Financial Statements

3. Effects of New Financial Reporting Standards

Financial reporting standards applied for the first time in 2014

The first-time application of the following amended financial reporting standards had no impact, or no material impact, on the presentation of the Group financial position or results of operations, or on earnings per share.

In December 2011, the iasb issued amendments to ias 32 (Financial Instruments: Presentation) entitled “Offsetting Financial Assets and Financial Liabilities.” The amendments clarify the meaning of “right of set-off in all circumstances” and “simultaneous settlement.”

In October 2012, the iasb issued amendments to ifrs 10 (Consolidated Financial Statements), ifrs 12 (Disclosure of Interests in Other Entities) and ias 27 (Separate Financial Statements) entitled “Investment Entities.” The amendments exempt investment entities from the requirement to consolidate certain subsidiaries according to ifrs 10. Instead, they must recognize them at fair value through profit or loss. ifrs 12 introduces additional disclosure requirements for investment entities.

In May 2013, the ifrs ic issued the interpretation ifric 21 (Levies). The interpretation covers the accounting for government-imposed levies with the exception of income taxes covered by ias 12 (Income Taxes). It also provides guidance on when to recognize a liability for a levy. In terms of the ifrs, the interpretation is effective for annual periods beginning on or after January 1, 2014. For companies in the European Union, application of the interpretation is mandatory for annual periods beginning on or after June 17, 2014. The interpretation was early applied as of January 1, 2014.

In November 2013, the iasb published narrow-scope amendments to ias 19 (Employee Benefits) under the title “Defined Benefit Plans: Employee Contributions.” These amendments address the accounting for contributions from employees or third parties to defined benefit pension plans according to whether the contributions are linked to service. Under certain conditions, such contributions may be accounted for as a reduction in current service cost in the period in which the related service was rendered. The amendments are to be applied for annual periods beginning on or after July 1, 2014. Earlier application is permitted. The amendments were early applied.

Published financial reporting standards that have not yet been applied

The iasb and the ifrs Interpretations Committee have issued the following standards, amendments to standards, and interpretations whose application was not yet mandatory for the 2014 fiscal year and is conditional upon their endorsement by the European Union.

In November 2009, the iasb issued ifrs 9 (Financial Instruments), containing rules for the classification and measurement of financial assets. In October 2010, it issued new requirements for the classification and measurement of financial liabilities, incorporating them into ifrs 9. The new standard defines two instead of four measurement categories for financial assets, with classification to be based partly on the company’s business model and partly on the characteristics of the contractual cash flows from the respective financial asset. In the case of equity investments that are not held for trading, an entity may irrevocably opt at initial recognition to recognize future changes in their fair value outside profit or loss in the statement of comprehensive income. In November 2013, the iasb issued further amendments under the title “Hedge Accounting and amendments to ifrs 9, ifrs 7 and ias 39.” The focus of the amendments is on a thorough revision of hedge accounting rules with the aim of more appropriately reflecting risk management activities in the financial statements. This involves additional disclosures in the notes. In July 2014, the iasb published the new rules for the disclosure of financial instrument impairments. This new impairment model is based on the principle of accounting for expected losses. ifrs 9 is to be applied for annual periods beginning on or after January 1, 2018. The standard has not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact the standard will have on the presentation of its financial position and results of operations.

In December 2013, the iasb published the fifth and sixth sets of “Annual Improvements to ifrss.” The amendments address details of the recognition, measurement and disclosure of business transactions and serve to standardize terminology. They consist mainly of editorial changes to existing standards. They are to be applied for annual periods beginning on or after July 1, 2014. Earlier application is permitted. The amendments have not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.

In January 2014, the iasb issued ifrs 14 (Regulatory Deferral Accounts). This standard addresses the accounting for regulatory deferral account balances by first-time adopters of the ifrs and therefore does not apply to entities that already prepare their financial statements according to the ifrs. ifrs 14 is to be applied for annual periods beginning on or after January 1, 2016. The standard has not yet been endorsed by the European Union. ifrs 14 will have no impact on the presentation of the Group’s financial position or results of operations.

In May 2014, the iasb published amendments to ias 16 (Property, Plant and Equipment) and ias 38 (Intangible Assets) entitled “Clarification of Acceptable Methods of Depreciation and Amortisation.” These amendments clarify that revenue-based depreciation of property, plant and equipment or amortization of intangible assets is inappropriate. The amendments are to be applied for annual periods beginning on or after January 1, 2016. Earlier application is permitted. First-time application must take place prospectively. The amendments have not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.

In May 2014, the iasb published amendments to ifrs 11 (Joint Arrangements) entitled “Accounting for Acquisitions of Interests in Joint Operations.” The amendments clarify the accounting for the acquisition of an interest in a joint operation in which the activity constitutes a business. They are to be applied prospectively for annual periods beginning on or after January 1, 2016. Earlier application is permitted. The amendments have not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.

In May 2014, the iasb issued ifrs 15 (Revenue from Contracts with Customers). ifrs 15 is the new standard for revenue recognition. It clarifies that the expected consideration for goods or services must be recognized as revenue when the goods are transferred or the services are rendered to the customer. This principle is applied in five steps. In step 1, the contract with the customer is identified. In step 2, the distinct performance obligations in the contract are identified. In step 3, the transaction price is determined. In step 4, this transaction price is allocated to the distinct performance obligations. Finally, in step 5, revenue is recognized when the identified distinct performance obligations are satisfied, either over time or at a point in time. ifrs 15 replaces ias 11 (Construction Contracts), ias 18 (Revenue), ifric 13 (Customer Loyalty Programmes), ifric 15 (Agreements for the Construction of Real Estate), ifric 18 (Transfers of Assets from Customers) and sic-31 (Revenue-Barter Transactions Involving Advertising Services). The new standard is to be applied for annual periods beginning on or after January 1, 2017. Earlier application is permitted. First-time application must take place retrospectively (modified). The standard has not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact the standard will have on the presentation of its financial position and results of operations.

In June 2014, the iasb issued amendments to ias 16 (Property, Plant and Equipment) and ias 41 (Agriculture) entitled “Agriculture: Bearer Plants.” The amendments clarify that plants used solely to grow agricultural produce are to be accounted for according to ias 16 (Property, Plant and Equipment). The amendments are to be applied for annual periods beginning on or after January 1, 2016. Earlier application is permitted. The amendments have not yet been endorsed by the European Union. The changes are not expected to have a material impact on the presentation of the Group’s financial position or results of operations.

In September 2014, the iasb published the seventh set of “Annual Improvements to ifrss.” The amendments address details of the recognition, measurement and disclosure of business transactions and serve to standardize terminology. They consist mainly of editorial changes to existing standards. They are applicable for annual periods beginning on or after July 1, 2016. Earlier application is permitted. The amendments have not yet been endorsed by the European Union. The changes are not expected to have a material impact on the presentation of the Group’s financial position or results of operations.

In September 2014, the iasb published amendments to ifrs 10 (Consolidated Financial Statements) and ias 28 (Investments in Associates and Joint Ventures) entitled “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture.” The amendments clarify that in a transaction involving an associate or joint venture the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. The amendments are to be applied for annual periods beginning on or after January 1, 2016. Earlier application is permitted. The amendments have not yet been endorsed by the European Union. The Bayer Group is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.

In December 2014, further amendments were issued to ifrs 10 (Consolidated Financial Statements), ifrs 12 (Disclosure of Interests in Other Entities) and ias 28 (Investments in Associates and Joint Ventures) under the title “Investment Entities: Applying the Consolidation Exception.” The amendments largely clarify which subsidiaries an investment entity must consolidate and which must be recognized at fair value through profit or loss. The amendments are to be applied for annual periods beginning on or after January 1, 2016. Earlier application is permitted. The amendments have not yet been endorsed by the European Union. The changes are not expected to have a material impact on the presentation of the Group’s financial position or results of operations.

Changes in the reporting of functional costs and special items

To enhance the comparability and transparency of functional cost reporting, the organizational view was replaced in 2014 by a more function-based approach. This has the effect of reducing general administration expenses while increasing selling expenses and the cost of goods sold. In addition, certain special items are reflected in the respective functional costs rather than in other operating income or expenses so that their relationship to the functional costs is immediately apparent.

The prior-year figures are restated accordingly:

Accounting Changes: Consolidated Income Statement 2013 [Table 4.8]
  2013
  Before accounting
changes
Accounting changes After accounting
changes
  Functional cost Special items
         
Cost of goods sold (19,347) (69) (100) (19,516)
Gross profit 20,810 (69) (100) 20,641
         
Selling expenses (10,080) (159) (73) (10,312)
Research and development expenses (3,190) (4) (212) (3,406)
General administration expenses (1,883) 227 (56) (1,712)
Other operating income 897 5 (15) 887
Other operating expenses (1,620) 456 (1,164)
Last updated: February 26, 2015  Copyright © Bayer AG
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