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 2019.

A number of requirements entered into force on January 1, 2019 as part of the 2017 improvements to the International Financial Reporting Standards (2017 annual improvements project). They include clarifications to IAS 12, IAS 23, IFRS 3 and IFRS 11. Additions were made to IAS 12 (Income Taxes) to clarify that the way any income tax consequences of dividend payments are recognized is based on the way the transactions have been recognized that made the dividend payment possible. Furthermore, guidance was added to IAS 23 (Borrowing Costs) to clarify how the weighted average of the borrowing costs is determined. Moreover, additional guidance in IFRS 3 (Business Combinations) and IFRS 11 (Joint Arrangements) explains that, on obtaining control of equity investments formerly recognized as joint operations, the rules for a business combination achieved in stages must be applied.

The amendments to IAS 28 (Investments in Associates and Joint Ventures) clarify that, with effect from January 1, 2019, long-term financial instruments representing a net investment in an associate or joint venture that are not accounted for using the equity method should be accounted for using the impairment rules of IFRS 9 (Financial Instruments).

In addition, amendments to IFRS 9 (Financial Instruments) have applied since January 1, 2019, which clarify that certain financial instruments that include a prepayment feature with negative compensation can be measured at amortized cost or at fair value directly in equity.

IFRIC 23 (Uncertainty over Income Tax Treatments) also applies: it requires that tax risks must be taken into account if it is probable that the tax authorities will not accept tax treatments in the income tax filing.

Moreover, it was clarified in IAS 19 (Employee Benefits) that the actuarial assumptions must be updated at the time of a plan amendment, curtailment, or settlement.

The Volkswagen Group has opted for early application of the amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform (published on September 26, 2019). Application of the amendments would only have been mandatory from January 1, 2020. This affects hedges that existed at the beginning of the reporting period or have subsequently been designated. In application of the associated practical expedient, the Volkswagen Group assumes that the effectiveness of designated hedges will not be negatively impacted by the IBOR reform and that it will consequently not be necessary to terminate any hedges.

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


IFRS 16 amends the rules for lease accounting and replaces the previous IAS 17 standard and related interpretations.

The main objective of IFRS 16 is to recognize all leases. It establishes that lessees are no longer required to classify their leases as either finance leases or operating leases. In general, they are instead required to recognize a right-of-use asset and a lease liability for the leases in the balance sheet. In the Volkswagen Group the lease liability is measured on the basis of the present value of outstanding lease payments, while the right-of-use asset is generally measured at the amount of the lease liability plus any direct costs. During the lease term, the right-of-use asset must be depreciated and the lease liability adjusted using the effective interest method and taking the lease payments into account. IFRS 16 offers practical expedients for short-term and low-value leases; the Volkswagen Group makes use of this option and therefore does not recognize right-of-use assets or liabilities for these types of leases. In this respect, the lease payments are continued to be recognized in the income statement in the same way as before. At the initial application date, leases whose term ended before January 1, 2020 were reclassified as short-term leases, irrespective of the start date of the lease. In addition, existing leases were not reassessed at the initial application date to determine whether or not they are leases under the criteria of IFRS 16. Instead, contracts classified as leases under IAS 17 or IFRIC 4 are continued to be accounted for as leases. Contracts not classified as leases under IAS 17 or IFRIC 4 are continued not to be accounted for as leases.

Lessor accounting essentially follows the previous guidance of IAS 17. Lessors are required to continue to classify their leases as finance leases or operating leases on the basis of the risks and rewards incidental to ownership of the leased asset.

The Volkswagen Group accounts for leases in accordance with IFRS 16, using the modified retrospective method (within the meaning of IFRS 16.C5(b)), for the first time as of January 1, 2019. Prior-year periods have not been restated. According to this method, the lease liability to be recognized at the transition date is the present value of the outstanding lease payments, which is determined using the incremental borrowing rates as of January 1, 2019. The weighted average interest rate applied in the Volkswagen Group was 3.7%.

Applying the permitted exemption, the right-of-use asset is adjusted for the amounts that were recognized in the balance sheet as provisions for onerous operating leases as of December 31, 2018. The right-of-use assets were not tested for impairment in this context at the initial application date.

The initial recognition of right-of-use assets and lease liabilities had the following effects as of January 1, 2019:

  • Right-of-use assets of €5.5 billion were recognized in the opening balance sheet (including €5.4 billion under property, plant and equipment and €0.1 billion under investment property). Prepayments capitalized, accrued liabilities and provisions for onerous operating leases were offset with the right-of-use assets. The right-of-use assets recognized included an amount of €0.4 billion that had already been recognized under finance leases as of December 31, 2018. In connection with the initial application of IFRS 16 there was an adjustment to the classification of noncurrent assets, resulting in the reclassification of property, plant and equipment of €0.4 billion to lease assets and investment property.
  • Lease liabilities are recognized in the opening balance in an amount of €5.6 billion; they are reported under noncurrent and current financial liabilities. The lease liabilities recognized included an amount of €0.4 billion that had already been recognized under finance leases as of December 31, 2018.
  • Initial application did not have any effect on equity.

The difference between the expected payments for operating leases in an amount of €4.9 billion, discounted using the incremental borrowing rate as of December 31, 2018, and the lease liabilities in an amount of €5.6 billion recognized in the opening balance sheet is mainly the result of taking account of existing finance leases and a new estimate of expected lease payments, attributable to the capitalization of certain variable lease payments, for example. The lease terms taken into account when recognizing lease liabilities were also reassessed in accordance with the rules of IFRS 16. In this process, reasonably certain extension or termination options were taken into account in determining the lease payments to be recognized. Moreover, the opening balance sheet does not include lease payments for low-value or short-term leases.

Unlike the previous procedure, under which all operating lease expenses were reported under operating profit, the only items allocated to operating profit in the Automotive Division under IFRS 16 are depreciation charges on right-of-use assets. Interest expense from adding interest on lease liabilities in the Automotive Division is reported in the financial result. This had a positive impact of €0.2 billion on the operating result in fiscal year 2019.

The change in the way expenses from operating leases are presented in the statement of cash flows resulted in an improvement of €1.0 billion in cash flows from operating activities and net cash flow in fiscal year 2019, of which €0.9 billion is attributable to the Automotive Division. Cash flows from financing activities declined accordingly. The increase in financial liabilities attributable to the change in accounting rules had a negative impact of €5.8 billion on the Volkswagen Group’s net liquidity as of December 31, 2019, of which €5.4 billion is attributable to the Automotive Division.

New and amended IFRSs not applied

In its 2019 consolidated financial statements, Volkswagen AG did not apply the following accounting pronouncements that have already been adopted by the IASB, but were not yet required to be applied for the fiscal year.



Published by the IASB


Application mandatory1


Adopted by the EU


Expected impact


Effective date from Volkswagen AG’s perspective.


The IASB has proposed to defer the effective date to January 1, 2022.














Business Combinations: Definition of a Business


Oct. 22, 2018


Jan. 1, 2020




No material impact



Insurance Contracts


May 18, 2017


Jan. 1, 20212




No material impact

IAS 1 and IAS 8


Presentation of Financial Statements and Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Material


Oct. 31, 2018


Jan. 1, 2020




No material impact



Classification of liabilities


Jan. 23, 2020


Jan. 1, 2022




No material impact