Response to IAS 37 Exposure Draft: Volkswagen AG's Perspective

This document presents Volkswagen AG's response to the IFRS Exposure Draft ED/2018/2, concerning clarifying amendments to IAS 37, focusing on Onerous Contracts and the Cost of Fulfilling a Contract. The response, authored by Dr. Ingrun-Ulla Bartölke, addresses two key questions posed in the exposure draft. Volkswagen AG agrees that all directly attributable costs, not just incremental ones, should be included in the cost of fulfilling a contract. They welcome the board's efforts to align with IFRS 15 but caution against potential diversity in practice due to the contractual arrangements affecting provisions. They also provide insights on the distinction between general administration costs and administration costs directly related to a contract, and mention their concerns about the inclusion of costs mentioned in IFRS 15.98 (b). The annex provides a detailed response to the questions posed in the exposure draft, offering a valuable perspective from a leading automobile manufacturer.

Exposure Draft ED/2018/2 – Onerous Contracts – Cost of Fulfilling a Contract
Dear Sir or Madam,
Thank you for the opportunityto commenton your exposuredraft regardingclarifying
amendments to IAS 37.
The Volkswagen Group is one of the world’s leading automobile manufacturers and the largest
carmaker in Europe. Volkswagen is very grateful for the guidance and clarifications in t
exposure draft.
Our answers to your questions listed in the exposure draft are contained in the annex of this
letter.
Best Regards,
Dr. Ingrun-Ulla Bartölke
Dr. Ingrun-Ulla Bartölke
Head of Group Accounting
VOLKSWAGEN AG
D-38440 Wolfsburg
IFRS Foundation
7 Westferry Circus
Canary Wharf
London E14 4HD
United Kingdom
Wolfsburg, April 11, 2019

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Annex - Questions
Question 1
The Board proposes to specify in paragraph 68 of IAS 37 that the cost of fulfilling a
contract comprises the costs that relate directly to the contract (rather than only the
incremental costs of the contract). The reasons for the Board’s decisions are explained in
paragraphs BC16–BC28.
Do you agree that paragraph 68 of IAS 37 should specify that the cost of fulfilling a
contract comprises the costs that relate directly to the contract? If not, why not, and what
alternative do you propose?
We welcome the activities of the board regarding further clarification of attributable costs in
the context of provisions for anticipated losses. We do agree with the board that not only
incremental, but rather all directly attributable costs should be included.

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Question 2
The Board proposes to add paragraphs 68A–68B which would list costs that do, and do
not, relate directly to a contract.
Do you have any comments on the items listed?
Are there other examples that you think the Board should consider adding to those
paragraphs? If so, please provide those examples.
We welcome – regarding a consistent application of IFRSs – that the board uses
formulations very similar to IFRS 15. However, we need to point out that – analogously to
IFRS 15 – the focus on the scope of contracts with customers depends arbitrarily on the
contractual arrangements. It is our opinion that this may lead to an unnecessary diversity in
practice because provisions can be influenced by the “mode” of recharging costs (implicitly or
explicitly). Thus, general administration costs should not, independent from their
rechargeability, be part of the provision for anticipated losses in onerous contracts. For costs
mentioned in IFRS 15.98 (b) we deem their inclusion questionable.
Question 3
Do you have any other comments on the proposed amendments?
Further guidance and examples for a clearer distinction between general administration costs
and administration costs which are directly related to a contract would be very much
appreciated.