IFRS 15, description of potential effects of future adoption of new standard with some quantification, automotive

Daimler AG – Annual report – 31 December 2017

Industry: automotive

  1. Significant accounting policies (extract)

IFRSs issued, EU endorsed and not yet adopted (extract)

In May 2014, the IASB published IFRS 15 Revenue from Contracts with Customers. It replaces existing guidance for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The new standard lays down a comprehensive framework for determining in which amount and at which date revenue is recognized. The new standard specifies a uniform, five-step model for revenue recognition, which is generally to be applied to all contracts with customers. As a result of IFRS 15, new items are introduced in the statement of financial position: “Contract assets” and “Contract liabilities.” These items can arise through advance payment or advance delivery at the contract level. In addition, disclosure requirements are extended.

Application of IFRS 15 is mandatory at the latest for reporting periods beginning on or after January 1, 2018. Early adoption is permitted. Daimler will apply IFRS 15 for the first time for the financial year beginning on January 1, 2018. Daimler plans for retrospective first-time application so that the comparative period is presented according to IFRS 15.

Effects on Daimler may occur in particular with regard to the date of recognition of sales incentives and also with regard to the sale of vehicles for which the Group enters into a repurchase obligation or grants a residual-value guarantee. The latter are currently reported as operating leases. Under IFRS 15, such vehicle sales can necessitate the reporting of a sale with the right of return. Additionally, the accounting of contract manufacturing may lead to effects. Under a contract manufacturing agreement Daimler sells assets to a third-party manufacturer from which Daimler buys back the manufactured products after completion of the commissioned work. If the sale of the assets is not accompanied by the transfer of control to the third-party manufacturer no revenue will be recognized under IFRS 15.

The statement of financial position will be affected in particular by the separate presentation of “Contract liabilities.”

Group-wide investigation of the effects on the consolidated financial statements of adopting IFRS 15 has been completed. The application of IFRS 15 is not expected to have any major impact on the Group’s profitability, liquidity and capital resources or financial position. The preliminary opening balance for January 1, 2017 will show an increase in equity of approximately €0.1 billion compared to the figure disclosed as of December 31, 2016. The option that contracts concluded before January 1, 2017 need not be reassessed under IFRS 15 has been made use of. However, the determination of the effects for the comparative period 2017 has not yet been finalized at the time of publication of the consolidated financial statements.

The IASB published Amendments to IFRS 15 in April 2016. These changes allow for transitional arrangements for modified and fulfilled contracts, and clarify the identification of performance obligations, principal-agent relationships, and licenses. The application of these amendments is also not expected to have any major impact on the Group’s profitability, liquidity and capital resources or financial position.