and these types of financial instruments are therefore not included in the disclosure.

Disclosures on exposures impacted by interest rate benchmark reform as at December 31, 2022:

€ million

 

Non-derivative financial assets Carrying amount

 

Non-derivative financial liabilities Carrying amount

 

Derivatives Nominal amount

 

 

 

 

 

 

 

USD LIBOR

 

47

 

3,933

 

10,011

CAD CDOR

 

15

 

265

 

2,339

SEK STIBOR

 

0

 

1,693

 

2,483

Total

 

62

 

5,891

 

14,833

The amendments referred to above do not materially affect the Volkswagen Group’s net assets, financial position and results of operations.

New and amended IFRSs not applied

In its 2022 consolidated financial statements, Volkswagen AG did not apply the following accounting pronouncements that have been adopted by the IASB until December 31, 2022, but were not yet required to be applied for the fiscal year.

Standard/Interpretation

 

Published by the IASB

 

Application mandatory1

 

Adopted by the EU

 

Expected impact

 

 

 

 

 

 

 

 

 

 

 

IFRS 16

 

Sale and Leaseback Transactions

 

Sept. 22, 2022

 

Jan. 1, 2024

 

No

 

No material impact

IFRS 17

 

Insurance Contracts

 

May 18, 2017

 

Jan. 1, 2023

 

Yes2

 

Detailed descriptions after the overview in the table

IFRS 17

 

Insurance Contracts – several amendments

 

June 25, 2020

 

Jan. 1, 2023

 

Yes2

 

Detailed descriptions after the overview in the table

IFRS 17

 

Initial application of IFRS 17 and IFRS 9 – Comparative information

 

Dec. 12, 2021

 

Jan. 1, 2023

 

Yes2

 

No material impact

IAS 1

 

Classification of liabilities as current or non-current

 

Jan. 23, 2020

 

Jan. 1, 2024

 

No

 

No material impact

IAS 1

 

Disclosure of Accounting Policies

 

Feb. 12, 2021

 

Jan. 1, 2023

 

Yes

 

Adjustments to the corresponding explanatory notes. Primarily choice not to present the legal requirements.

IAS 1

 

Non-current liabilities with Covenants

 

Oct. 31, 2022

 

Jan. 1, 2024

 

No

 

No material impact

IAS 8

 

Definition of Accounting Estimates

 

Feb. 12, 2021

 

Jan. 1, 2023

 

Yes

 

No material impact

IAS 12

 

Deferred taxes on leases and decommissioning and restoration liabilities

 

May 7, 2021

 

Jan. 1, 2023

 

Yes

 

No material impact

1

Effective date from Volkswagen AG’s perspective.

2

The EU’s endorsement includes an option that exempts companies from applying a valuation requirement in certain cases.

IFRS 17 – INSURANCE CONTRACTS

IFRS 17 amends the guidance for accounting for insurance contracts, replacing the existing IFRS 4 standard. The Volkswagen Group will transition to the new guidance of IFRS 17 for the first time as of January 1, 2023, generally applying the full retrospective approach and, under certain circumstances, the modified retrospective approach. Based on current estimates for the portfolio of insurance contracts as of January 1, 2023, the transition to the amended system is expected to result in a decrease in equity in the mid-double-digit million euro range. Due to the net approach to measurement, there will equally be a reduction in assets and provisions relating to the insurance business in the mid-three-digit million euro range.