3. New Accounting Pronouncements

In accordance with EU Regulation (EC) No. 1606/2002 in conjunction with Section 315e (1) of the German Commercial Code (Handelsgesetzbuch – HGB), Continental AG has prepared its consolidated financial statements in compliance with IFRS as adopted by the Commission of the European Communities under the European Union endorsement procedure. Accordingly, IFRS are only required to be applied following endorsement of the new standards by the European Commission.

The following endorsed standards, interpretations issued in relation to published standards and amendments that were applicable to the consolidated financial statements of Continental AG became effective in 2025 and have been adopted accordingly:

The amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates (Lack of Exchangeability), require an entity to apply a consistent approach to assessing whether a currency is exchangeable into another currency and, when it is not, to determining the exchange rate to use. A currency is exchangeable into another currency when an entity is able to obtain the other currency within a time frame that allows for a normal administrative delay and through a market or exchange mechanism in which an exchange transaction would create enforceable rights and obligations. If an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date for the specified purpose, the currency is not exchangeable into the other currency. If a currency is not exchangeable at the measurement date, an entity is required to estimate a spot exchange rate (rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions). In this case, the entity is required to disclose information that enables users of its financial statements to understand how the lack of exchangeability affects, or is expected to affect, the entity’s financial performance, financial position and cash flows. The amendments are required to be applied for annual periods beginning on or after January 1, 2025. The amendments had no significant effect on the consolidated financial statements of Continental AG.

The following standards, interpretations issued in relation to published standards and amendments have already been adopted by the EU but will not take effect until a later date:

The amendments to IFRS 9, Financial Instruments, and IFRS 7, Financial Instruments: Disclosures, (Amendments to the Classification and Measurement of Financial Instruments), refine the classification, measurement and disclosure of financial assets and financial liabilities. The amendments clarify and extend the application guidance for assessing whether a financial asset meets the cash flow criterion (SPPI criterion). This includes both the classification of financial assets with ESG-linked (environmental, social and governance) or similar features, as well as the classification of financial assets with non-recourse features and contractually linked instruments. The amendments include clarifications on the timing of recognition and derecognition of financial assets and financial liabilities. In principle, financial liabilities are to be derecognized on the settlement date. With regard to the derecognition of financial liabilities settled using electronic payment systems, the amendments introduce an option that permits the financial liability to be discharged before the settlement date if certain criteria are met. Furthermore, the amendments introduce additional disclosure requirements to enhance transparency for investors regarding investments in equity instruments designated at fair value through other comprehensive income and financial instruments with contractual terms that could change the timing or amount of contractual cash flows. The amendments are required to be applied for annual periods beginning on or after January 1, 2026. The amendments are not expected to have any significant effect on the future consolidated financial statements of Continental AG.

The amendments to IFRS 9, Financial Instruments, and IFRS 7, Financial Instruments: Disclosures, (Contracts Referencing Nature-dependent Electricity), clarify the accounting for contracts for nature-dependent electricity supply that expose an entity to variability in the underlying amount of electricity because the source of electricity generation depends on uncontrollable natural conditions (for example, the weather). Contracts referencing nature-dependent electricity include both contracts to buy or sell nature-dependent electricity and financial instruments that reference such electricity. To ensure that financial statements faithfully represent the effects of an entity’s contracts referencing nature-dependent electricity, the amendments clarify the application of the “own-use” requirements, permitting hedge accounting if these contracts are used as hedging instruments. Furthermore, the amendments add new disclosure requirements to enable investors to understand the effect of these contracts on a company’s financial performance and cash flows. The amendments are required to be applied for annual periods beginning on or after January 1, 2026. The amendments are not expected to have any significant effect on the future consolidated financial statements of Continental AG.

IFRS 18, Presentation and Disclosure in Financial Statements, replaces IAS 1, Presentation of Financial Statements, while carrying forward many of the requirements from IAS 1. IFRS 18 introduces new requirements regarding the presentation of specified categories (operating category, investing category and financing category) and defines subtotals in the income statement in order to make it easier to compare the financial performance of companies. In addition, IFRS 18 requires disclosures on company-specific performance indicators that are not specified by IFRS Accounting Standards but have been defined by the company’s management (so-called management defined-performance measures, or MPMs) to be provided in the notes. Furthermore, there may be changes to the information provided in the notes due to new aggregation and disaggregation principles. Some of the requirements in IAS 1 are moved to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, and IFRS 7, Financial Instruments: Disclosures. IFRS 18 also amends IAS 7, Statement of Cash Flows, and IAS 33, Earnings per Share, to a minimal extent. The new standard is required to be applied for annual periods beginning on or after January 1, 2027. A project to implement the requirements of IFRS 18 and the resulting changes in the Continental Group has been initiated. The ongoing impact analysis does not yet allow a conclusive statement to be made on the effects of the new standard (and the corresponding consequential amendments to other standards and interpretations) on the future consolidated financial statements of Continental AG. The Continental Group currently expects effects from the allocation of income and expense items to the new income statement categories. This will also affect the calculation and presentation of the operating result, as the previously reported EBIT will no longer be reported as a subtotal in the income statement form 2027 onward. The difference compared with the operating result that must be reported in the future is mainly due to the future reclassification of net investment income and certain effects from currency translation to the investing category. In addition, certain effects from currency translation as well as tax-related interest expense and income will be shown in the operating category. Most of the expenses and income from financing-related interest, valuation and exchange-rate effects previously included in the financial result will in the future have to be reported separately in the investing category and in the financing category. Changes to the items in the primary financial statements also cannot be ruled out due to the application of the useful structured summary concept and new aggregation and disaggregation principles. New disclosures in the notes are also required. There will be changes in the presentation of interest paid and received as well as dividends received in the statement of cash flows.

Under the IASB’s annual improvements project, Improvements to IFRS Accounting Standards, July 2024, Volume 11, the following amendments will become effective at a later date:

• The amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, amend IFRS 1 regarding the hedge accounting by a first-time adopter to improve consistency with the requirements in IFRS 9, Financial Instruments. Furthermore, the amendments add cross-references to improve the understandability of IFRS 1.
• The amendments to IFRS 7, Financial Instruments: Disclosures, change the wording and update an obsolete reference in IFRS 7 to provide consistency with IFRS 13, Fair Value Measurement, with respect to the gain or loss on derecognition.
• The amendments to the guidance on implementing IFRS 7, Financial Instruments: Disclosures, clarify that the guidance does not necessarily illustrate all the requirements of the provisions of IFRS 7 stated therein, nor does it create additional requirements. In addition, the wording of the illustrative example on credit risk is adjusted for better understanding. The amendment also results in adjustments to IFRS 7 relating to the disclosure of the deferred difference between fair value and transaction price to provide consistency within IFRS 7 and with IFRS 9, Financial Instruments, and IFRS 13, Fair Value Measurement.
• The amendments to IFRS 9, Financial Instruments, clarify the derecognition of lease liabilities. In the case that a lease liability is extinguished in accordance with IFRS 9, the lessee is required to apply IFRS 9 and to recognize any resulting gains or losses in profit or loss. Regarding the transaction price, the reference to the definition of transaction price is removed to reflect the fact that the transaction price may be defined differently under IFRS 9 than under IFRS 15, Revenue from Contracts with Customers.
• The amendments to IFRS 10, Consolidated Financial Statements, remove an inconsistency regarding the determination of a de facto agent within IFRS 10.
• The amendments to IAS 7, Statement of Cash Flows, replace the term “cost method” with the term “at cost.”

The amendments are required to be applied for annual periods beginning on or after January 1, 2026. The amendments are not expected to have any significant effect on the future consolidated financial statements of Continental AG.

The following standards, interpretations issued in relation to published standards and amendments have not yet been adopted by the EU and will become effective at a later date:

IFRS 19, Subsidiaries without Public Accountability: Disclosures, permits eligible subsidiaries to use IFRS Accounting Standards with reduced disclosures. Subsidiaries are eligible to apply the new standard if they do not have public accountability and their parent company applies IFRS Accounting Standards in its consolidated financial statements. A subsidiary does not have public accountability if it does not have equities or debt listed on a stock exchange and does not hold assets in a fiduciary capacity for a broad group of outsiders. IFRS 19 is required to be applied for annual periods beginning on or after January 1, 2027. The standard is not expected to have any effect on the future consolidated financial statements of Continental AG.

The amendments to IFRS 19, Subsidiaries without Public Accountability: Disclosures, complete the catch-up work on IFRS 19. The amendments help eligible subsidiaries by reducing disclosure requirements for standards and amendments issued between February 2021 and May 2024, specifically IFRS 18, Presentation and Disclosure in Financial Statements, the amendments to IAS 7, Statement of Cash Flows, and IFRS 7, Financial Instruments: Disclosures, (Supplier Finance Arrangements), the amendments to IAS 12, Income Taxes (International Tax Reform – Pillar Two Model Rules), the amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates (Lack of Exchangeability), and the amendments to IFRS 9, Financial Instruments, and IFRS 7, Financial Instruments: Disclosures, (Amendments to the Classification and Measurement of Financial Instruments).With these amendments, IFRS 19 reflects the changes to IFRS Accounting Standards that take effect up to January 1, 2027, when IFRS 19 will be applicable. The amendments are required to be applied for annual periods beginning on or after January 1, 2027. The amendments are not expected to have any effect on the future consolidated financial statements of Continental AG.

The amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates (Translation to a Hyperinflationary Presentation Currency), clarify how to translate amounts from a functional currency that is the currency of a non-hyperinflationary economy into a presentation currency that is the currency of a hyperinflationary economy. According to the amendments, an entity must translate all assets, liabilities, equity, expenses and income (including comparative amounts) using the closing rate at the date of the most recent statement of financial position. The amendments include an exception from this requirement, when an entity’s functional currency and presentation currency are the currency of a hyperinflationary economy (or are the currencies of different hyperinflationary economies) and the entity translates the amounts of a foreign operation whose functional currency is that of a non-hyperinflationary economy. For the comparative figures of the foreign operation, the figures contained in the previously issued financial statements must be restated by applying the general price index used by the entity to restate corresponding figures under IAS 29, Financial Reporting in Hyperinflationary Economies. The amendments include additional disclosure requirements and transitional rules for translation after the end of hyperinflation. The amendments are required to be applied for annual periods beginning on or after January 1, 2027. The amendments are not expected to have any effect on the future consolidated financial statements of Continental AG.