1. National accounting system Germany
Presented by
Joanna Wolak, Natalia Waskowska, Elisa Biesold, Aleksandar Doychev

2. History of accounting In Germany1
History of accounting
In Germany

3. History of accounting In Germany
Relatively brief history
In 1937 general accounting standards and principles were codified for the first time In the Stock Corporation Law ( Aktziengesetz )
Reaktion to the large number of companies going bankrupt during the worldwide economic crisis of the late 1920s 1930s
The next modification of law took place in 1965
Aim of change à to protect the interest of creditors

4. History of accounting In Germany
Until 1985 there were no other specific regulations, neither for other corporations like limited liability companies
No bindings rules for nonstock corporations and those companies could be highly flexible in their accounting approaches à for non-stock company accounting was impacted by tax law
In 1985 the existing regulatory system was completely changed à The main part of EC directives was incorporated in the German Commercial Code HGB ( Handelgesetzbuch )

5. History of accounting In Germany
The second big change was about supplementary rules, that were codified in separate laws for specific legal forms ( Stock Corporation Law, Limited Liability Company Law) as well as for specific industries ( Banking Law, Insurance Supervisory Law )
The third change concern to modifications of specific provisions for large non-corporations from 1969

6. History of accounting In Germany
IAS Regulation of the European Union (2002) From 2005: Mandatory application of IAS/IFRS for consolidated financial statements of companies with listed securities in the EU
Bilanzrechtsreformgesetz (2004) Transformation of IAS Regulation into German law

7. Elements of financial statements2
Elements of financial statements

9. Balance sheet / statement of financial position
Elements of the financial statements
Balance sheet / statement of financial position
– Report of assets, liabilities and equity as of a specific date
– Individual elements are measured and grouped according to legal requirements
Assets ordered according to liquidity (§247 HGB, §266 GCC):
– Non-current assets (Analagevermögen)
– Current assets (Umlaufvermögen)
Liabilities and O/E ordered according to maturity and creditors
– O/E
– Long-term liabilities
– Short-term liabilities

10. Present Accounting Legislation3
Present Accounting Legislation

11. Present Accounting Legislation
German accounting regulation is codified in the German Commercial Code (‘Handelsgesetzbuch’—HGB—)
applies to all legal forms of economic undertakings
German GAAP (Generally Accepted Accounting Principles) = legal concept
"financial accounting leads tax" principle
tax accounts are generally based on the annual financial statements

12. Present Accounting Legislation

13. Present Accounting Legislation - Merchant status
Merchant is everybody who conducts a commercial trade (§ 1 (1) GCC)
Every business enterprise is a commercial trade unless a mercantile
business operation is not required according to the enterprises‘ type and
scope (§ 1(2) GCC)
Two types: Factual merchants, Legal-form merchants

14. Present Accounting Legislation - General rules for merchants
Obligation for bookkeeping (§ 239 GCC)
Obligation for inventory-taking (§ 240 GCC)
Listing of all individual assets and liabilities
Obligation to prepare financial statements (§ 242 GCC)
Balance sheet
Profit/Loss statement

15. Present Accounting Legislation
Definition of size classes for corporations (§ 267 GCC)

16. Present Accounting Legislation - Management report
Medium and large corporations are obliged to prepare a management report
Written report with mostly qualitative information from management
Mandatory elements § 289 (1) GCC
Other elements § 289 (2) GCC

17. Practical example - Lufthansa4
Practical example -
Lufthansa

18. Deutsche Lufthansa AG Balance sheet as of 31 December 2016

19. Deutsche Lufthansa AG Balance sheet as of 31 December 2016

20. Deutsche Lufthansa AG Income statement for the financial year 2016

21. Accounting policies and valuation5
Accounting policies and valuation

22. Consolidated financial statements
Not needed for taxation purposes
Basic provisions are in Articles GCC
IFRS is applicable
Conditions to publish:
Exercising control over one or more companies
Having majority of voting rights

23. Consolidated financial statements
Harmonization of the fiscal year for all companies (based on single entity theory)
Forms of consolidation:
Full - 50% or more of voting rights
Proportional
Equity accounting for associated enterprises (20%-50% voting rights)

24. Consolidated financial statements
Deviations for non-corporations
To be prepared only if control is exercised
Article 253 GCC can be applied
Capital consolidation
Purchase method Art.301 GCC (book and fair value)
Pooling of interest method, Art 302 GCC

25. Consolidated financial statements
Debt and income consolidation: International accounting principles are applied
Deferred taxation - Art.306 GCC as difference
Foreign currency translation - No rule in GCC so IAS 21 used in practice
Consolidation of joint ventures and associated companies - GAS 9; GAS 8; Art.311 GCC Goodwill

26. Single entity financial statement: Fixed assets
Intangibles:
Concession; Goodwill; Advanced payments
PPE
Land, Land rights and buildings, Technical equipment and machinery; other equipment; factory and office equipment; advanced payment and asset under construction
Valuation at acquisition or manufacturing cost
No general rule for method of depreciation

27. Single entity financial statement: Fixed assets
Inventories:
Raw material and supplies
Work in progress
FInished goods and merchandise
Advance payments
Valuation at lower historical cost or market value
Acquisition cost - FIFO or average cost

28. Single entity financial statement: Financial assets
Disclosure of:
Shares in affiliated company;
Loans due from affiliated company;
Participation;
Loans due from companies in which participation is held;
Securities held as long-term investment; other loans
German provisions regarding financial assets differ from international standards

29. Single entity financial statement: Equity
Capital reserve
Revenue reserve
Liabilities
Accruals
Special items
Deferred income and prepaid expenses - neither asset nor liability

30. Single entity financial statement: Income taxes
Corporate income tax -
tax rate of 15%
Federal level
But effective rate between 30% and 33%
Solidarity surcharge of 5.5% on CIT
Trade tax
3.5% base times municipal multiplier ( % on average)
On municipal level
Transparent taxation of partnerships
Trade tax has to be paid

31. Development of accounting in Germany6
Development of accounting in Germany

32. Harmonization
IAS regulation of the EU in From mandatory application of IAS/IFRS for consolidated financial statements
Bilanzrechtsreformgesetz in transformation of IAS into German Law
Accounting Directive Implementation Act (BilRUG) - alignment with directive 2013/34/Eu

33. Reporting according IFRS
Obligation to report according IFRS
Consolidated financial reports of capital- oriented companies
Option to report according IFRS
Consolidated financial reports of other companies
Voluntary report according IFRS
Single financial statement

34. 7
Future development

35. Possibility of conflict with EU legislation EU policies
Future development
National policies
Possibility of conflict with EU legislation
EU policies
EU law overrides national legislation
Harmonization
Future EU directives to be expected
Uncertain future plans