New Accounting Standards

The revised version of IFRS 9 introduces a single approach to the classification and measurement of financial assets. This approach is driven by cash flow characteristics and the business model in line with which the assets are managed. Further, the standard provides a new impairment model that is based on expected credit losses. IFRS 9 also introduces new rules for hedge accounting with enhanced focus on an entity’s risk management activities, especially with regard to managing non-financial risks. The classification and measurement rules of IFRS 9 did not result in any material accounting changes. Accounting of impairments of financial assets was converted to the expected-loss model, while the simplified model is used for trade receivables. Since WACKER supplies customers of high credit standing and has not posted any material loss of receivables in the past, no significant changes will result here either. The Group does not expect a higher loss-of-receivables rate in the future thanks to its credit insurance cover and efficient credit scorings. WACKER makes use of its option to continue to conduct hedge accounting in accordance with the old IAS 39 standard. The anticipated effects of converting to the expected-loss model are insignificant. Our disclosure obligations will increase.

IFRS 15 sets out that an entity shall recognize revenue whenever the customer obtains control of, and can draw an economic benefit from, the promised goods and services. The transfer of significant risks and rewards of ownership is no longer of primary importance, as was still the case under the old IAS 18 Revenue rules. Revenue must be recognized in an amount that reflects the consideration to which an entity expects to be entitled. The new model provides a five-step framework for recognizing revenue, which first identifies the contract with a customer and the performance obligations it entails, and then determines and allocates the transaction price. The revenue must be recognized for each individual performance obligation when the customer obtains control of the good or service. WACKER has concluded its analysis of the changes. Changes in revenue recognition result from transactions in accordance with IFRS 15.5 (b) (non-monetary exchanges between entities in the same line of business to facilitate sales to customers) and transport costs that constitute a separate performance obligation. In 2018, the adjustment due to non-monetary exchanges will cause sales recognized to be €30 – 50 million lower. The later recognition of transport costs as sales will result in a deferral effect of between €3 million and €5 million. The effect on earnings will be insignificant. WACKER will use the modified retrospective approach as the transition guidance. The new standard will lead to more detailed disclosures in the Notes to WACKER’s financial statements.

The new standard requires all lease arrangements held by the lessee to be recognized as finance transactions. A lease arrangement gives the lessee control over the use of an asset for a period of time in exchange for a consideration. Under the new definition, a leasing arrangement embedded in a supply contract for goods (IFRIC 4) should no longer be treated as a finance lease. In the future, a right-of-use is to be capitalized and the corresponding obligation posted as a liability. Straight-line depreciation of the right-of-use asset and application of the effective interest method to the liability result in depreciation and interest expense. In the Notes, WACKER currently reports operating lease obligations totaling €119 million. Analyses of the effects of the new standards have not yet been completed. The new standard will lead to more extensive disclosures in the Notes to WACKER’s financial statements.

Measurement at amortized cost or at fair value directly in equity is now also possible for financial instruments that had previously infringed upon the cash-flow criterion solely due to a termination clause with an early repayment feature. The early repayment amount can now be either positive or negative depending on the interest. WACKER is not affected by this change.

The interpretation determines the exchange rate to be used on initial recognition of a foreign currency transaction in an entity’s functional currency when the entity pays or receives consideration in advance for the related asset, expenses or income (or parts thereof). WACKER makes investment-related advance payments to a minor extent only. The advance payments received to date for polysilicon deliveries have all been denominated in euros. The volume of other advance payments made is only minor. An analysis of the clarification’s impact has already been carried out. We expect only a marginal change in earnings, net assets and financial position.

The interpretation contains rules for recognizing and measuring uncertain tax positions and hence closes existing gaps in IAS 12 Income Taxes. Uncertain tax positions comprise all risk-related tax issues. This concerns uncertainties regarding acceptance by the tax authorities. The recognition of an uncertain tax position (whether asset or liability) depends on whether a payment is assessed to be probable. The uncertain tax position can affect both current and deferred taxes. Determining the uncertain tax position requires uniform estimates and assumptions. We assume that the interpretation will not result in any change in the WACKER Group’s earnings, net assets or financial position.