3. Effects of New Financial Reporting Standards

Financial reporting standards applied for the first time in 2015

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. The first-time application of these amendments had no material impact on the presentation of Bayer’s financial position or results of operations, or on earnings per share.

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 2015 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 flow Key indicator for assessing a company’s financial strength; in addition to gross cash flow, the statement of cash flows also reports the cash flow from operating activities (net cash flow), which shows the amount of funds available from operating activities for financing investments, repaying debts or distributing dividends. The cash flows from investing and financing activities are also reported. 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. It also introduces a third measurement category “fair value through other comprehensive income” for certain debt instruments. 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. Bayer is currently evaluating the impact the standard will have on the presentation of the Group’s 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 Bayer’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. They will have no impact on the presentation of Bayer’s financial position or 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 for annual periods beginning on or after January 1, 2016. The possible impact on the future presentation of Bayer’s financial position and results of operations depends on future acquisitions of interests in joint operations. These cannot be reliably predicted.

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 or intangible assets 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). An amendment to IFRS 15 was issued in September 2015, deferring the date of first-time application from January 1, 2017 to January 1, 2018. The new standard is thus to be applied for annual periods beginning on or after January 1, 2018. The standard has not yet been endorsed by the European Union. Bayer is currently evaluating the impact the changes 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. The changes are not expected to have a material impact on the presentation of Bayer’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. The changes are not expected to have a material impact on the presentation of Bayer’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. An amendment issued in December 2015 indefinitely defers the effective date of the September 2014 amendments, which were originally intended to be applied for annual periods beginning on or after January 1, 2016. The IASB is to set a new effective date.

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) entitled "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. 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 Bayer’s financial position or results of operations.

In December 2014, the IASB published amendments to IAS 1 (Presentation of Financial Statements) under its Disclosure Initiative. The amendments are intended to clarify the disclosure requirements and relate to materiality, line-item aggregation, subtotals, the structure of the notes to the financial statements, the identification of significant accounting policies and the separate disclosure of the other comprehensive income of associates and joint ventures. The amendments are to be applied for annual periods beginning on or after January 1, 2016. The changes are not expected to have a material impact on the presentation of Bayer’s financial position or results of operations.

In January 2016, the IASB issued IFRS 16 (Leases), the new standard for lease accounting. IFRS 16 introduces a uniform lease accounting model for lessees, requiring recognition of assets and liabilities for all leases with a term of more than 12 months unless such leases are immaterial. It will eliminate the current requirement for lessees to classify leases as either operating leases – without recognizing the respective assets or liabilities – or as finance leases. The new standard is to be applied for annual periods beginning on or after January 1, 2019. The standard has not yet been endorsed by the European Union. Bayer is currently evaluating the impact the standard will have on the presentation of its financial position and results of operations.

In January 2016, the IASB published amendments to IAS 12 (Income Taxes) under the title “Recognition of Deferred Tax Assets for Unrealised Losses.” These amendments clarify the accounting for deferred tax assets related to debt instruments measured at fair value. The amendments are to be applied for annual periods beginning on or after January 1, 2017. They have not yet been endorsed by the European Union. Bayer is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.

In January 2016, the IASB published amendments to IAS 7 (Statement of Cash Flows) under its Disclosure Initiative. The following changes in liabilities arising from financing activities must be disclosed in the future: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in Foreign exchange Claims for payments in foreign currencies traded on foreign stock exchanges, usually in the form of assets held in foreign banks or bills of exchange or checks payable abroad; banknotes and coins denominated in foreign currencies are not considered to be foreign exchange. rates; (iv) changes in fair values; (v) other changes. The amendments are to be applied for annual periods beginning on or after January 1, 2017. They have not yet been endorsed by the European Union. Bayer is currently evaluating the impact the changes will have on the presentation of its financial position and results of operations.