2 – Recently Adopted and New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The following are those accounting pronouncements which are relevant to the Group and which have been adopted during 2013 in the preparation of these consolidated financial statements.

IAS 1

On January 1, 2013, the Group adopted the amendments to IAS 1, “Presentation of Financial Statements” which require companies to group together items within other comprehensive income (“OCI”) that may be reclassified to the statement of income. The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two separate statements. The adoption of the amendments did not have a material impact on presentation of other comprehensive income in the Group’s consolidated financial statements.

IAS 19

On January 1, 2013, the Group adopted IAS 19R, “Employee Benefits” which introduces the net interest approach which is based on the discount rate used to measure the defined benefit obligation multiplied with the net defined benefit asset/liability recognized on the balance sheet, both as determined at the start of the reporting period and adjusted for expected changes in the net defined benefit asset/liability due to contributions and benefit payments during the year. This measure of net interest cost replaces the interest cost on the defined benefit obligation and the expected return on plan assets. The standard also requires immediate recognition of remeasurement effects associated with all post-employment benefits through other comprehensive income such as actuarial gains and losses and any deviations between the actual return on plan assets and the return implied by the net interest cost, which is already consistent with the Group’s previous accounting policy. In addition, IAS 19R requires immediate recognition of any past service cost and enhances the disclosure requirements for defined benefit plans. For 2012 and 2011, the adoption of the net interest approach resulted in a reduction of the expenses for defined benefit plans and consequently increased actuarial losses recognized in other comprehensive income by € 36 million and € 34 million, respectively, so that the impact on total comprehensive income and total shareholders’ equity was neutral.

IAS 36

In December 2013, the Group early adopted IAS 36, “Recoverable Amount Disclosures for Non-Financial Assets (Amendment to IAS 36)” which addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The adoption of the amendments only had an impact on the disclosures of the Group.

IAS 39

In December 2013, the Group early adopted IAS 39, “Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)” which allows hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met. The adoption of the amendments did not have a material impact on the Group’s consolidated financial statements.

IFRS 7

On January 1, 2013, the Group adopted the amendments to IFRS 7, “Disclosures – Offsetting Financial Assets and Financial Liabilities” (“IFRS 7R”) requiring extended disclosures to allow investors to better compare financial statements prepared in accordance with IFRS or U.S. GAAP. The amendments were effective for annual and interim periods beginning on or after January 1, 2013. The adoption of the amendments only had an impact on the disclosures of the Group. The Group has provided the extended disclosures in Note 18 “Offsetting Financial Assets and Financial Liabilities”.

IFRS 10, IFRS 11, IAS 27 and IAS 28

On January 1, 2013, the Group adopted IFRS 10, “Consolidated Financial Statements”, IFRS 11, “Joint Arrangements”, a revised version of IAS 27, “Separate Financial Statements”, and a revised version of IAS 28, “Investments in Associates and Joint Ventures” which have been amended for conforming changes based on the issuance of IFRS 10 and IFRS 11. The Group also adopted the amendments to the transition guidance for IFRS 10 and IFRS 11. The Group recorded a cumulative charge to total equity as at January 1, 2012 of € 195 million, net of tax, for the initial adoption of these standards. Comparative information for 2011 has not been restated.

IFRS 10 replaces IAS 27, “Consolidated and Separate Financial Statements” and SIC-12, “Consolidation – Special Purpose Entities”, and establishes a single control model that applies to all entities, including those that were previously considered special purpose entities under SIC-12. An investor controls an investee when it has power over the relevant activities, exposure to variable returns from the investee, and the ability to affect those returns through its power over the investee. The assessment of control is based on all facts and circumstances and the conclusion is reassessed if there is an indication that there are changes in facts and circumstances.

IFRS 11 supersedes IAS 31, “Interests in Joint Ventures” and SIC-13, “Jointly-controlled Entities – Non-monetary Contributions by Venturers”. IFRS 11 classifies joint arrangements as either joint operations or joint ventures and focuses on the nature of the rights and obligations of the arrangement. IFRS 11 requires the use of the equity method of accounting for joint arrangements by eliminating the option to use the proportionate consolidation method, which had not been applied by the Group. The adoption of IFRS 11 did not have an impact on the consolidated financial statements.

The following tables reflect the incremental impacts of the adoption of IFRS 10 on the Group’s consolidated balance sheet and consolidated statement of income as at and for the year ended December 31, 2012 respectively. The Group deems the impact of IFRS 10 to be immaterial to the consolidated financial statements.

in € m.

Dec 31, 2012

Assets

 

Interest-earning deposits with banks

1,088

Financial assets at fair value through profit or loss

8,958

Loans

94

Other assets

(189)

Total assets

9,951

 

 

Liabilities

 

Financial liabilities at fair value through profit or loss

675

Other short-term borrowings

601

Long-term debt

(772)

Other liabilities

9,628

Total liabilities

10,132

 

 

Equity

 

Total shareholders’ equity

(14)

Noncontrolling interests

(168)

Total equity

(182)

in € m.

Dec 31, 2012

Net interest income

83

Net gains (losses) on financial assets/liabilities at fair value through profit and loss

435

Commissions and fee income

(127)

Other income (loss)

(397)

Income before income taxes

(6)

Income tax expense (benefit)

(3)

Net income

(3)

The majority of the impacts above arose from the consolidation of certain funds where the Group provides guarantee protection to third parties over the fund’s assets. Under IFRS 10 the Group was deemed to have power over the funds as it acts as investment manager and cannot be removed, has variable returns through significant unit holdings and/or the guarantee, and is able to influence the returns of the funds through its power.

IFRS 12

IFRS 12, “Disclosure of Interests in Other Entities (including amendments to the transition guidance for IFRS 10-12 issued in June 2012)” which requires annual disclosures of the nature, associated risks, and financial effects of interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities became effective for annual periods beginning on or after January 1, 2013. The adoption of the standard in the 2013 year-end financial statements only had an impact on the disclosures of the Group. The Group has provided the disclosures as required by IFRS 12 in Note 17 “Equity Method Investments”, Note 39 “Information on Subsidiaries” and Note 40 “Unconsolidated Structured Entities”.

IFRS 13

On January 1, 2013, the Group adopted IFRS 13, “Fair Value Measurement” which establishes a single source of guidance for fair value measurement under IFRS. IFRS 13 provides a revised definition of fair value and guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. As such it permits an exception, through an accounting policy election, to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position when certain criteria are met. The Group has elected to measure certain portfolios of financial instruments, such as derivatives, that meet those criteria on the basis of the net open risk position. IFRS 13 also introduces more comprehensive disclosure requirements on fair value measurement. There was no impact on the consolidated financial statements from the adoption of IFRS 13. The Group has provided the disclosures as required by IFRS 13 in Note 14 “Financial Instruments carried at Fair Value” and Note 15 “Fair Value of Financial Instruments not carried at Fair Value”.

Improvements to IFRS 2009-2011 Cycle

In May 2012, the IASB issued amendments to IFRS, which resulted from the IASB’s annual improvement project. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments became effective for annual periods beginning on or after January 1, 2013. The adoption of the standards in the 2013 year-end financial statements did not have a material impact on the Group’s consolidated financial statements.

New Accounting Pronouncements

The following accounting pronouncements were not effective as of December 31, 2013 and therefore have not been applied in preparing these financial statements.

IAS 32

IAS 32, “Offsetting Financial Assets and Financial Liabilities” (“IAS 32R”) amends the requirements for offsetting financial instruments. IAS 32R clarifies (a) the meaning of an entity’s current legally enforceable right of set-off; and (b) when gross settlement systems may be considered equivalent to net settlement. The amendments are effective for annual periods beginning on or after January 1, 2014. IAS 32R is not expected to have a material impact on the Group’s consolidated financial statements and has been endorsed by the EU.

IFRIC 21

IFRIC 21, “Levies”, an interpretation of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, clarifies that an entity recognises a liability for a levy only when the activity that triggers payment, as identified by the relevant legislation, occurs. The interpretation will become effective for the Group on January 1, 2014. IFRIC 21 is not expected to have a material impact on the Group’s consolidated financial statements. IFRIC 21 has yet to be endorsed by the EU.

Improvements to IFRS 2010-2012 and 2011-2013 Cycles

In December 2013, the IASB issued amendments to multiple IFRS standards, which resulted from the IASB’s annual improvement projects for the 2010-2012 and 2011-2013 cycles. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments will be effective for annual periods beginning on or after July 1, 2014, with earlier application permitted. The amendments are not expected to have a material impact on the Group’s consolidated financial statements. The amendments have yet to be endorsed by the EU.

IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (Hedge Accounting)

IFRS 9 (2009) – In November 2009, the IASB issued IFRS 9, “Financial Instruments”, as a first step in its project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 (2009) introduces new requirements for how an entity should classify and measure financial assets that are in the scope of IAS 39. The standard requires all financial assets to be classified on the basis of the entity’s business model for managing the financial assets, and the contractual cash flow characteristics of the financial asset.

IFRS 9 (2010) – In October 2010, the IASB issued a revised version of IFRS 9, “Financial Instruments” (“IFRS 9 (2010)”). The revised standard adds guidance on the classification and measurement of financial liabilities. IFRS 9 (2010) requires entities with financial liabilities designated at fair value through profit or loss to recognize changes in the fair value due to changes in the liability’s credit risk in other comprehensive income. However, if recognizing these changes in other comprehensive income creates an accounting mismatch, an entity would present the entire change in fair value within profit or loss. There is no subsequent recycling of the amounts recorded in other comprehensive income to profit or loss, but accumulated gains or losses may be transferred within equity.

IFRS 9 (2010) was further amended in November 2013 to allow the adoption of the guidance for the presentation of gains and losses on fair value changes in own credit arising from financial liabilities designated at fair value through profit and loss without applying the other requirements in the standard.

IFRS 9 (Hedge Accounting) – In November 2013, the IASB finalized new hedge accounting guidelines, as well as additional disclosures about risk management activities for entities that apply hedge accounting. These changes were developed to enable entities to better reflect their risk management activities in their financial statements. The changes also aim to simplify existing guidelines, in response to concerns raised by users of the financial statements about the perceived excessive complexity of the current hedge accounting guidelines.

The effective dates of IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (Hedge Accounting) have not been finalized. However, they are not expected to apply for annual periods starting earlier than January 1, 2017. While approved by the IASB, the above named standards have yet to be endorsed by the EU.