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Chapter 11

Chapter 11. Financial Reporting in Germany. German Accounting Legislation. First Uniform Accounting Regulation independent of legal form or size of entities (AGHGB). 1861. Accounting Laws differentiating between legal forms, e.g. corporations, partnerships (e.g. AktG, GmbHG)

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Chapter 11

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  1. Chapter 11 Financial Reporting in Germany

  2. German Accounting Legislation First Uniform Accounting Regulation independent of legal form or size of entities (AGHGB) 1861 • Accounting Laws differentiating between legal forms, e.g. corporations, partnerships (e.g. AktG, GmbHG) • Link between financial and tax accounting regulated by law 1870 - 1892 For all companies: „German Accepted Accounting Principles“, obligation to publish financial accounts depending on legal form (HGB) 1897 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

  3. 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) First Level: Differentiation by Legal Form Part one: all merchants Part two: supplementary rules for corporations Part three: cooperatives Second Level: • 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 German Accounting Legislation 1985

  4. German Accounting Legislation 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) 1998 Implementation of EU-Directive, IFRS-Regulation (BilReG) 2004 current • Modernisation of German Accounting Legislation • Globalisation and Internationalisation drive further Developments • Importance of Information • Several Criteria for Differentiation between different GAAP

  5. Group Accounts Individual Accounts IFRS MANDATORY since 2005 Member State Option LISTED Companies Member State Option Member State Option NON-LISTED Companies IFRS Regulation – Member State Options

  6. Member State Options – Germany Group Accounts Individual Accounts IFRS MANDATORY since 2005 IFRS: Prohibited German GAAP Accounts Still Mandatory LISTED Companies Obligation Effective from 2007 for Listed debt instruments and users of US GAAP Large Companies may file IFRS financial statements with the Federal Gazette IFRS: Option IFRS: Prohibited German GAAP Accounts Still Mandatory NON-LISTED Companies

  7. Characteristics of German Accounting Legislation Objective / Purpose • Single Financial Statements: • determine distributable profits • tax purposes • information, stewardship • Consolidated Financial Statements: • provide Information Investor oriented Creditor oriented Focus • Realisation Principle • historical cost convention • no recognition of unrealised gains German Accepted Accounting Principles Prudence: Imparity Principle • Anticipation of Losses • recognition of expected or unrealised losses required • principle of lower of cost or market value (write- downs)

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