IFRS 16 – Implementierung bei der Continental AG

International Financial Reporting Standards Der 16. IFRS Kongress 2017 in Berlin

IFRS 16 – Implementierung bei der Continental AG IFRS 16 in der Automobilzulieferindustrie Holger Siebenthaler Continental AG

Jochen Kirch Ernst & Young GmbH

Ihre Referenten

Holger Siebenthaler

Continental AG

Tel.: +49 (511) 938 1056

Senior Vice President Accounting

Vahrenwalder Str. 9

[email protected]

Jochen Kirch

Ernst & Young GmbH

Executive Director

Wirtschaftsprüfungsgesellschaft

IFRS Solutions Center GSA

Mergenthalerallee 3 – 5

30165 Hannover / Germany

65760 Eschborn/Frankfurt am Main

Financial Reporting, Year-End 2015

Tel.:

+49 (6196) 996 24240

Fax:

+49 (181) 3943 24240

Mobile: +49 (160) 939 24240 [email protected]

Agenda Page 3

1

Continental at a glance

2

Project Overview

3

Identification of a Lease

4

Practical Expedients

5

Key Lease Concepts

6

Special Accounting Matters

7

Transition and Impact on KPI´s

Continental Corporation Overview 2016 Sales by division in %

› Since 1871 with headquarters in Hanover, Germany

ContiTech 14%

Chassis & Safety 22%

› Sales of €40.5 billion › 220,137 employees worldwide › 427 locations in 56 countries

Tires 26%

Powertrain 18%

Interior 20%

IFRS 16 Implementierung bei der Continental AG Public

Status: December 31, 2016

September 8, 2017 Holger Siebenthaler © Continental AG

4

Continental Corporation Five Strong Divisions Chassis & Safety

Powertrain

Interior

Tires

ContiTech

Engine Systems

Instrumentation & Driver HMI

PLT, Original Equipment

Air Spring Systems

Fuel & Exhaust Management

Infotainment & Connectivity

PLT, Repl. Business, EMEA

Benecke-Kaliko Group

Hybrid Electric Vehicle

Intelligent Transportation Systems

PLT, Repl. Business, The Americas

Body & Security

PLT, Repl. Business, APAC

Elastomer Coatings

Commercial Vehicle Tires

Industrial Fluid Solutions

Vehicle Dynamics Hydraulic Brake Systems Passive Safety & Sensorics Advanced Driver Assistance Systems (ADAS)

Sensors & Actuators Transmission

Commercial Vehicles & Aftermarket

Two Wheel Tires

Compounding Technology Conveyor Belt Group

Mobile Fluid Systems Power Transmission Group Vibration Control

PLT – Passenger and Light Truck Tires



5

Continental Corporation Distribution of Sales to Vehicle Manufacturers and Other Industries

Automotive original equipment 73%

Other industries 27%




6

Continental Corporation Key Figures for the Divisions in 2016 Sales in € millions

EBIT* in € millions

Adjusted EBIT** in € millions

Employees

Continental Corporation

40,549.5

4,095.8

4,341.2

220,137

Automotive Group

24,496.4

1,526.6

1,632.2

124,753

Chassis & Safety Powertrain

8,977.6 7,319.5

580.8 378.0

591.7 398.5

43,907 37,502

Interior

8,324.7

567.8

642.0

43,344

Rubber Group

16,097.6

2,688.6

2,828.4

94,966

Tires ContiTech

10,717.4 5,462.5

2,289.4 399.2

2,306.0 522.4

52,057 42,909

*Earnings **Before

before interest and taxes. amortization of intangible assets from PPA, changes in the scope of consolidation, and special effects.



7

Continental Corporation Sales and Employees by Region in 2016 Sales by market in %

Employees by region in %

Other countries 3% North America 26%

Asia 21%

Other countries 4% Germany 21%

Europe (excluding Germany) 29%

Germany 26%

North America 19%

Europe (excluding Germany) 32%

Asia 19%

Worldwide: €40.5 billion

Worldwide: 220,137




8

Corporation Highlights Sustainable Value Creation

21.6%

20.9% 21.1% 21.2%

20.0% 20.0% 19.0%

18,198

18,910

19,681

19,767

19,983

20,106

20,453

20,978

21,401

18.9%

17,510

19.5%

20.3%

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2015

2016 Trailing OA 1 (mn €)

Q4

2017 Trailing ROCE2

1

Trailing operating assets are calculated as assets for the last twelve months (LTM)

2

Trailing ROCE is calculated as reported EBIT for the last twelve months (LTM) divided by trailing operating assets


Q3


9

Indebtedness and Cash Flow Net Indebtedness and Gearing Ratio Net indebtedness (mn €) Gearing ratio

34%

34%

34%

26% 23%

24%

23%

4,296

3,542

3,083

3,446

3,298

2,798

2,768

3,469

18%

4,236

19%

4,099

27%

Q1

H1

9M

YE

Q1

H1

9M

YE

Q1

H1

2015

2016


9M

YE

2017


10

Agenda Page 11

1 2

Continental at a glance Project Overview

3


4


5

Key Lease Concepts

6


7


What will change for Group?

Interaction with other accounting changes

Managing the expectations of stakeholders while simultaneously implementing various programs will be a challenge.

• The lessee will be required to recognize the majority of leases in its balance sheet. • Apart from some exemptions, the lessee will use a single accounting model for all leases. • Lessor accounting will remain essentially unchanged. • Disclosure requirements will increase significantly.

16. IFRS Kongress 2017

12

Main hurdles within the IFRS 16 Project

I. Completeness ► Completeness with regard to ► All leases identified ► All lease date captured

II. System Implementation ► Identify the best system with regard to ► Current IT environment and integration requirement ► Integration Issues

III. Process Changes ► Future decisions versus lease or buy (will lease qualify as capital expenditure) ► Workflow needs to be adjusted in order to secure completeness at inception ► Workflow needs to consider regular revisits of assumptions made


13

Typical Accounting Workstreams

Identification of a lease What contract types could possibly be identified as being a lease or containing a lease element? Defining criteria under which future contracts should be analyzed (or possibly be structured)

Workstep 1 Lessee / Lessor Accounting Decisions Definition of accounting rules specific for the company or group, including

Workstep 2

-

Scope of use of the standard

-

Use of practical expedients

-

Defining Accounting specific guidance on the application of the standard (lease term, interest, etc.)

Other Lease Topics Accounting for Intercompany Leases Accounting for Sale and Lease Back Transactions

Workstep 3


14

High-level impact analysis for Continental AG based on the published financials as of 31 December 2016 current

Assets Liabilities

IAS 17

IFRS 16

new

Finance leases

Operating leases

All leases

High-level impact analysis

j G

–

jjvv GGG

+ EUR 1.085 m

$$

–

$$$$$$$

+ EUR 1.159 m

vv

Rights and off-balance sheet items

–

Revenue

X

X

X

X

Other expenses

–

Lease expenses

–

- EUR 256 m

j

G G

–

$$$$$

EBITDA Depreciation

Implications

+ EUR 256 m Depreciation

–

Depreciation

EBIT Finance cost

Retained earnings — EUR 74 m

- EUR 219 m + EUR 37 m

Interest

–

Interest

EBT

- EUR 35 m + EUR 2 m


15

IFRS 16 - Project Procedure (until now)

1st & 2nd Quarter 2016

3rd & 4th Quarter 2016

1st Quarter 2017

2nd Quarter 2017

3rd Quarter 2017

Initiation phase

Understand Business

Market Screening

Posting concept

Sourcing process

› Define Stakeholders › Team / Steering formation › Accounting requirements

› › › ›

› Presentations by several IT

› Define short list of providers › Beauty Contest with

› Gathering information

› Basic posting logic › Intercompany leases › Consolidation logic

June 2016

1st & 2nd Quarter 2017

2nd Quarter 2017

3rd Quarter 2017

Kick Off IFRS 16 project

Develop future process

Practical expedients

Contract inventory

› › › ›

› Define future process for three data

› › › ›

› Collect Lease contracts › Scan to digital file › Maintain local lease archive

Excel Questionnaire (Cluster allowed) Trainings Actual process

tool providers

selected providers

Tooling in scope?

Define main objective Team Commitment Workpackages Time Planning

input channels (paper contract, SAP PO, batch input)

› Define new role: Lease Manager › Input for ‘Request for Proposal’

Low value leases Short term leases Threshold 5.000 € …



16

IFRS 16 - Time Planning (until GoLive) 06/17

12/17

06/18

08/18

12/18

Project Work ‘Business’ • • • • •

Contract inventory Future lease process Implementation ‘Lease Manager’ role/function IFRS 16 expertise Posting and consolidation logics

Business Goal: IT solution can already support budget 2019 calculations and indicates the transition effect 1st January 2019

Sourcing phase • • • •

Beauty Contest with selected providers Price negotiation

RfP*

Sourcing decision Finalization contracting (until release PO) BAT *

Implementation phase • • • • • •

Data input / migration Interfaces to existing systems

› ›

Data input finished Valid calculations

Budget 2019

Actual figures 2019

Pilot / Roll-out concept Implementation on divisional level as well as on Corporate level (IT/data security, work council, support) Training concept (both: IT solution; IFRS 16) Change process

Go Live (incl. support) Opening Balance 2019

= Due Dates (fix)

= Internal Milestones RfP = Request for Proposal BAT = Business Acceptance Test



17

IFRS 16 - Context Diagram Data input by Corporate departments: › › ›

interest matrix useful lives FX rates

Input channels for lease documents › csv.- files (e.g. car leases) › SAP Purchase Order (e.g. forklift leases) › Digital contracts (e.g. property leases)

Interfaces › › ›

51 SAP-Systems Non SAP-Systems Diversity à EHP release status

Reporting follows our standards: Lease Engine à local systems à FIRE

Data input by local CUs

Lease Application External and internal lease transactions

Possibility for interfaces (e.g. to existing databases) Define Role & Authorization concept

›

Tires / ContiTrade

›

ContiTech

›

Automotive

›

Holdings


Reporting › Actual › Forecast › Budget (incl. 2019!)

Access to lease documents & ongoing tracking of lease contracts


18

Agenda Page 19

1


2

Project Overview

3


4


5

Key Lease Concepts

6


7


Identifying a lease

Scope and scope exclusions

Scope: All leases (IFRS 16???) • … except • Leases to explore for or use natural resources (e.g., oil) • Leases of biological assets • Service concession arrangements • Licenses of intellectual property granted by a lessor • Rights held by a lessee under licensing agreements

• Intangible assets: Lessees have the option to apply this standard • Leased property that is subleased (investment property): Off-balance sheet recognition no longer an option


20

IFRS 16 - Practical Expedients: Intangibles

Examples: › Leasing of SW licenses › Rights-of-use that could result from cloud service contracts

Arguments to exclude from IFRS 16 scope Transition date/Initial data migration: Less lease transactions to be considered

Accounting logic: Ongoing reporting: Less complex and therefore less workload for local lease responsible Step 1

Contract is a lease according to IFRS 16?

Step 2

If no: Distinction between „Service“ and „Intangible Asset“ according to IAS 38

›

Distinction between “service” and “lease” is challenging and must be taken contract-by-contract.

›

Simplification of process: Avoid Step 1 and enter directly into Step 2

Our assumption: Best practice on the market. Avoid ICO sub-leasing à Most contracts are signed by Corporate à Push down to companies

Decision à Exercise practical expedient and put leases of intangible assets out of scope of IFRS 16.



21

IFRS 16 — Definition of a lease

“A contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.”

No

Does the customer have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use (IFRS 16.B21 B23) ? Yes

Identified asset

Does the fulfilment of the contract depend on the use of an identified asset (IFRS 16.B13 - B20) ?

Does the customer have the right to direct how and for what purpose the asset is used throughout the period (IFRS 16.B25 - B30) ?

Supplier has the substantive right to substitute the asset throughout the period of use (IFRS 16.B14 - B19) ?

No Are the relevant decisions about how and for what purpose the asset is used predetermined?

No Supplier has the practical ability throughout the period of use ?

No

Yes

Yes Supplier would benefit economically from the exercise of it’s right to substitute ?

No

Yes

No lease (service)

Does the customer have the right to operate the asset (IFRS 16.B24b(i)) ? No Did the customer design the asset (IFRS 16.B24b(ii)) ?

Yes

Yes

Right to control the use

Does the customer have the right to direct the use of the asset throughout the period of use (IFRS 16.B24 B30) ?

Yes

Lease


22

Identifying a lease – practical expedient

IFRS 16.C3 allows companies to keep the current results under IFRIC 4

An entity is not required to reassess whether a contract is, or contains, a lease at initial application (IFRS 16.C3) • Contracts that have been identified as being, or containing, a lease are treated as a lease for transition purposes • Contracts that have been classified as not being, or not containing, a lease are treated as a service for transition purposes Problem: • Contracts may not have been classified correctly under IFRIC 4 • Mistake under IAS 17 was not relevant for the statement of earnings as an operating lease contract was accounted for like a service contract and the respective expense was shown in identical lines • Mistake relevant for disclosures as respective disclosures under IAS 17 were not made • Contracts need to be revisited if renewed or amended


23

IFRS 16 - Status Quo

Push Down Accounting Leading system: HB II

Contract management in local responsibility

›

Identified leased assets: › Land use rights › Administration buildings › Production buildings › Sales outlets › Forklifts › Vehicles › Other equipment › Transportation pallets › and many more

›

Approximately 90% of outstanding obligation are property related.

›

More than 200 reporting units reported lease transactions.

Corporate Accounting = Sets framework and offers internal support

Reporting Unit Corporate Controlling = Internal support regarding leasevs-buy decision

No central contract database Not KPI driven



24

IFRS 16 - Tooling Standard Tooling Cases for Continental

Only very single exception cases

2 agreements

1 agreement

Sourcing/Supply Agreement

Sourcing/Supply Agreement

(Teileliefervertrag)

(Teileliefervertrag)

+ additional Tooling Agreement

without additional Tooling Agreement

(Werkzeugkaufvertrag)

(Kein Werkzeugkaufvertrag)

Transfer of legal ownership for the tool that is used for series pieces

No transfer of legal ownership for the tool that is used for series pieces

Benefit

Power

No IFRS 16

No IFRS 16

because this is a purchase transaction

because the customer does not have control over the use of the underlying tools

Similar to case ‘2 agreements’ but without transfer of legal ownership

(1)

Customer buys series pieces

(2)

Costumer pays an explicitly agreed price for a specific right to use the tool but that does not lead to a change of legal ownership)

Actual accounting: Specific right = ‘Intangible Asset’ according to IAS 38 within FS Item “Other Intangible Assets”. Future accounting: Analysis case per case if IFRS 16 is applicable.

(“no decision making rights”)



25

Agenda Page 26

1


2

Project Overview

3


4


5

Key Lease Concepts

6


7


Identifying a lease Short-term leases

Option to account for short-term leases: “Off-balance sheet” or “on-balance sheet” • Lease term of 12 months or less • Only applies to lessees! • Option must be exercised consistently for each class of underlying asset

Example: Lease with a term of nine months + four months option A: Exercise of option is reasonably certain = not short-term lease

Nine months

Four months

B: Exercise of option is not reasonably certain = short-term lease

Nine months

Four months

Non-cancellable lease term

Optional extension period


27

Identifying a lease

Exemptions for small-ticket leases

Option to account for leases for which the underlying asset is of low value: “Off-balance sheet” or “on-balance sheet” • Definition according to IFRS 16.B5: • The lessee can benefit from use of the underlying asset on its own • The underlying asset is not highly dependent on, or highly interrelated with, other assets • Rough threshold: USD 5,000 ó ~ EUR 5,000 ó ~ GBP 5,000 • Off-balance sheet: No assets/no liabilities/straight-line expense • Anti-abuse rule on the “breakdown” of leases


28

Identifying a lease

Portfolio approach for similar leases

Option to group individual leases in a portfolio (IFRS 16.B1) • Similar assets • Similar terms • If reasonably expects accounting for a portfolio of leases is not materially different to that for individual leases • Option to freely select portfolios Problem: • Treatment of early termination • Future changes in the portfolio


29

IFRS 16 - Practical Expedients: Short-term Leases

›

Examples for identified items by our Excel-Questionnaire: gas bottles, storage equipment, parking, printers, employee houses etc.

Arguments to exclude short-term assets from IFRS 16 accounting Transition date/Initial data migration: Less lease transactions to be considered Ongoing reporting: Less complex and therefore less workload for local lease responsible Assumption: Best practice on the market

Decision à Exercise practical expedient for all short-term leased assets (no distinction between asset classes).



30

IFRS 16 - Practical Expedients: Small-ticket Leases › › ›

The threshold of 5.000 USD, mentioned by IASB, has to be taken seriously and is not directly linked to the size of an entity. A future revision of threshold due to inflation and FX-development is applicable. In general the threshold will be stable as long as there are no significant economic reasons for a revision. ‚Threshold concept‘ vs ‚Cluster concept‘ à Assumption: Threshold reduces workload especially with focus to assignment of assets to clusters.

Arguments to exclude small-ticket leases from IFRS 16 accounting Transition date/Initial data migration: Less lease transactions to be considered

.

Ongoing reporting: Less complex and therefore less workload for local lease responsible Assumption: Best practice on the market.

Decision à Exercise practical expedient for all leased assets of low value (5.000 EUR when new).



31

IFRS 16 - Practical Expedients

Our mindset regarding the threshold of 5.000 USD mentioned by IASB: à What will be best market practice? Assumption: 5 k€ à Higher thresholds will set signals to the market. à To „double“ the IASB-recommendation up to 10 k€ is not applicable.

Cluster Forklifts

Cluster Hardware Server

Forklifts

Enclosures

20 k€ - 30 k€

30 k€ - 80 k€

Cluster Copier / Printer

„Schlepper“ 10 k€ - 15 k€

10 k€ „(Hoch-)Hubwagen“ 5,5 k€ - 9 k€

5 k€

Stand-alone servers

Multi-functional

2,5 k€ - 8 k€

2,5 k€ - 9 k€

Simple „Ameisen“

Office printers

< 4,5 k€

~ 500 €



32

IFRS 16 - Practical Expedients: Portfolios

Arguments to consider leases on a lease-by-lease basis Completeness and correctness of data: › Current general accounting approach: Accounting for each single asset Practical challenges: › Asset Categories must be created › Movements within portfolios must be defined (e.g. impairments, disposals, transfers) › Assignment of RoU assets to a portfolio leads to distinction issues. Tracking-Process: › Portfolios must be reassessed recurrently by responsible Portfolio-Manager.

Decision for an accounting lease-by-lease



33

Lessee accounting Quantitative disclosures

Carrying amount of right-of-use assets (by class)

Amortization expense for right-of-use assets

Short-term lease expense

Small ticket lease expense

Variable lease expense

Income from subleases

Interest on lease liabilities

Gains and losses from sale and leaseback transactions

Maturity analysis of lease liabilities

Cash outflow for leases

Additions to right-of-use assets


34

Agenda Page 35

1


2

Project Overview

3


4


5

Key Lease Concepts

6


7


Identifying a lease

Separating lease from non-lease components

Servicing

Paper, toner, servicing

• Lease and non-lease components must be separated • Exemption for lessees: Option to combine both components and account for them as a single lease component • The option applies for each class of underlying asset • Amounts payable to the lessor for administrative tasks are not separate components


36

Identifying a lease

Allocating contract consideration

Servicing

Consideration

Lease

20% 80%

• Lessees • Allocate consideration on the basis of the relative stand-alone price • If an observable stand-alone price is not readily available, the stand-alone price is estimated • Maximize the use of observable information • Apply estimation methods in a consistent manner • Lessors allocate consideration in accordance with the provisions of IFRS 15 • Reallocation of consideration necessary in some cases


37

IFRS 16 - Practical Expedients: Components

Our Concept:

› › ›

Insignificance: If there are very small non-lease components included in the contract or if service component is not readily determinable: à For simplification purposes, companies will be allowed to combine non-lease component with lease component. Determinability: If service components are not readily determinable: à It is applicable to combine non-lease component with lease component. Approach for all other leased assets: à Separate non-lease component from lease component

• • •

Equipment: In most of our equipment lease cases the price components are well-known (e.g. vehicle leasing). Property: Service parts are well-known in most of property leases. Corporate favors the separation of components to ensure comparability. Amount and content of service components could differ significantly. Assumption: Lessor community will ‘react’ on this IFRS 16 requirement.



38

Key concepts Lease term

• Non-cancellable periods are always part of the lease term • Optional periods are only part of the term if it is “reasonably certain” that the option will be exercised • “Reasonably certain” has the same meaning as in IAS 17 • Assessment criteria, e.g.: • Price of options • Termination penalities • Leasehold improvements • Other leases • Reassessment of lease term required? • Lessees – upon the occurrence of significant events or significant changes in circumstances within the lessee’s control • Lessors – no requirement to reassess

39 16. IFRS Kongress 2017

39

Key concepts Lease payments

Lease payments

Fixed payments

Purchase options* (exercise price)

Residual value guarantees

Termination option penalties*

Variable lease payments that depend on an index or rate

* Include only if reasonably certain of exercise.

• Fixed payments also include variable payments which are in-substance fixed, e.g., • Minimum payments or minimum purchase volumes • Penalties for failure to meet minimum purchase volumes, minimum amounts, etc. • For residual value guarantees, Lessees use the amounts they expect to pay. Lessors include any guarantee

16. IFRS Kongress 2017 44

40

Key concepts Discount rate

• Discount rate: • Rule: Interest rate implicit in the lease (IRR) • If no IRR can be readily determined: Incremental borrowing rate (lessees only)

• IRR = interest rate at which: Present value of lease payments + Present value of residual value

Fair value of underlying asset

=

+ Initial direct costs

• IBR = lessee’s incremental borrowing rate • The rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

• Lessees reassess the discount rate upon: • Lease modification • Change to lease term • Changes in estimation whether the lessee will exercise a purchase option • Change in lease payments resulting from a change in floating interest rates


41

IFRS 16 - Practical Expedients: Discount Rate

Our Concept:

• • • •

Information will be provided by Corporate Department Finance & Treasury IT Tool: Data must be provided centrally à Interest matrix by Corporate Lease term congruence à Adjustment based on yield-curves (Interpolation) Country specific adjustments to the discount rate

Hierarchy: (1) If interest rate is explicitly defined by contract: Interest rate implicit in the lease (2) If interest rate is not explicitly defined but readily determinable: Best Estimate* (3) If interest rate of the contract can’t be readily determined: Continental’s incremental borrowing rate (Interest matrix) (4) If lease contract can’t be linked to interest matrix: Workaround Concept

*Only applicable if calculation can be performed directly in the IT solution. A separate calculation tool must be avoided. IFRS 16 Implementierung bei der Continental AG Public


42

Agenda Page 43

1


2

Project Overview

3


4


5

Key Lease Concepts

6


7


Special topics Subleases

“Head lease”

Owner

“Sub lease”

Lessee/sublessor

Sublessee

• Head lease (as lessee) and sublease (as lessor) are generally accounted for as two separate leases • Underlying asset of the sublease: ROU asset • Balance sheet presentation: No offsetting of lease assets and liabilities • Income statement presentation: Intermediate lessors’ revenue is generally presented gross • Additional disclosure requirements


44

IFRS 16 – Intercompany Leases Our concept: › No adjustment to our management approach. Steering by Operating assets

› Posting and consolidation logics must be on-hand.

› Interdivisional lease transactions

Profit Center distribution of underlying leased asset

Divisions = Segments

must be analyzed in detail.

› Materiality determinations and impact on our segment report

Requirements of IFRS 8 Materiality: Only single cases of interdivisional leases

Sharing within a ‚Zebra‘ is not a lease.

› Lease engine must support ICO ICO leases bases on ‘Service Agreements’ Allocations à No specific lease contract

Lease term?

leases

Tendency today: Lease rate?

› Keep existing processes › Be prepared in case of changes due to materiality

2 legal entities needed for a lease contract



45

Agenda Page 46

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2

Project Overview

3


4


5

Key Lease Concepts

6


7


Effective date and transition Overview

• Effective date: 1 January 2019 – earlier application is permitted if IFRS 15 is also applied Transition requirements: • Lessor: Continues to apply existing lease accounting • Lessee: • Existing finance leases: • Generally continues to apply existing accounting (some exceptions, e.g. Index linked leases) • Existing operating leases: • Lessees are permitted to choose either full retrospective or modified retrospective approach • Applied consistently across entire portfolio of former operating leases • Definition of a lease in IFRIC 4 can be retained for existing leases


47

Effective date and transition Overview of transition options

FY 18 and prior

FY 19

Legacy GAAP

Legacy GAAP

FY 20

FY 21 onwards

New GAAP

New GAAP

Before adoption

Reporting under IAS 17/IFRIC 4 Reporting Footnotes

Legacy GAAP and IAS 8 disclosures

Full retrospective After adoption

Reporting

Legacy GAAP

New GAAP

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Footnotes

Enhanced

Enhanced

After adoption

Modified retrospective Reporting

Legacy GAAP

Legacy GAAP

Footnotes

New GAAP

New GAAP

Enhanced

Enhanced

Further details: ► Either the fully retrospective or modified retrospective transition approach is selected, and is applied to all leases ► Under both options: ► ►

►

There is no requirement to reassess on transition whether a contract contains a lease Disclosures required in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, with certain revisions Entities would not reassess historical sale and leasebacks to determine whether a sale occurred in accordance with IFRS 15 16. IFRS Kongress 2017

48

Effective date and transition

Modified Retrospective transition approach Modified Retrospective Approach For existing operating leases Requirements


No restatement of comparatives

Single discount rate can be used for portfolio of assets

Cumulative effect of adoption recognised in retained earnings Exemption for leases ending 12 months from the date of initial application

Use incremental borrowing rate as discount rate at date of initial application (1 October 2019)

Exclude initial direct costs from the measurement of ROU asset

Lease liability = PV of remaining lease payments Modified Retrospective Approach A (“ModA”): ROU asset = as if standard always applied

Modified Retrospective Approach B (“ModB”):

Choice on a lease-bylease basis

ROU asset = lease liability, plus adj.

Adjust ROU asset for previously recognised onerous lease provisions, instead of impairment review

Use hindsight, such as in determining the lease term if the contract contains options to extend or terminate

Modified Retrospective Approach for existing finance leases: Carry over existing balances at the date of initial application of the new standard, with the fixed asset balance being reclassified to a ROU asset. The asset and corresponding lease liability are then accounted for under IFRS 16 from the date of initial application


49

IFRS 16 - Practical Expedients: Modified retro. transition method

In transition to IFRS 16 a lease asset can be recognized in the B/S: 1. At the value of the corresponding liability 2. As if the contract had been considered under IFRS 16 since it’s commencement date. This option would result in a lower RoU Asset at the time of first recognition.

›

Option 2 would trigger an investigation of each single leasing contract. Especially property leasing contracts are expected to be complex and have a long history.

Decision: Option 1 à Avoid high transition efforts and reduce complexity

Initial recognition Year

1

2

3

4

5

6

7

8

9

10

Lease liability Asset recognized as if IFRS 16 from beginning Asset recognized at value of liability



50

IFRS 16 – KPIs & Reporting Key figures

Expected effect

Explanation

B/S: Assets

Operate Leasing is not applicable anymore for lessees. Almost all lease contracts have to be accounted for on-balance à Additions for right of use assets (RoU-Assets).

B/S: Liabilities

Corresponding Lease Liabilities for the present value of future lease payments have to be recognized.

Gearing ratio

Net indebtedness Equity

Key figure is used to assess the financing structure. Lease Liabilities = Interest bearing financial liabilities = Part of net indebtedness

P&L: EBIT

Interest expenses are shown below EBIT.

Operating Assets

The assignment of RoU-Assets and of the Lease Liabilities to Operating Assets will be decided in course of the ongoing project work.

ROCE CVC

EBIT / (OAQ1+OAQ2+OAQ3+OAQ4) 4 (ROCE – WACC) * OA

ROCE (return on capital employed) describes the economic efficiency of operations. CVC (Continental Value Contribution) is the absolute amount of value achieved.



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Seite 52

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IFRS 16 – Implementierung bei der Continental AG

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