Application of new accounting methods

Accounting standards applied for the first time in the short financial year 2013

The accounting standards and interpretations revised, amended and newly adopted by the IASB that were binding for METRO AG in the short financial year 2013 were applied for the first time in these consolidated financial statements:

IFRS 7 (Financial Instruments: Disclosures)

The application of the IFRS 7 (Financial Instruments: Disclosures) amendment “Disclosures – Offsetting Financial Assets and Financial Liabilities” became mandatory as of 1 January 2013. The standard requires entities to disclose information about rights of set-off and related arrangements to show their impact on the company’s financial and asset positions. This information will provide greater comparability between financial statements prepared in accordance with IFRS and US GAAP. The disclosure requirement applies to all financial instruments subject to a master netting arrangement or similar agreement even if they are not set off.

A table of the financial assets and liabilities, the arrangements governing rights of set-off, enforceable master netting arrangements and similar agreements can be found under no. 38 “Offsetting of financial assets and financial liabilities”.

IFRS 13 (Fair Value Measurement)

The new standard IFRS 13 stipulates standardised requirements for measuring fair value. There are still separate standards for IAS 17 (Leases) and IFRS 2 (Share-based Payment). However, other IFRS standards continue to stipulate where fair value measurement must be applied or where fair value must be disclosed in the notes.

IFRS 13 defines fair value as the price that would be received on selling an asset or paid on transferring a liability. The standard establishes a three-level hierarchy system that is categorised according to the observability of market prices. In case the bid and ask price differ, the most appropriate price for valuation purposes is used. Unless stated otherwise, the median of bid and ask price is used.

The first-time application of IFRS 13 during the current short financial year did not result in any material deviations in fair value measurement at METRO AG.

IAS 1 (Presentation of Financial Statements)

During the short financial year 2013, the amendment to IAS 1 “Presentation of Items of Other Comprehensive Income” was applied for the first time. It stipulates that when reconciling the items of other comprehensive income from profit or loss for the period to total comprehensive income, they have to be split according to whether they will be reclassified to profit or loss in the future if the correct conditions for this are met or if they will remain permanently in equity. In addition, the corresponding tax effects for these two new categories in other comprehensive income must be reported separately.

IAS 19 (Employee Benefits)

Since 1 January 2013, it is mandatory to apply the revised IAS 19. The revised IAS 19 (Employee Benefits) abolished the option to account for actuarial gains and losses from defined-benefit pension plans either directly in the income statement, in other comprehensive income outside of profit or loss or based on the so-called corridor approach. The revised IAS 19 only allows for actuarial gains and losses to be recognised immediately in other comprehensive income outside of profit or loss. The amounts collected in equity remain there and are not reclassified to the income statement in subsequent periods. As a result, the income statement will in future remain unaffected by actuarial gains and losses. As METRO AG used the corridor approach in the past, this resulted in a change of method. Another change concerns the fact that, in future, expected returns on plan assets will be determined using the discount rate also used to measure the pension obligations. In addition, past service costs will in future also be recognised fully in the income statement during the period in which the respective plan changes were effected.

In accordance with the transitional provisions, METRO AG retrospectively applied the revised IAS 19 for the first time. Reserves retained from earnings were adjusted by €–627 million as of 31 December 2012, by €–586 million as of 30 September 2012 and by €–203 million as of 1 January 2012 outside of profit or loss (including the amounts attributable to non-controlling interests, excluding the offsetting effect from deferred taxes) corresponding to the amount of the actuarial gains and losses recorded as of the respective closing dates, which had been recognised off-balance sheet in the past according to the corridor approach. As a result, provisions were adjusted by €+471 million as of 31 December 2012, by €+437 million as of 30 September 2012 and by €+155 million as of 1 January 2012. Assets for pensions were adjusted by €–140 million as of 31 December 2012, by €–138 million as of 30 September 2012 and by €–49 million as of 1 January 2012. Net earnings were adjusted by €+12 million as of 31 December 2012, by €+5 million as of 30 September 2012 and by €–1 million as of 1 January 2012.

Adjustments also had to be made in the income statement for 12M 2012 and 9M 2012. The derecognition in the income statement of past service costs reduced administrative costs by €4 million for 12M 2012 as well as by €2 million for 9M 2012, which led to a corresponding increase in EBIT. Due to the derecognition of the amortisation of actuarial gains and losses recognised in 12M 2012 and 9M 2012, interest expenses decreased by €8 million for 12M 2012 and by €7 million for 9M 2012. Furthermore, the application of the actuarial interest rate on pension obligations to plan assets increased the interest income by €7 million for 12M 2012 as well as by €5 million for 9M 2012. In total, the financial result therefore increased by €15 million for 12M 2012 and by €12 million for 9M 2012. Imputed tax expenses of €5 million for 12M 2012 and €7 million for 9M 2012 were recognised correspondingly.

If IAS 19 had not been revised, this would have had the following effects: as of 30 September 2013, pension provisions would have been €374 million, EBIT €1 million and the financial result €114 million lower. In addition, pension assets would have been €109 million and reserves retained from earnings €627 million higher (excluding the offsetting effect from deferred taxes).

Improvements to IFRS (2009–2011)

It was also mandatory to apply the “Improvements to IFRS (2009–2011)” for the first time on 1 January 2013. These, however, had no material effect on these consolidated financial statements.

Additional IFRS amendments

In addition to the amendments stated above, the “Government Loans” amendment to IFRS 1 (First-time Adoption of International Financial Reporting Standards) as well as the interpretation IFRIC 20 (Stripping Costs in the Production Phase of a Surface Mine) came into force as of 1 January 2013. However, as these are only relevant for IFRS first-time adopters or entities operating in the surface mining industry, this amendment had no effect on METRO AG.

Accounting standards that were published but not yet applied in the short financial year 2013

A number of other accounting standards and interpretations newly adopted or revised by the IASB were not yet applied by METRO AG during the short financial year 2013 because they were either not yet mandatory or have not yet been endorsed by the European Commission.

  Download XLS (26 kB)

Standard/ Interpre­tation

Title

Effective date according to IFRS1

Application at METRO AG from2

Endorsed by EU3

1

Without earlier application

2

Precondition: EU endorsement has been effected

3

As of: 30 September 2013

4

Application as of 1 October due to change of financial year

5

Applicable for EU companies from 1 January 2014; application at METRO AG from 1 October due to change of financial year

IFRS 7

Financial Instruments: Disclosures (Amendment: Mandatory Effective Date of IFRS 9 and Transition Disclosures)

1/1/2015

1/10/20154

No

IFRS 9

Financial Instruments (Phase 1: Classification and Measurement of Financial Assets and Financial Liabilities)

1/1/2015

1/10/20154

No

IFRS 9

Financial Instruments (Amendment: Mandatory Effective Date of IFRS 9 and Transition Disclosures)

1/1/2015

1/10/20154

No

IFRS 10

Consolidated Financial Statements

1/1/2013

1/10/20145

Yes

IFRS 10

Consolidated Financial Statements (Amendment: Transition Guidance)

1/1/2013

1/10/20145

Yes

IFRS 10

Consolidated Financial Statements (Amendment: Investment Entities)

1/1/2014

1/10/20144

No

IFRS 11

Joint Arrangements

1/1/2013

1/10/20145

Yes

IFRS 11

Joint Arrangements (Amendment: Transition Guidance)

1/1/2013

1/10/20145

Yes

IFRS 12

Disclosure of Interests in Other Entities

1/1/2013

1/10/20145

Yes

IFRS 12

Disclosure of Interests in Other Entities (Amendment: Transition Guidance)

1/1/2013

1/10/20145

Yes

IFRS 12

Disclosure of Interests in Other Entities (Amendment: Investment Entities)

1/1/2014

1/10/20144

No

IAS 27

Separate Financial Statements (Revision and renaming as part of the introduction IFRS 10)

1/1/2013

1/10/20145

Yes

IAS 27

Separate Financial Statements (Amendment: Investment Entities)

1/1/2014

1/10/20144

No

IAS 28

Investments in Associates and Joint Ventures (Revision and renaming as part of the introduction of IFRS 11)

1/1/2013

1/10/20145

Yes

IAS 32

Financial Instruments: Presentation (Amendment: Offsetting Financial Assets and Financial Liabilities)

1/1/2014

1/10/20144

Yes

IAS 36

Impairment of Assets (Amendment: Recoverable Amount Disclosures for Non- Financial Assets)

1/1/2014

1/10/20144

No

IAS 39

Financial Instruments: Recognition and Measurement (Amendment: Novation Derivatives and Continuation of Hedge Accounting)

1/1/2014

1/10/20144

No

IFRIC 21

Levies

1/1/2014

1/10/20144

No

IFRS 9 (Financial Instruments – Phase 1: Classification and Measurement of Financial Assets and Financial Liabilities)

The new IFRS 9 standard (Financial Instruments) is to replace IAS 39 (Financial Instruments: Recognition and Measurement) covering the classification and measurement of financial instruments. IFRS 9 is developed in three phases of which only the first phase “Classification and Measurement of Financial Assets and Financial Liabilities” has been concluded so far. Additional planned phases are “Amortised Cost and Impairment of Financial Assets” and “Hedge Accounting”.

In its currently released state, IFRS 9 therefore contains only the results from the first phase, “Classification and Measurement of Financial Assets and Financial Liabilities”. As part of this first phase, the four IAS 39 measurement categories used in the classification of financial assets have been reduced to two – measurement at amortised cost and fair value measurement. Financial assets are classified as belonging to one of these two categories on the basis of the characteristics of contractual cash flow of the respective financial asset and the business model which the entity uses to manage its financial assets. Due to these criteria, equity instruments may in future only be measured at fair value.

Changes in the valuation of financial assets measured at fair value must be recognised in profit or loss. However, under an irrevocable option, fair value changes of equity instruments not held for trading may be recognised in other comprehensive income outside of profit or loss at first-time recognition. In addition, under IFRS 9, the fair value option for financial assets included in IAS 39 is permitted only if this eliminates or significantly reduces accounting mismatches.

In general, financial liabilities are measured at amortised cost. Financial liabilities held for trading, in turn, are measured at fair value. In addition, IFRS 9 also provides a fair value option for financial liabilities. However, in exercising this option, fair value changes resulting from changes in the entity’s creditworthiness must be recognised in other comprehensive income outside of profit or loss, while other changes must be recognised in profit or loss.

IFRS 9 in its current version is scheduled to apply as of 1 January 2015. Following METRO AG’s change of financial year, IFRS 9 will thus be applied at the company for the first time in the financial year 2015/16 starting on 1 October 2015. As a result, the potential impact of this new standard cannot be determined at this point.

IFRS 10 (Consolidated Financial Statements), IFRS 11 (Joint Arrangements) and IFRS 12 (Disclosure of Interests in Other Entities)

The new standards IFRS 10, 11 and 12 contain changes in accounting and disclosure requirements for consolidated financial statements. IFRS 10 (Consolidated Financial Statements) includes a new definition of control that determines which entities are consolidated. It replaces previous regulations governing consolidated financial statements included in IAS 27 (Consolidated and Separate Financial Statements – in future only Separate Financial Statements) and SIC–12 (Consolidation – Special Purpose Entities). The key change resulting from IFRS 10 concerns the introduction of a uniform definition of control. In future, three criteria must be met for the existence of control. For one, the investor has power over the investee. This means that the investor has existing rights that give it the ability to direct the relevant activities, that is, the activities that significantly affect the investee's results. In addition, the investor is exposed, or has rights, to variable returns from its involvement with the investee, and has the ability to affect those returns through its power over the investee.

IFRS 11 (Joint Arrangements) describes the accounting for arrangements in which several parties have joint control over a joint venture or a joint operation. It replaces IAS 31 (Interests in Joint Ventures) and SIC–13 (Jointly Controlled Entities – Non-Monetary Contributions by Venturers) and amends IAS 28 (Investments in Associates – in future: Investments in Associates and Joint Ventures). IFRS eliminates the option currently granted under IAS 31 to apply proportionate consolidation to joint ventures. In future, joint ventures must be recognised using the equity method in accordance with the stipulations of IAS 28. As METRO AG has not made use of the option to apply proportionate consolidation, this amendment has no effect on the consolidated financial statements of METRO AG. According to IFRS 11, the individual partners in joint arrangements recognise their portion of jointly held assets and jointly incurred liabilities in their own balance sheet. Analogously, they also include their respective portion of sales, income and expenses deriving from the joint arrangement in their income statement.

The new IFRS 12 (Disclosure of Interests in Other Entities) markedly expands the disclosure requirements for investments in other entities. In future, detailed information must be provided on subsidiaries, associates, joint arrangements, joint ventures, consolidated special purpose entities (so-called structured entities) and all special purpose entities that are not consolidated but with which an entity maintains a relationship.

The new standards IFRS 10, 11 and 12 as well as the amendments to IAS 27 and 28 apply from 1 January 2013. However, in its endorsement of the new standards, the EU postponed the date of application for listed companies within the EU to 1 January 2014. As a result of the company’s change of financial year, METRO AG will therefore apply the new standards for the first time in the financial year 2014/15 starting on 1 October 2014. The first-time application of these standards is not expected to have a material effect on the consolidated financial statements of METRO AG.

IAS 32 (Financial Instruments: Presentation)

Pursuant to IAS 32 (Financial Instruments: Presentation), financial assets and financial liabilities should be offset if the following two preconditions are met: first, the entity must have a legally enforceable right to set off the amounts as of the balance sheet date; second, it must intend to either settle on a net basis or to realise the asset and settle the liability simultaneously. The amendment to IAS 32 “Offsetting of Financial Assets and Financial Liabilities” specifies when these conditions are considered met. In particular, it determines criteria for the existence of an unconditional legal claim.

The amendment to IAS 32 will apply to financial years from 1 January 2014. Given the change of financial year, METRO AG will therefore implement this amendment for the first time in the financial year 2014/15 which starts on 1 October 2014. At present, this amendment is not expected to have any material effect on the asset, financial and earnings position of METRO AG.

At this point, the first-time application of the other standards and interpretations listed in the table is not expected to have a material impact on the group’s financial position and financial performance.

Revised disclosures

Put options of non-controlling interests

In the financial year 2012, the balance sheet treatment of put options of non-controlling interests was harmonised. Previously, liabilities from put options were recognised in the balance sheet item “other financial and non-financial liabilities” either under “liabilities to third-party interests” or “miscellaneous other liabilities”. Since the fourth quarter of the financial year 2012, they have been recognised uniformly under “liabilities to third-party interests”. As the first three quarters of the financial year 2012 were reported using the old approach, the new method was applied retrospectively. Accordingly, an amount of €309 million was reclassified from “miscellaneous other liabilities” to “liabilities to third-party interests” in the previous year on 30 September 2012. This also led to a reduction of the previous year’s segment liabilities in the “others” segment by €250 million and METRO Cash & Carry by €59 million, as the “miscellaneous other liabilities” are included in segment liabilities, while “liabilities to third-party interests” are not part of earnings before interest and taxes (EBIT) and therefore do not classify as segment liabilities.

Preference shares

As of 1 January 2013, METRO AG abandoned the previous recognition method of stating part of the amounts received from issuing preference shares in equity and part in debt. Preference shares issued by METRO AG do not meet the definition of debt pursuant to IAS 32 as payment of a preference dividend depends on a corresponding resolution on earnings appropriation by the Annual General Meeting and a subsequent payment obligation does not impact the classification as equity. This interpretation is confirmed by prevailing opinion. Starting in the short financial year 2013, preference shares of METRO AG have therefore been treated as pure equity instruments. A corresponding amount of €7 million was reclassified from “other financial and non-financial liabilities” (non-current) to “capital reserve”. Because this had no material impact, a retrospective adjustment was not made.

Revised terminology and new items

Revised terminology in the income statement

In the income statement, the item “result from associates” was renamed “result from associates and joint ventures”. This is to show that this item also includes income from joint ventures.

New balance sheet item

As the amounts of investments accounted for using the equity method became material during the financial year 2012, they have been recognised in a separate balance sheet item, “Investments accounted for using the equity method”, since the consolidated financial statements as of 31 December 2012.

Changes in accounting-related estimates

Expected useful life of real estate properties of Galeria Kaufhof

The expected useful life of real estate properties of Galeria Kaufhof was increased as of 1 January 2013. The new expected useful life is 30 to 50 years. In the short financial year, depreciation expenses therefore decreased by €10.1 million. Based on the current real estate stock of Galeria Kaufhof, depreciation expenses will be €13.5 million lower in subsequent years.