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 2023.

Amendments to IAS 12 have had to be applied since January 1, 2023; they result from an agreement made by around 140 countries to implement global minimum taxation (Pillar Two). A temporary exemption from accounting for deferred taxes was embedded in IAS 12, which applies if the deferred taxes arise from the implementation of Pillar Two by the countries concerned. More information on Pillar Two can be found in the “Income tax income/expense” section.

Also applicable since January 1, 2023 are amendments to IAS 12 that relate to deferred taxes on right-of-use assets and lease liabilities as well as decommissioning and restoration liabilities. They require deferred taxes to be recognized when the relevant assets and liabilities are initially recognized.

In addition to this, amendments were made to IAS 1 that have also been applicable since January 1, 2023. Essentially, these amendments are aimed at making disclosures on accounting policies more company-specific and therefore more useful for decision-making by narrowing the definition of materiality. The Volkswagen Group’s disclosures on accounting policies have been revised against this backdrop. In particular, generally worded disclosures derived from the IFRS standards have been reduced to a minimum.

Furthermore, amendments to IAS 8 have been in force since January 1, 2023, which provide greater clarity on the distinction between changes in accounting policies and changes in accounting estimates.

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

IFRS 17 – Insurance Contracts

IFRS 17 specifies new accounting rules for insurance contracts. The Volkswagen Group applied IFRS 17 as of January 1, 2023 for the first time. The transition was conducted using the full retrospective approach, unless using that approach was impracticable. This was the case when not all of the required historical information, in particular for multiyear contracts, was available without undue cost and effort. In these instances, the Volkswagen Group generally used the modified retrospective approach.

The Volkswagen Group mainly conducts primary insurance and reinsurance business in the warranty and repair cost insurance class and reinsurance business in the residual debt insurance class. In addition, there are vehicle liability insurance portfolios, although almost all of them are in the process of being wound down.

Liabilities are mainly measured using the general measurement model. The data required for this purpose is determined using common actuarial methods, such as the chain ladder method.

The Volkswagen Group uses the bottom-up approach to calculate the discount rate. For the insurance business, the risk-free yield curve is generally derived from overnight index swaps of the currency in which the underlying insurance contracts have been entered into.

For contracts with the primary purpose of providing services at a fixed price (referred to as fixed-fee service contracts), the Volkswagen Group exercises the option to present these service contracts in accordance with IFRS 15. Similarly, for loan agreements that transfer a significant insurance risk of the borrower, the option to account for them under IFRS 9 has been exercised.

First-time application resulted in an insignificant change in equity as of January 1, 2023 and January 1, 2022, respectively. This is due primarily to the changed methodology for calculating liabilities related to the insurance business. In addition, netting cash flows when measuring the liabilities also led to an equal reduction of €0.7 billion in assets and liabilities related to the insurance business. The change in the methodology for recognizing income and expenses does not have any material effect on the income statement. Prior-year figures have been adjusted accordingly.

New and amended IFRSs not applied

In its 2023 consolidated financial statements, Volkswagen AG did not apply the following accounting pronouncements that have been adopted by the IASB until December 31, 2023, but were not yet required to be applied for the fiscal year.