Accounting Standards in Germany
Accounting Standards in GermanyUpdated on Friday 06th May 2016
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Investors interested in the business opportunities available in Germany, who wish to open a company here should know the applicable accounting system, which has to respect specific procedures. Our team of lawyers in Germany can offer an in-depth presentation on the legislative provisions regulating the accounting standards.
Germany applies the IFRS standards
It is important to know that the legal system related to accounting in Germany has made significant changes to comply with the system provided by the International Accounting Standards Board (IFRS).
There are several important differences between the IFRS and the German GAAP, in the sense that the historical costs represent the basis of accounting for both systems, but the IFRS allows the revaluation of the intangible assets and properties, while the German GAAP does not permit revaluation. However, the German GAAP provies an exemption, applicable to financial institutions.
Companies can apply other methods than the ones provided by the IFRS if the entities perform the compliance as prescribed by the law. The German GAAP specifiy that if the financial statements do not present a true image of the business, the representatives of the company will have to disclose other documents as well.
In 2015, the European Commission offered a report on the implementation of the Regulation 1606/2002 (referred to as the International Accounting Standards Regulation), which has the purpose of creating a more transparent system related to the financial documents of a company, which will further provide more efficiency within the European Union’s single market.
The results on the study provided that the use of the IFRS offers many benefits to European companies, mostly referring to the compatibility of the financial statements of a company; our legal representatives can offer more details on the main advantages of using the IFRS.
The German accounting standards are regulated by the Accounting Standards Committee of Germany, which provides the legal framework and recommendations on the way in which accounting procedures should be carried out in Germany.
The local accounting system, the German Generally Accepted Accounting Principles (GAAP), provides the way in which the bookkeeping activities of a company should be performed; the legal system is rather flexible and it had changed over time. However, the German GAAP prescribes that only financial gains will be recognized as profits.
Referring to the way in which the financial statements are handled, both the IFRS and the German GAAP prescribe similar procedures.
Financial statements should contain the following:
• the statement of the financial position;
• the statement of the of cash flows and equity;
• the statement of the income.
Foreign investors interested in the accounting procedures applicable in Germany can receive assistance from our team of German accountants.