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 2021.

As from January 1, 2021, the application of amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Interest Rate Benchmark Reform – Phase 2) became mandatory. The Phase 2 amendments address the accounting treatment arising from the actual replacement of an interest rate benchmark with an alternative benchmark rate. The amendments introduce practical expedients with regard to the modification of financial assets, financial liabilities, lease liabilities and hedging relationships. Changes to contractual cash flows as a result of replacing the existing benchmark interest rate on an economically equivalent basis as a direct consequence of the interest rate benchmark reform are accounted for by adjusting the effective interest rate without recognizing any direct modification gains or losses. A similar expedient will be introduced for the accounting treatment of lease liabilities as a result of amendments to IFRS 16. Moreover, under the amended standards, a hedging relationship is not discontinued as a result of switching to a new benchmark interest rate on an economically equivalent basis, but continues following an adjustment to the hedge documentation, if the hedging relationship still meets the other requirements for hedge accounting.

The Volkswagen Group is exposed to the interest rate benchmark reform regarding its variable IBOR-related transactions. To avoid any material risk arising from the transition to alternative benchmark rates (interest rate basis risk, liquidity risk, litigation risk, operational risk) risk management strategies and procedures have been implemented. The Volkswagen Group has closely monitored the market and the output from the various industry working groups managing the transition to new benchmark interest rates. This includes announcements made by the IBOR regulators. 

Regarding financial instruments that reference discontinued benchmark rates, the Volkswagen Group aims to complete its transition process prior to their official cessation dates, i.e. any existing derivatives transactions (“legacy trades”) have been or will be manually transitioned to alternative benchmark rates (active approach) rather than relying on incorporation of a contractual fallback language made available by the International Swaps and Derivatives Association (ISDA) via ISDA 2020 IBOR Fallbacks Protocol or respective bilateral agreements with the Group’s counterparties (passive approach). For new derivatives transactions that reference discontinued rates (if any), respective fallback mechanisms have been incorporated into the relevant framework agreements with the Group’s counterparties via ISDA 2020 IBOR Fallbacks Supplement to the 2006 ISDA Definitions, the 2021 ISDA Interest Rate Derivatives Definitions and/or the 2018 ISDA Benchmark Supplement.

The exposures of financial instruments that are still affected by the interest rate benchmark reform at the reporting date arise on derivative and non-derivative financial assets and liabilities. They are exposed to the following significant benchmark rates. In our view EURIBOR is not affected by a replacement so the regarding transactions are outside the scope of this disclosure.

Disclosures on exposures impacted by interest rate benchmark reform as at December 31, 2021:

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

New and amended IFRSs not applied

In its 2021 consolidated financial statements, Volkswagen AG did not apply the following accounting pronouncements that have been adopted by the IASB until December 31, 2021, but were not yet required to be applied for the fiscal year.