1. Chapter 11 Financial Reporting in Germany

2. German Accounting Legislation 1861 First Uniform Accounting Regulation independent of legal form or size of entities (AGHGB) 1870 - 1892 Accounting Laws differentiating between legal forms, e.g. corporations, partnerships (e.g. AktG, GmbHG) Link between financial and tax accounting regulated by law 1897 For all companies: „German Accepted Accounting Principles“, obligation to publish financial accounts depending on legal form (HGB) 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. German Accounting Legislation 1985 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) Differentiation by Legal Form Part one: all merchants Part two: supplementary rules for corporations Part three: cooperatives 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 First Level: Second Level:

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

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

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

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