Chapter 11

Financial Reporting in Germany

German Accounting Legislation

1861 First Uniform Accounting Regulation independent of legal form or size of entities (AGHGB)

1870 - 1892

• Accounting Laws differentiating between legal forms, e.g. corporations, partnerships (e.g. AktG, GmbHG)

• Link between financial and tax accounting regulated by law

1897 For all companies: „German Accepted Accounting Principles“, obligation to publish financial accounts depending on legal form (HGB)

1931- 1965

Continuing differentiation: accounting regulations for corporations; in addition: differentiation between sizes (Aktienrechts(not)verordnung, AktG)

Focus of accounting regulation: corporations = differentiation by legal form

1969 New level: Accounting regulations mandatory for all legal forms, but dependent on size (PublG) = differentiation by legal form and size

German Accounting Legislation

1985 • Implementation of 4th, 7th and 8th European Directives (BiRiLiG) and

• Restructuring of German Accounting Legislation from fragmentation by laws specific to legal forms to generally accepted principles for all entities

• First time: broad accounting regulations for all companies within the German Commercial Code (Third Book of HGB)

Differentiation by Legal FormPart one: all merchantsPart two: supplementary rules for corporationsPart three: cooperatives

Differentiation by Size• Corporations and commercial partnerships (part two):

small, medium-sized, large• Other companies must comply with PublG when certain

size criteria are met

First Level:

Second Level:

German Accounting Legislation

1998 Option for capital market oriented companies to prepare their consolidated financial statements in accordance with internationally accepted accounting standards (US GAAP, IFRS) (KapAEG) = additional differentiation by capital market orientation and form of financial statement (single or consolidated)

• Modernisation of German Accounting Legislation

• Globalisation and Internationalisation drive further Developments

• Importance of Information

• Several Criteria for Differentiation between different GAAP

current

2004 Implementation of EU-Directive, IFRS-Regulation (BilReG)

IFRS Regulation – Member State Options

Group Accounts Individual Accounts

LIS

TE

D

Co

mp

an

ies

NO

N-L

IST

ED

C

om

pa

nie

s

IFRS MANDATORY

since 2005

Member State Option

Member State Option

Member State Option

Member State Options – Germany

IFRS: Prohibited

German GAAP Accounts

Still Mandatory

Group Accounts Individual Accounts

LIS

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D

Co

mp

an

ies

NO

N-L

IST

ED

C

om

pa

nie

s

IFRS MANDATORY

since 2005

Obligation Effective from 2007 for Listed debt instruments and users of

US GAAP

IFRS: Option

IFRS: Prohibited

German GAAP Accounts

Still Mandatory

Large Companies may file IFRS financial statements with the Federal

Gazette

Characteristics of German Accounting Legislation

Consolidated Financial Statements:

• provide Information

Objective / Purpose

Single Financial Statements:

• determine distributable profits

• tax purposes

• information, stewardship

Prudence: Imparity Principle

German Accepted Accounting Principles

Creditor oriented

Investor oriented

Focus Realisation Principle

• historical cost convention

• no recognition of unrealised gains

Anticipation of Losses

• recognition of expected or unrealised losses required

• principle of lower of cost or market value (write- downs)