Accounting policies

These consolidated financial statements for the financial year from 1 July 2018 to 30 June 2019, including the prior-year information, were prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted in the European Union and in force at the end of the reporting period, and the supplementary provisions of German commercial law required to be observed in accordance with § 315e (1) HGB. The term "IFRS" includes the recent International Financial Reporting Standards (IFRSs) and the International Accounting Standards (IASs) issued by the International Accounting Standards Board (IASB) in London as well as the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC).

Borussia Dortmund applied the following Standards, Interpretations and amendments to existing Standards, as adopted by the European Union, for the first time in the 2018/2019 financial year:

Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions

The amendments concern accounting for the effects of vesting conditions on cash-settled share-based payments, classification of share-based payments transactions with net settlement features, and accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

The amendments did not have any material impact on the consolidated financial statements of Borussia Dortmund.

Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

The amendments relate to first-time adoption of IFRS 9 for insurers. Without these amendments, the different effective dates of IFRS 9 and the new standard for insurance contracts (IFRS 17) would lead to increased volatility in profit or loss over the transition period and would double the cost and effort involved in transitioning to the new standards.

The amendments provide two solutions:

• Temporary exemption from IFRS 9: Entities whose activities are predominantly connected with insurance and who apply IFRS 4 to existing insurance contracts are permitted to continue applying IAS 39 instead of IFRS 9 for financial years beginning before 1 January 2021. This applies only if IFRS 9 had previously not been applied. Beginning in financial year 2018, additional disclosures in the notes are required to enable users of financial statements to make comparisons with entities applying IFRS 9.
  
  As part of its endorsement, the EU has widened the scope of this option to insurance undertakings of financial conglomerates under certain conditions.
• Overlay approach: Entities that apply IFRS 4 to existing insurance contracts are permitted to reclassify amounts between profit or loss and other comprehensive income for eligible financial assets so that the total profit or loss reported under IFRS 9 is the same as if IAS 39 had been applied to those assets.

The amendments did not have any impact on the consolidated financial statements of Borussia Dortmund.

IFRS 9 – Financial Instruments

IFRS 9 (Financial Instruments) was issued in July 2014 and replaces the existing IAS 39 (Financial Instruments: Recognition and Measurement). Borussia Dortmund has applied IFRS 9 since 1 July 2018 and has exercised the option to not restate comparative information for prior periods to reflect changes in classification and measurement or loss allowances. Instead, differences arising from the adoption of IFRS 9 are reported under revenue reserves as at 1 July 2018.

Under IFRS 9, financial assets are classified into one of three categories: "at amortised cost"; "at fair value through other comprehensive income (FVOCI)"; and "at fair value through profit or loss (FVTPL)". Under IFRS 9, financial assets are 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 eliminates the previous categories under IAS 39: held to maturity, loans and receivables, and available for sale. Under IFRS 9, a derivative that is embedded in a contract with a host that is a financial asset within the scope of the standard is never accounted for separately. Instead, the hybrid financial instrument is assessed in its entirety with regard to its classification.

The table below presents the reconciliation of the carrying amounts of financial assets measured in accordance with IAS 39 to the carrying amounts under IFRS 9 as at the transition date to IFRS 9, 1 July 2018.

As at 30 June 2018, Borussia Dortmund had receivables from transfer deals intended for factoring that it classified as held-for-sale. In accordance with IFRS 9, the Group classified these as FVTPL. As a result, all changes in fair value are recognised through profit or loss. The effect of the reclassification as at 1 July 2018, taking into account tax effects, resulted in a reduction of equity by EUR 531 thousand.

The initial application of IFRS 9 did not have any material effect on the Group's accounting policies in respect of financial liabilities and derivative financial instruments. The effects of the first-time adoption of IFRS 9 on the carrying amounts of financial assets as at 1 July 2018 were attributable to the new requirements governing the recognition of loss allowances and the measurement of receivables intended for factoring at FVTPL.

IFRS 9 replaces the incurred loss model under IAS 39 with a forward-looking expected credit loss model. This requires significant judgment as to the extent to which expected credit losses are affected by changes in economic factors. This assessment is determined on the basis of weighted probabilities.

The new loss allowance model must be applied to financial assets measured at amortised cost or FVOCI (with the exception of securities carrying dividend rights held as financial investments) and contract assets.

The standard sets out a three-stage loss allowance model for calculating expected credit losses. A loss allowance is recognised at an amount equal to the 12-month expected credit losses (stage 1)or at an amount equal to the lifetime expected credit losses if the credit risk has increased significantly since initial recognition (stage 2), or in the case of credit-impaired financial assets (stage 3).

The three-stage model is applied to cash and cash equivalents for which loss allowances are recognised in accordance with IFRS 9. The resulting loss allowances are immaterial. The simplified approach is applied to trade receivables and contract assets that result from transactions that are within the scope of IFRS 15 and that do not contain a significant financing component, and the loss allowances are always recognised at an amount equal to the lifetime expected credit losses (stages 2 and 3).

As at 30 June 2018, a loss allowance of EUR 1,500 thousand was recognised in accordance with IAS 39 on trade receivables/contract assets. The estimated expected credit losses were measured on the basis of the credit losses actually incurred over the past three years. The measurement was broken down by business model. The calculation of future loss allowances – taking macroeconomic figures into account – increased loss allowances on trade receivables/contract assets by EUR 11 thousand. Taking tax effects into account, this reduced equity by EUR 7 thousand as at 30 June 2018.

IFRS 15 – Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers sets out a comprehensive framework for determining whether, in what amount and at which point in time revenue is recognised. It replaces the existing guidance on revenue recognition, including that contained in IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes.

The Group is required to apply IFRS 15 as at 1 July 2018.

The Group opted to apply the modified retrospective method in its consolidated financial statements when transitioning to IFRS 15, and thus recognises the cumulative effect of applying the standard as at 1 July 2018.

In accordance with IFRS 15, revenue is recognised when (or as) the customer obtains control, whereas under IAS 18 revenue was recognised when the risks and rewards of ownership were transferred.

The Group has completed its implementation project for the accounting of revenue from contracts with customers. There are no material changes from the previous practice under IAS 18.

The accounting treatment of rights of return in the mail order business was brought in line with IFRS 15. Revenue is reduced by the expected returns, which are estimated on the basis of historical data. In these cases, the Company recognises a refund liability and an asset for its right to recover products from customers.

This led to an immaterial increase in other liabilities and other current assets.

Amendment to IFRS 15 – Clarifications to IFRS 15

The amendments add clarifications on various requirements of IFRS 15 and introduce two new practical expedients to reduce complexity and costs for entities transitioning to the new standard.

These give entities options in presenting contracts that were either completed at the beginning of the earliest period presented or modified before the beginning of the earliest period presented.

The amendments must be applied for the first time for financial years beginning on or after 1 January 2018.

The amendments did not have any material impact on the consolidated financial statements of Borussia Dortmund.

Amendment to IAS 40 – Transfers of Investment Property

The amendment to IAS 40 is intended to clarify when a property under construction or planning is transferred to or from investment property. The previous exhaustive list of circumstances in IAS 40.57 failed to ensure a clear classification of property under construction or development. The list of circumstances has now been designated explicitly as non-exhaustive, meaning that properties under construction or development can also be classified under the requirement.

The amendments did not have any impact on the consolidated financial statements of Borussia Dortmund.

IFRIC 22 – Foreign Currency Transactions and Advance Consideration

IFRIC 22 addresses an issue when applying IAS 21 The Effects of Changes in Foreign Exchange Rates. It clarifies the date for the purpose of determining the exchange rate used to translate transactions in foreign currencies for which consideration is received or paid in advance. The foreign exchange rate for the related asset, income or expense is determined by the date on which the prepayment asset or liability for income received in advance was initially recognised.

The amendments did not have any material impact on the consolidated financial statements of Borussia Dortmund.

Improvements to IFRS 2014 – 2016

The Annual Improvements to IFRSs (2014–2016 cycle) made changes to three standards, of which the following two are applicable for the first time in 2018:

In IAS 28, it was clarified that the measurement option for investments in associates and joint ventures held by a venture capital organisation or other similar entity may be exercised differently for each equity investment.

In addition, the amendments delete the short-term exemptions for first-time adopters in IFRS 1.E3–E7.

The amendments did not have any material impact on the consolidated financial statements of Borussia Dortmund.

Amendments to IFRS 9 – Prepayment Features with Negative Compensation

The amendments introduce a narrow-scope modification of the assessment criteria relevant for classifying financial assets. Under certain circumstances, financial assets that include prepayment features with negative compensation do not have to be measured at fair value through profit of loss but may instead be measured at amortised cost or at fair value through other comprehensive income.

The standard must be applied for the first time for financial years beginning on or after 1 January 2019.

The amendments did not have any material impact on the consolidated financial statements of Borussia Dortmund.

IFRIC 23 Uncertainty over Income Tax Treatments

The tax treatment of certain circumstances or transactions may depend on the future acceptance of that treatment by the relevant tax authorities and courts. IAS 12 Income Taxes governs the accounting treatment of current and deferred taxes. IFRIC 23 clarifies the requirements under IAS 12 where there is uncertainty over the income tax treatment of certain circumstances and transactions.

The interpretation must be applied for the first time for financial years beginning on or after 1 January 2019. Earlier application is permitted.

The Group currently does not expect any material impact on the consolidated financial statements.

Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures

The amendments clarify that IFRS 9 must be applied to long-term interests in associates or joint ventures that are accounted for using the equity method.

The amendments must – subject to adoption by the European Union – be applied for the first time as at 1 January 2019.

The Group currently does not expect any material impact on the consolidated financial statements.

Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement

In accordance with IAS 19, pension obligations must be remeasured using updated assumptions whenever plan amendments, curtailments or settlements take place.

The amendments clarify that updated assumptions must be used to determine the service cost and net interest for the remainder of the period after the change to the plan.

The amendments must – subject to adoption by the European Union – be applied for the first time for financial years beginning on or after 1 January 2019. Earlier application is permitted.

The Group currently does not expect any material impact on the consolidated financial statements.

Improvements to IFRS 2015 – 2017

Four IFRSs were amendment in connection with the Annual Improvements to IFRSs (2015–2017 cycle).

The amendments to IFRS 3 clarify that a company must apply the requirements for a business combination achieved in stages when it obtains control of a business in which it previously held an interest as a joint operation. The interest previously held by the acquirer must be remeasured.

IFRS 11 clarifies that an entity does not remeasure its previously held interest in a joint operation when it obtains joint control of the business.

The amendments to IAS 12 clarify that an entity accounts for all income tax consequences of dividend payments in the same way.

The amendments to IAS 23 clarify that when an entity calculates its borrowing costs it shall exclude from this calculation borrowing costs applicable to borrowings made specifically for the purpose of obtaining a qualifying asset until substantially all the activities necessary to prepare that asset for its intended use or sale are complete.

The amendments must – subject to adoption by the European Union – be applied for the first time for financial years beginning on or after 1 January 2019. Earlier application is permitted.

The Group currently does not expect any material impact on the consolidated financial statements.

IFRS 16 – Leases

IFRS 16 introduces a single accounting model for the recognition of leases in the financial statements of lessees. Lessees recognise a right-of-use asset (representing their right to use an underlying asset) and a lease liability (representing their obligation to make lease payments). There are exemptions for short-term leases and leases of low-value assets. Lessor accounting remains comparable with the current standard, i.e., the lessor will continue to classify leases as finance leases or operating leases.

IFRS 16 replaces the existing standards and interpretations on leases, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard must be applied for the first time for financial years beginning on or after 1 January 2019.

Borussia Dortmund began applying the accounting requirements of IFRS 16 early on 1 July 2018. Under the standard, lessees recognise a right-of-use asset (representing their right to use an underlying asset) and a lease liability (representing their obligation to make lease payments).

Borussia Dortmund applies the modified retrospective method. Consequently, the comparative figures from the prior-year periods have not been restated. Borussia Dortmund is making use of the practical expedients as part of its initial application of IFRS 16: it applies an average discount rate to leases with similar characteristics and does not apply the requirements of the standard to leases for which the lease term ends within 12 months of the date of initial application.

Pursuant to the exemptions under IFRS 16, Borussia Dortmund has opted to henceforth not apply the accounting requirements to leases with a term of 12 months or less and to leases for which the underlying asset is of low value.

Right-of-use assets recognised in accordance with IFRS 16 are measured at cost as at the commencement date and are generally discounted at the rate implicit in the lease. That amount is reduced by cumulative depreciation and amortisation and, where appropriate, write-downs and impairment losses.

Due to the existing lease agreements, Borussia Dortmund is entitled to control the use of various assets against payment of the lease obligations.

As part of the transition to IFRS 16, assets amounting to EUR 4,802 thousand were reclassified to other equipment, operating and office equipment. The additional lease liabilities were recognised in the same amount. Consequently, the transition to the new standard had no effect on equity.

Operating lease obligations as at 30 June 2018 were reconciled as follows to lease liabilities in the opening balance sheet as at 1 July 2018:

The lease liabilities were discounted using the incremental borrowing rate as at 1 July 2018. The weighted average discount rate was 3%.

Accounting standards issued by the IASB, but not yet adopted by the EU and not yet applied by the Company:

Restatements in accordance with IAS 8

The respective prior-year figures in the financial statements were restated retrospectively in accordance with IAS 8.42 due to the necessary change in the accounting policy applicable to agent and brokerage commissions for contract extensions and the initial recognition of players acquired on free transfers, which had previously been reported under prepaid expenses and reversed to other operating expenses, taking into account payments subject to a condition precedent.

Agent and brokerage commissions and other obligations in connection with contract extensions or players acquired on free transfers are now recognised as intangible assets. If these obligations are subject to certain conditions, they are recognised on the date the conditions are met. The intangible assets are amortised on a straight-line basis over the remaining term of the individual contracts.

The retrospective change in the accounting policy increased the prior-year consolidated net profit by EUR 3,243 thousand.

The changes are presented in the table below:

The requisite restatements increased the basic and diluted earnings per share from EUR 0.31 to EUR 0.34 per share.

Please refer to Note 22 for disclosures on the effects on deferred taxes.

The consolidated statement of cash flows was restated as follows: