GERMANY

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GERMANY
ACCOUNTING IN SELECTED COUNTRIES
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Background 1-2Historically, Germany has had a
considerable influence on the accounting systems
in many countries, especially Japan, Austria,
Switzerland, and some Nordic countries such as
Denmark and Sweden, prior to WWII and the
reunification of Germany. These countries adapted
the ideas and concepts developed in Germany to
suit their conditions. This is reflected in the
intellectual basis of accounting and auditing
education and in the source of the various laws
in those countries. For example, the Commercial
Code in Japan was modeled on the German
Commercial Code.Traditionally the primary source
of finance for German companies is bank loans,
rather than equity raised through the capital
market.
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Background 2-2In Germany, as in Japan, banks
not only provide loans to companies but also
control major proportions of their equity
capital, either directly or as trustees for their
customers. This determines to a large extent the
purpose for financial reporting by companies.
Since reunification, German accounting has been
greatly affected by the increasing
internationalization of the German economy and
the growing integration of the world's capital
markets.The most common legal forms of business
enterprise are in two forms one, which is a
publicly traded stock corporation, and the
second, which is a limited liability company that
is not publicly traded.
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ACCOUNTING PROFESSIONAuditing dominates the
financial reporting related professional
activities in Germany. The title for certified
auditors, Wirtschaftsprufer (WP) (economic or
enterprise examiner), was created by the
Companies Act of 1931. The Institute of Auditors
is a private association of public auditors and
public audit firms. It provides for the education
and continuing professional development. Stock
corporations and other large companies must be
audited by WPs. Stringent requirements to become
a WP are found in the Auditors Law. These
generally include obtaining a university degree
in business administration, economics, law,
engineering, or agriculture passing examinations
covering accounting, auditing, business
administration, law, taxation,
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ACCOUNTING PROFESSIONand general economics and
four years of practical experience, including two
years in auditing. The German auditing profession
is much smaller than its counterpart in the
United States.The auditing profession is headed
by the WPK, Chamber of Auditors, an independent
organization responsible for the supervision of
its members and for the representation of the
profession to other parties. It is a
state-supervised organization. All public
accountants are mandatory members of the WPK.
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ACCOUNTING PROFESSIONA second important
organization is the Institute of Auditors, whose
main task is to publish statements on accounting
and auditing questions, which usually serve as
generally accepted accounting and auditing
standards.There also is a second-tier body of
certified accountants, VB. The requirements to
become a VB are less onerous than to become a WP.
VBs are allowed to perform only voluntary audits
and audits of medium-sized limited liability
companies.
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ACCOUNTING REGULATION 1-3 Financial
reporting in Germany is dominated by commercial
law, tax law, and pronouncements issued by the
profession. The German Commercial Code contains
most of the country's financial reporting
principles, which include the general accounting
and auditing rules applicable to all companies,
together with a special section relating to stock
corporations and limited liability companies. The
German Stock Exchange listing requirements have
much less influence on financial reporting
compared to those in the United States.
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ACCOUNTING REGULATION 2-3A stock corporation
(AG) is required to prepare statutory
non-consolidated annual financial statements
comprising a balance sheet, income statement, and
the notes to the financial statements, along with
a management report. These financial statements
should(1) be prepared in accordance with the
German principles of proper accounting
applicable to all commercial business and(2)
provide a true and fair view of the net assets,
financial position, and results of operations of
the corporation.
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ACCOUNTING REGULATION 3-3In Germany, the
large number of the principle of conservatism is
clearly established in the law. Accordingly,
profits must be recognized only when they have
been realized, but losses should be recorded as
soon as they appear possible. The German
Accounting Standard Committee (GASB) develops its
accounting standards through a due process of
public consultation.
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ACCOUNTING PRINCIPLES PRACTICESThe German
financial reporting requirements are mainly based
on the Commercial Code. The historical cost basis
for valuing tangible assets is strictly adhered
to. In addition, the approved standards of the
GASB must be followed in preparing the
consolidated accounts of listed companies.
Therefore, listed companies are required to use
IFRSs in their consolidated financial
statements, so long as these comply with EU
directives.
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ACCOUNTING PRINCIPLES PRACTICESThe
traditional role of bank credit in corporate
finance the principle of creditor protection
plays an important role in German accounting
practices. Accordingly, the primary function of
financial accounting is the conservative
determination of distributable income, which
represents that part of the actual income of the
company that can be paid out to shareholders
without impairing the position of the creditors
or the long-term prospects of the firm.
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ACCOUNTING PRINCIPLES PRACTICESAs a result,
the information needs of investors and presenting
a true and fair view in the financial statements
have not been the primary focus in financial
reporting.German accounting is heavily
influenced by tax law. The relationship between
financial accounting and taxation in Germany is
explained by the "authoritative principle," which
basically states that the financial statements
are the basis for taxation.
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ACCOUNTING PRINCIPLES PRACTICESThe average
company, financial accounting is influenced to a
great extent by the desire to minimize taxes.
(This is less the case for companies that compete
for funds in international capital markets.) To
meet the requirement that tax deductions must be
reported in financial statements, German
accounting law allows companies to report
"special tax items" on the balance sheet, located
between accrued liabilities and stockholders'
equity.
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ACCOUNTING PRINCIPLES PRACTICESThe
conservative measurement of income in Germany is
also influenced by a desire to mitigate labor
unions' demands for higher wages and to report
stable income over time for dividend purposes.
The process of using accounting options available
within the accounting law to generate the desired
amount of reported profit is referred to as
financial statement policy.
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COMPARISON GERMAN GAAP IFRs 1 - 4
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COMPARISON GERMAN GAAP IFRs 2 - 4
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COMPARISON GERMAN GAAP IFRs 3 - 4
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COMPARISON GERMAN GAAP IFRs 4 - 4