General Accounting Rules in Germany

The German accounting and publication rules are codified in various laws supplemented by German Accounting Standards GAS. Within the framework of this website, it would be impossible to cover every particular rule. Accordingly, all rules and regulations specifically relating to registered cooperatives, as well as to companies of particular industries such as banks and insurance companies, are not commented on further. This limits the range of entities taken into account to the following:

• Corporations, for example stock corporations (AGs), partnerships limited by shares (Kommanditgesellschaft auf Aktien, KGaAs) and limited liability companies (GmbHs).
• Partnerships with at least one limited liability company as general partner (“CorpCo’s”, e.g. GmbH & Co’s).
• Other non-corporations, for example, sole proprietorships, partnerships (Offene Handelsgesellschaft, OHG; and Kommanditgesellschaft, KG).

Generally, all of the above entities have to follow the guidelines of the German Commercial Code HGB. For non-corporations that exceed certain size criteria the accounting, auditing, and publication rules of the Publicity Law have to be observed in addition to the Commercial Code.

For consolidated financial statements, especially for those of capital market orientated companies, additional accounting standards as outlined in German Accounting Standards GAS have to be observed.

As a general rule applicable for all businesses, financial statements are to be drawn up in accordance with generally accepted accounting principles (Sec. 243 (1) HGB).

For corporations and since 1999 for CorpCo’s, the general rule has been expanded. Their financial statements must, in compliance with generally accepted accounting principles, present a true and fair view of the net worth, the financial position, and the results of the company (Sec. 264 (2) HGB).

Both general rules require that the financial statements comply with German GAAP, which mostly were incorporated in the third book of the German Commercial Code. They can be briefly summarized as follows:

• The financial statements must be clear and understandable.
• They must be complete, i.e. include all assets, liabilities, prepaid expenses, deferred income, revenues and expenses.
• Offsetting of assets against liabilities and income against expenses is prohibited.
• The amounts included in the opening balance sheet must agree with those of the closing balance sheet of the preceding financial year.
• To the extent not disproved by facts or action of law, a going concern must be assumed.
• Valuation of assets and liabilities must be made on an item-by-item basis.
• Values must be determined prudently; that is, all anticipated risks and losses that arise up to the balance sheet date are to be recognized, even if they become known only after the balance sheet date but before the financial statements are prepared; profits may be recognized only if they are realized (realization and imparity principle).
• Accounting must be made on an accrual basis and with due consideration of the matching principle.
• Valuation principles shall be applied consistently over the years.
• Valuation of assets is based on historical cost, it is generally not allowed to use fair value that exceeds historical cost.

Deviations from the above principles are allowed only to the extent that exceptional circumstances exist. It should also be noted that in accordance with the prudence principle, provisions and allowances can be set up if it is possible, but not necessarily probable, that an asset has been impaired or a liability has been incurred.

As mentioned earlier, the general rule for corporations requires not only that their financial statements comply with above GAAP, but also that they provide a true and fair view of the net worth, financial position and results of the company. This principle is influenced by international accounting principles but its interpretation in Germany may be different compared to international standards. It has been the dominant opinion in Germany for many years that compliance with legal requirements ensures a true and fair presentation, even if the law allows exceptions from GAAP, for instance, the creation of hidden reserves.

Our accountants and tax advisers are based in Munich/Germany. If you have any questions please feel free to send a message: