History of German Accounting Standards

German accounting regulations and, especially, German accounting law have only a relatively brief history compared with those of some other European countries. In 1937 general accounting standards and principles were codified for the first time in the Stock Corporation Law AktG (Aktiengesetz). This came about as a reaction to the large number of companies going bankrupt during the worldwide economic crisis of the late 1920s and early 1930s. A significant modification of the Stock Corporation Law of 1937 took place in 1965. The dominating principle incorporated in the Stock Corporation Law of 1937 and to a lesser extent in the revised Stock Corporation Law of 1965 was that of prudence in order to protect the interests of creditors.

Until 1985 the Stock Corporation Law of 1965 was more or less the sole source of accounting law in Germany, codifying accounting principles and standards. No other specific regulations existed, neither for other corporations like limited liability companies nor for non-corporations such as partnerships.

Nevertheless, there was a broad understanding that the standards incorporated in the Stock Corporation Law represented to a large extent generally accepted accounting principles (GAAP) but there were no binding rules for non-stock corporations, and therefore, those companies could be highly flexible in their accounting approaches. In practice accounting for such non-stock corporations was heavily impacted by tax law.

In 1985 the Fourth, Seventh, and Eighth EC Directives were embodied in German law, thereby completely changing the existing regulatory systems with regard to preparation, publication, and auditing of financial statements. The main part of these EC directives was incorporated in the German Commercial Code HGB (Handelsgesetzbuch) by adding a third book containing accounting and auditing rules applicable to all businesses as well as expanded rules for corporations. Second, supplementary rules were retained or codified in separate laws for specific legal forms (e.g., in the Stock Corporation Law and Limited Liability Company Law) as well as for specific industries (e.g., in the Banking Law and the Insurance Supervisory Law). Third, specific provisions for large non-corporations included in the Publicity Law PublG (Publizitätsgesetz) of 1969 were modified.

For financial years beginning after December 31, 1999 CorpCo’s (partnerships whose general partner is a corporation) have to use the same accounting standards applicable for corporations. This had been requested by the majority of the other EU countries and even by the European Court of Justice for many years, who found it unacceptable that CorpCo’s were subject to less stringent accounting, auditing and publication requirements than corporations.

In the last years German GAAP has been changed significantly by BilMoG and BilRUG - laws that made German GAAP more comparable to IFRS.

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