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Similarities and
Differences: IFRS
and German GAAP
May 2018
Similarities and
Differences: IFRS
and German GAAP
May 2018
Similarities and Differences: IFRS and German GAAP
Published by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft
By Prof. Dr. Rüdiger Loitz, Guido Fladt, Björn Seidel and Thorsten Seidel
May 2018, 124 Pages, Soft cover
All rights reserved. This material may not be reproduced in any form, copied onto microfilm or saved
and edited in any digital medium without the explicit permission of the editor.
This publication is intended to be a resource for our clients, and the information therein was correct
to the best of the authors’ knowledge at the time of publication. Before making any decision or taking
any action, you should consult the sources or contacts listed here. The opinions reflected are those
of the authors. The graphics may contain rounding differences.
© May 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.
All rights reserved.
In this document, “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft,
which is a member firm of PricewaterhouseCoopers International Limited (PwCIL). Each member firm
of PwCIL is a separate and independent legal entity.
Foreword
Foreword
The application of IFRS is required for consolidated financial statements of public
companies that are listed in any EU member state; other companies have the option
to apply IFRS in their consolidated financial statements. So it is for a lot of German
listed companies already a day-to-day business.
The use of IFRS in separate entity financial statements in Germany is voluntary
and only allowed for presentation purposes. German commercial law continues to
require the application of German statutory accounting and reporting requirements
(German GAAP) especially for profit distribution, tax and statutory presentation
and disclosure purposes.
However, the convergence towards the use of IFRS simultaneously influences the
development of German GAAP.
The publication takes account of authoritative pronouncements issued under
IFRS and German GAAP and is based on the most recent version of those
pronouncements.
This publication is not all-encompassing. It focuses on those differences that we
generally consider to be the most significant or most common. When applying the
individual accounting frameworks, companies should consult all of the relevant
accounting standards and, where applicable, national law.
We hope that this publication will be useful in identifying the key differences
between the two accounting frameworks and help you gain a broad understanding
of IFRS.
Prof. Dr. Rüdiger Loitz
Leader Capital Markets &
Accounting Advisory Services
Guido Fladt
Leader National Office
Similarities and Differences: IFRS and German GAAP 5
Contents
Contents
AAccounting framework.......................................................................................7
BFinancial statements...........................................................................................8
CConsolidated financial statements....................................................................15
DBusiness Combinations.....................................................................................26
ERevenue Recognition........................................................................................34
FPensions and other long-term benefits..............................................................40
GNon-financial assets.........................................................................................47
HFinancial assets................................................................................................73
ILiabilities..........................................................................................................82
JFinancial liabilities...........................................................................................84
K
Equity instruments...........................................................................................90
LDerivatives and hedging...................................................................................92
MDeferred taxes................................................................................................106
NShare-based payments.................................................................................... 111
OForeign currency translation.......................................................................... 113
PRelated parties............................................................................................... 118
QOther issues....................................................................................................120
Contacts................................................................................................................122
6 Similarities and Differences: IFRS and German GAAP
Accounting framework
AAccounting framework
Historical cost or fair value
IFRS
German GAAP
Historical cost is the primary basis of
accounting for non-financial assets.
However, IFRS permits the revaluation
to fair value of some intangible assets,
property, plant and equip­ment, investment
property and inventories in certain
industries (for example commodity broker/
dealer). IFRS also requires that biological
assets be reported at fair value less costs
to sell. The measure­ment of financial assets
depends on their classifi­cation (generally
fair value).
Historical cost is the main accounting
convention. No revaluations are allowed.
An exception applies to banks/financial
institutions, where all financial instru­ments
held for trading are to be measured at fair
value (see Financial assets). A second
exemption applies to assets which are
deprived of all other creditors access and
exclusively relate to the coverage of pension
obligations or comparable long-term
liabilities. They also have to be measured
at fair value (before being offset against
such liabilities).
Fair presentation over-ride
IFRS
German GAAP
Entities may depart from a standard
under IFRS (extremely rare in practice),
if management of that entity concludes
that compliance with the standard or
inter­pretation would render financials to
be misleading. The reasons for such a
conclusion and departure along with the
financial impact need to be disclosed.
Departure from the German
Commercial Code is not allowed. If
specific circum­stances result in the
financial statements not showing a true and
fair view, additional disclosures are required
in the notes (extremely rare in practice).
First-time adoption of accounting frameworks
IFRS
German GAAP
Full retrospective application of all IFRS
effective at the reporting date for an entity’s
first IFRS financial state­ments, with some
optional exemptions and limited mandatory
exceptions. Comparative information is
prepared and presented on the basis of
IFRS. Almost all adjustments arising from
the first time application of IFRS are
adjusted against opening retained earnings
for the first period presented on an IFRS
basis. Some adjustments are made against
goodwill or other classes of equity.
A merchant has to prepare financial
statements for the first time according to
German GAAP when commencing business
(opening balance sheet). A corporation
(parent) with registered office in Germany
has to prepare a consoli­dated financial
statement (either according to German
GAAP or, in certain circum­stances
according to IFRS), if it can exercise a
controlling influence over another enterprise
(subsidiary).
Similarities and Differences: IFRS and German GAAP 7
Financial statements
BFinancial statements
Components of financial statements
IFRS
German GAAP
A complete set of financial statements
comprises:
• statement of financial position as at the
end of the period;
• statement of profit or loss and other
comprehensive income for the period;
• statement of changes in equity for the
period;
• statement of cash flows for the period;
and
• notes, comprising significant accounting
policies and other explanatory
information;
• comparative information in respect of the
preceding period.
Similar to IFRS for consoli­dated financial
statements, as well as for single-entity
financial statements of publicly traded
companies.1
An entity may present either a single
statement of profit or loss and other
compre­hen­sive income or two separate,
but consecutive state­ments of profit or
loss and of com­prehensive income,
which shall begin with profit or loss.
For single-entity financial statements,
statement of cash flows and statement of
changes in equity are not required.2
It is optional for companies that have to
prepare consoli­dated financial statements
to include segment reporting. Publicly
traded companies that do not have to
prepare consolidated financial state­ments
can add segment reporting to their
individual financial statements.
Additional to financial state­ments a
manage­ment report has to be prepared
(see “Management report”).
An entity may use titles for the statements
other than those stated above. Further
requirements apply when accounting
policies are applied retrospectively or items
are reclassified.
For the requirement to present a segment
report and earnings per share, please refer
to the respective sections.
1
2
company is publicly traded under German GAAP when it utilises an organised market for trading its issued securities (as defined by the
A
German Securities Trading Act) or when it has applied for an accreditation to trade its issued securities on an organised market.
However, small and micro-companies have permission to prepare condensed financial statements and are exempt from including a
manage­ment report. Further, micro-companies do not have to supplement their financial statements with notes if details are already
shown under the financial statements. Size-classes depend on companies’ exceeding or falling below certain thresholds concerning
revenue, profit and/or number of employees. Companies have to exceed or fall below two out of those three thresholds in two consecutive
years. Some companies are exempt from preparation of financial statements when their revenue and profit are below certain thresholds in
two consecutive years.
8 Similarities and Differences: IFRS and German GAAP
Financial statements
Statement of financial position (balance sheet)
IFRS
German GAAP
There are certain minimum line items which
should be presented separately in the
state­ment of financial position.
Items on the face of the balance sheet are
presented in increasing order of liquidity.
The presentation of a classi­fied balance
sheet (current/non-current distinction) is
required, except when a liquidity presen­
tation provides infor­mation that is reliable
and more relevant.
Entities with specific legal forms (for
example corporations) are required to
use a particular balance sheet format.
Additional requirements exist for financial
services institutions and insurance
companies.
Current assets/liabilities include items due
or expected to be realised within 12 months
after the reporting period. Deferred taxes
are classified as non-current in the state­
ment of financial position with a current/
non-current break up discussed in the
notes.
Separate presentation of fixed assets and
current assets is required. Current assets are
those not intended for long-term use in the
business.
Offsetting of assets and liabilities is only
allowed under restrictive conditions.
Offsetting assets and lia­bili­ties is only
allowed or compulsory under restrictive
conditions.
Non-controlling interests are presented
separately within equity.
Non-controlling interests are presented
as a part of equity.
Income statement/statement of comprehensive income
IFRS
German GAAP
Expenses may be presented either by
function or by nature, whichever provides
information that is reliable and more
relevant depending on historical and
industry factors and the nature of the
entity. Additional disclosure of expenses
by nature, including depreciation and
amortization expense and employee
benefit expense, is required in the notes
to the financial statements if functional
presentation is used on the face of the
income statement.
In general similar to IFRS. Under
German GAAP there is no “statement
of com­prehensive income”.
Income statement may be presented using
the total cost (nature of expense) or the
cost of sales (function of expense) method.
For both methods a minimum structure is
required.
For certain legal forms, especially
corporations, the income statement is
required to follow a detailed structure.
While certain minimum line items are
required, no prescribed statement of
comprehensive income format exists.
Entities that disclose an operating result
should include all items of an operating
nature, including those that occur irregularly
or infrequently or are unusual in amount,
within that caption.
Similarities and Differences: IFRS and German GAAP 9
Financial statements
IFRS
German GAAP
Entities should not mix functional and
nature classifications of expenses by
excluding certain expenses from the
functional classifi­cations to which they
relate.
The term “exceptional items” is not used
or defined. However, the separate
disclosure is required (either on the face
of the com­prehen­sive/separate income
statement or in the notes) of items of
income and expense that are of such size,
nature, or incidence that their separate
disclosure is necessary to explain the
performance of the entity for the period.
“Extraordinary items” are prohibited.
Entities are permitted to present items of
net income and other comprehensive
income either in one single statement of
profit or loss and other comprehensive
income or in two separate, but consecutive,
statements.
Items included in other comprehensive
income that may be reclassified into profit
or loss in future periods shall be presented
separately from those that will not be
reclassified. Entities that elect to show
items in other comprehensive income
before tax are required to allocate the tax
between the tax on items that might be
reclassified and tax on items that will not
be reclassified subsequently. The amount
of income tax relating to each item of other
comprehensive income should be disclosed
either in the statement of profit or loss and
other comprehensive income or in the
footnotes.
10 Similarities and Differences: IFRS and German GAAP
In each case, the amount and nature of
the individual income and expenses of
exceptional magnitude or of exceptional
importance have to be disclosed insofar as
the amounts are not of minor importance.
Financial statements
Statement of changes in equity (SoCIE)
IFRS
German GAAP
All owner changes in equity will be
presented in a statement of changes in
shareholder’s equity.
A statement of changes in equity is only
required for consolidated financial
statements as well as for publicly traded
companies which do not have an obligation
to prepare consolidated financial
statements.
This statement will present:
• total comprehensive income for the
period, showing separately the total
amounts attributable to owners of the
parent and to non-controlling interests;
• for each component of equity, the
effects of retrospective application or
retrospective restatement in accordance
with IAS 8;
• amounts of transactions with owners in
their capacity as owners; and
• for each component of equity, a
reconciliation between the carrying
amount at the beginning and the end of
the period, separately disclosing changes
resulting from
a) profit or loss,
b) other comprehensive income, and
c) transactions with owners in their
capacity as owners, showing separately
contributions by and distributions to
owners and changes in ownership
interests in subsidiaries that do not
result in a loss of control.
German Accounting Standard 22 (GAS 22)3
requires the group statement of changes in
equity to include the changes in the
following components of group equity:
• subscribed capital of the parent entity
(incl. ordinary shares and preference
shares)
• treasury shares
• uncalled unpaid capital
• capital reserves
• revenue reserves
• currency translation differences
• retained profit/accu­mulated losses
brought forward
• consolidated net income/net loss for the
financial year attributable to parent entity
• equity attributable to non-controlling
interests
• accumulated other gains and losses
recognised directly in equity and relating
to minority share­holders (incl. translations
differences and other items).
The statement of changes in equity must be
presented as a primary statement.
3
German Accounting Standards (GAS) are generally applicable to all parent entities that prepare consolidated financial statements under
sec. 290 HGB as well as under sec. 264a subsec. 1 HGB (in conjunction with sec. 290 HGB) and to entities that are required to prepare
consolidated financial statements under sec. 11 PublG and set out procedures for consolidated financial statements. Application to
separate financial statements is encouraged by individual German Accounting Standards (for example GAS 22).
Similarities and Differences: IFRS and German GAAP 11
Financial statements
Statement of cash flows – format and method
IFRS
German GAAP
Standard headings, but limited flexibility of
contents.
Under HGB a statement of cash flows is
only required for consolidated financial
statements as well as for publicly traded
The statement of cash flows should report
companies which do not have an obli­gation
cash flows during the period classified by
to prepare consoli­dated financial
operating, investing and financing activities. statements.
The statement of cash flows may be
prepared using the direct method
(cash flows derived from aggregating cash
receipts and payments associated with
operating activities) or the indirect method
(cash flows derived from adjusting
net income for non-cash transactions –
for example depreciation). The indirect
method is more common in practice.
Non-cash financing and investing
transactions are to be disclosed.
According to GAS 21 the state­ment of cash
flows shall report cash flows classified by
operating (presented either using the direct
or indirect method), investing and financing
activities (presented using the direct
method).
Special regulations apply to statements of
cash flows of financial services institutions
(GAS 21 App. 2) and insur­ance enterprises
(GAS 21 App. 3).
Statement of cash flows – definition of cash and cash equivalents
IFRS
German GAAP
Cash includes cash on hand and demand
deposits. Cash equi­valents are short-term,
highly liquid investments that are readily
convertible to known amounts of cash and
are subject to an insignificant risk of
changes in value.
Cash funds (defined as highly liquid funds)
only include cash and cash equivalents.
An investment normally qualifies as a cash
equivalent when it has a maturity of three
months or less from acquisition date.
Cash and cash-equivalents may also
include bank overdrafts repayable on
demand that form an integral part of an
entity’s cash management. Short-term
bank borrowings (these are not included
in cash or cash equivalents and are
consider­ed to be financing cash flows).
12 Similarities and Differences: IFRS and German GAAP
Investments classified as cash equivalents
must be readily convertible to cash without
significant losses in value and may be
subject to only minor changes in value.
Cash equivalents therefore gener­ally have
maturities of not more than three months,
measured from the date of acquisition.
Liabilities to credit institutions that are
repay­able on demand and other short-term
borrow­ings that are used for an entity’s
cash management are required to be
included in cash funds.
Financial statements
Accounting polices, errors, estimates – changes in accounting policy
IFRS
German GAAP
Changes in accounting policies are
accounted for retrospectively.
Changes in accounting policies are
generally accounted for prospectively.
Comparative information is restated and
the amount of adjustment relating to prior
periods is adjusted against retained
earnings of the earliest period presented
(except when it is impractic­able to change
comparative information). The effect of
retrospective adjustments on each item of
equity is presented separately in the SoCIE.
The resulting effect of a change is
recognised in the current year income
state­ment if not determined otherwise
(for example by transition provisions
of specific GASs).
Accounting policy changes resulting from
the adoption of a new accounting standard
are accounted for in accor­dance with the
transition provisions of that standard.
Changes in accounting policies have to
be dis­closed. Adjustment of the opening
balance or restate­ment of the previous year
is not required. To ensure comparability
with previos years figures in these cases,
additional information has to be disclosed.
A third statement of financial position as
at the beginning of the preceding period
shall be presented if an accoun­ting policy
is applied retro­spec­tively and this has a
material effect on the infor­mation in the
statement of financial position at the
beginning of the preceding period.
Accounting polices, errors, estimates – correction of errors
IFRS
German GAAP
Material prior period errors shall be
corrected by retro­spective restate­ment
(except to the extent that it is impractic­able
to deter­mine either the period-specific
effects or the cumulative effects of the
error). Compara­tives are restated and, if
the error occurred before the earliest prior
period presented, the opening balances of
assets, liabilities and equity for the earliest
prior period presented are restated and the
opening statement of financial position
should be presented.
The effect of errors in previous reporting
periods shall be strictly included in the
determination of net profit or loss in the
current period.
Additional disclosures, for example nature
of the error, amount of the correction, are
to be provided in the notes if necessary to
ensure com­para­bility with compara­tives.
Restatement is re­quired only in excep­tional
circumstances.
Similarities and Differences: IFRS and German GAAP 13
Financial statements
Accounting polices, errors, estimates – changes in accounting estimates
IFRS
German GAAP
The effect of a change in an accounting
estimate shall be recognised prospectively
by including it in profit or loss in the period
of change, if the change affects that period
only; or the period or the change and future
periods if the change affects both. To the
extent that a change in an accounting
estimate gives rise to changes in assets
and liabilities, or relates to an item of equity,
it shall be recog­nised by adjusting the
carrying amount of the related asset, liability
or equity item in the period of the change.
The effect of a change in an accounting
estimate shall be included in the income
state­­ment for the period in which the
change is made (similar to IFRS).
14 Similarities and Differences: IFRS and German GAAP
Consolidated financial statements
CConsolidated financial statements
Investments in subsidiaries – definition of subsidiary
IFRS
German GAAP
Under IFRS parent-subsidiary relationships
are determined by the “control concept”.4
Under HGB the existence of a parentsubsidiary relationship is based solely on
the possibility of controlling influence by
the parent company.
Control exists if the investor (parent) has:
• power over the investee (subsidiary),
• exposure to variable returns from its
involvement with the investee, and
• has the ability to use its power over the
investee to affect its returns.
Controlling interest exists when the parent
(directly or indirectly through subsi­diaries):
• holds the majority of voting rights;
• enjoys the right to appoint or dismiss
the majority of the members of the
administrative, management or
supervisory body governing financial and
operating policies, and is at the same
time a shareholder;
• enjoys the right to exercise a controlling
influence on financial and operating
policies (based on a control agreement/
articles of association); or
• in substance obtains the majority of
the risks and rewards of an entity that
has a narrow, well-defined purpose
(see “Special purpose entity”).
Paragraph B3 of Appendix B to IFRS 10
identifies the factors an investor should
consider during its assessment of control
over an investee. These are:
• the investee’s purpose and design;
• what the relevant activities are;
• how decisions about those relevant
activities are made;
• whether the rights of the investor give it
the current ability to direct the relevant
activities;
• whether the investor is exposed, or
has rights, to variable returns from its
involvement with the investee; and
• whether the investor has the ability to use
its power over the investee to affect the
amount of the investor’s returns.
4
IFRS 10 provides a single definition of control that applies to all entities. This definition is supported by extensive application guidance that
explains the different ways in which a reporting entity (investor) might control another entity (investee). All entities are required to apply
this guidance. Previously, control through voting rights was addressed by IAS 27, while SIC 12 placed greater emphasis on exposure to
variable returns. However, the relationship between these two approaches to control was not always clear. IFRS 10 links power and returns
by introducing an additional requirement that the investor is capable of wielding that power to influence its returns.
Similarities and Differences: IFRS and German GAAP 15
Consolidated financial statements
IFRS
German GAAP
Sometimes it is clear that an investee is
controlled by means of equity instruments
that give the holder propor­tionate voting
rights, such as an ordinary share in an
inves­tee. Where this is the case, and
there are no other arrangements in place
(for example other parties holding
potential voting rights, or other contractual
arrange­ments that may result in another
party having some power over the investee)
that alter decision-making, the assessment
of control focuses on which party, if any,
is able to exercise voting rights sufficient
to direct the investee’s relevant activities.
In the most straightforward case, the
investor that holds a majority of those
voting rights, in the absence of any other
factors, controls the investee. (IFRS 10 App
B para B6). Where situations are not
straightforward an investor may need to
consider some or all of the factors identified
in paragraph B3 above.
In some circumstances voting rights may
not significantly impact an investee’s
returns. The investee may be on ‘auto-pilot’
such that relevant activities are predetermined or directed via contractual
arrangements. Assessment of the purpose
and design of an investee may, therefore,
help determine who has control.
According to HGB the possibility of
controlling influence is conclusively
presumed to exist when the parent holds
the majority of voting rights (50% + 1), but
has no de facto control. An example for
this case is the lack of the parent’s actual
controlling influence because another
shareholder holds participating rights.
In such a case, the following should be
considered in assessing an entity’s purpose
and design:
• Downside risks and upside potential that
the investee was designed to create.
• Downside risks and upside potential that
the investee was designed to pass on to
other parties in the transaction.
• Whether the investor is exposed to those
risks and upside potential.
In this case, HGB offers an inclusion
option for the relevant subsidiary. When
all inclusion options for subsi­diaries have
been duly exer­cised and accordingly no
subsidiary is subject to con­solidation, the
obligation to prepare consolidated financial
statements is not applicable.
16 Similarities and Differences: IFRS and German GAAP
Under HGB potential voting rights that
could be exercised at the present time are
not taken into consideration.
Consolidated financial statements
IFRS
German GAAP
De facto control describes the situation
where an entity owning less than 50% of
the voting shares in another entity that is
controlled by voting rights is deemed to
have control when it has the practical ability
to direct the relevant activities.
An entity may own instru­ments that, if
exercised or converted, give the entity
voting power over the relevant activities of
another entity; these are termed ‘potential
voting rights’.
If the terms are such that the holder of the
potential voting rights could not conceivably
be expected to exercise them, they are
disregarded. This might arise where the
terms lack economic subs­tance, for
example if the exercise price is set delibera­
tely at a prohibitively high level or exercise
of the rights would be severely detrimental
to the investor for other reasons. The
assess­ment of substance is based on the
terms rather than on the specific holder’s
inten­tions or financial ability.
IFRS 10 applies to all entities with the
following exception. If the entity meets the
definition of an investment entity it is
exempt from consolidating most of its
controlled investments. Instead, it records
most controlled investments as financial
assets at fair value through profit or loss.
No comparable regulation with regard to
investment entities.
Similarities and Differences: IFRS and German GAAP 17
Consolidated financial statements
Investments in subsidiaries – Special purpose entity (SPE)
or Structured entity
IFRS
German GAAP
This section deals with inves­tees that are
consi­dered to be structured entities.
SIC 12 used the term ‘special purpose
entities’ (SPEs) to mean those entities that
are created to accomplish a narrow and
well-defined objective. Appendix A to
IFRS 12 defines a structured entity as
“an entity that has been designed so that
voting or similar rights are not the dominant
factor in deciding who controls the entity,
such as when any voting rights relate to
administrative tasks only and the relevant
activi­ties are directed by means of
contractual arrangements.”5
Regarding SPEs control is considered
to exist if from a substance-over-form
pers­­pective the parent entity assumes the
majority of the risks and rewards associated
with an entity, which serves to achieve a
strictly limited and precisely defined
pur­pose for the parent entity.
Differences exist with regard to the control
concept in general. See “Definition of
subsidiary”.
By implementing this regu­lation the
legislators seeks to prevent entities from
eliminating significant assets and liabilities
This question of control is not decided solely from their consolidated financial statements
by legal ownership. Under IFRS 10, the key
by means of certain legal formalities.
to determining whether an investor should
consolidate a structured entity is whether
The classification of an entity as SPE is
the investor controls that structured entity.
not limited to cer­tain entity forms. How­ever,
The difference with structured entities is
special funds are excluded from the
that often the normal substantive powers
definition of a spe­cial purpose entity.
(such as voting rights) are not the means
These are:
by which the investee is controlled. Rather
• special investment funds
relevant activities are directed by means
(sec. 2 subsec. 3 InvG),
of contracts. If those contracts are tightly
• comparable foreign investment funds,
drawn, it may initially appear that none of
• open-ended domestic special AIFs
the parties has power. As a result, additional
with fixed fund rules within the meaning
analysis is required to ascertain which party
of section 284 KAGB that have been
controls the structured entity.
established as investment funds under
German law,
Please note the extensive disclosure
• comparable EU investment funds;
requirements under IFRS 12, even for
• or foreign investment funds that are
un­consolidated structured entities.
comparable to open-ended domestic
special AIFs within the meaning of section
284 KAGB that have been established as
investment funds under German law.
5
IFRS 10 provides a single definition of control that applies to all entities. This definition is supported by extensive application guidance that
explains the different ways in which a reporting entity (investor) might control another entity (investee). All entities are required to apply
this guidance. Previously, control through voting rights was addressed by IAS 27, while SIC 12 placed greater emphasis on exposure to
variable returns. However, the relationship between these two approaches to control was not always clear. IFRS 10 links power and returns
by introducing an additional requirement that the investor is capable of wielding that power to influence its returns.
18 Similarities and Differences: IFRS and German GAAP
Consolidated financial statements
Investments in subsidiaries – Non-consolidation of subsidiaries
IFRS
German GAAP
All subsidiaries that are controlled by the
parent (see “Definition of a subsidiary”)
are consolidated, except for subsidiaries
excluded from consolidation for materiality
reasons. Further an invest­ment entity shall
not consoli­date its subsi­diaries or apply
IFRS 3 when it obtains control of another
entity.6
A subsidiary may be excluded from the
consolidated financial statement if:
• there are significant long-term restrictions
on parent’s rights in respect of assets or
management of that subsidiary;
• the information required cannot be
obtained with­out disproportionate
expense or undue delay;
• the shares of the subsi­diary are held
A subsidiary that meets, on acquisition,
exclusively for resale in the near future;
the criteria to be classified as held for
• the subsidiary is not significant in relation
sale in accordance with IFRS 5 applies
to the requirement to present a true
the presentation for assets held for sale
and fair view of the group (if several
(for example separate presentation of
subsidiaries fulfill this requirement, the
assets and liabilities to be disposed of),
entities shall be consolidated if they are
rather than normal line-by-line consoli­dation
collectively not insignificant).
presentation.
Subsidiaries excluded from consolidation
are generally accounted for using the equity
method (if applicable).
When all inclusion options for subsidiaries
have been duly exercised and accor­ding­ly
no subsidiary is sub­ject to consoli­dation,
the parent company is not obliged to
prepare a consolidated financial statement.
Investments in subsidiaries – uniform accounting policies
IFRS
German GAAP
Consolidated financial state­ments are
prepared by using uniform accounting
policies for like transactions and events in
similar circum­stances for all of the entities
in a group.
Uniform accounting policies are required.
Special industry accounting princi­ples for
banks and insurance companies applied by
a subsidiary shall be retained (unless the
special industry rules require different).
If special industry accounting principles
are applied, disclosures are required.
6
Unless the investment entity’s subsidiary provides services that relate to the investment entity’s investment activities; in this case it shall
consolidate that subsidiary and apply the requirements of IFRS 3 to the acquisition of any such subsidiary.
Similarities and Differences: IFRS and German GAAP 19
Consolidated financial statements
Investments in joint arrangements – definition and types
IFRS
German GAAP
A joint arrangement is an arrangement of
which two or more parties have joint
control.
German GAAP does not distinguish
between different types of joint ventures.
The term “joint venture” under German
GAAP refers to “joint arrangements” under
IFRS. A joint venture is defined as an entity
that is controlled jointly by one of the entities
included in the consolidated financial
statements and by one or several other
enterprises which do not belong to the
group. Joint control of an enterprise exists
when strategic decisions relating to the
business, capital expenditures and financing
activities of the enterprise require the
consent of all the venturers. Joint control
must be actually exercised; the sole ability
for joint control is not sufficient. For the
accounting treatment of joint ventures see
“Jointly controlled entities”.
A joint arrangement has the following
characteristics:
a) The parties are bound by a contractual
arrangement.
b) The contractual arrange­ment gives two
or more of those parties joint control of
the arrangement.
A joint arrangement is either a joint
operation or a joint venture.
A joint operation is a joint arrangement
whereby the parties that have joint control
(see control concept) of the arrangement
have rights to the assets, and obligations for
the liabilities, relating to the arrangement.
Note: tenancy in common (so called
Those parties are called joint operators.
“Bruchteils­gemein­schaft”) is not considered
as joint venture. The accounting of a tenancy
A joint venture is a joint arrangement
in common is similar to the accounting of
whereby the parties that have joint control
a Joint operation under IFRS. However,
of the arrangement have rights to the net
the distinction between joint ventures and
assets of the arrangement. Those parties
tenancy in common is already important
are called joint venturers.
for the separate financial statement of the
investor.
20 Similarities and Differences: IFRS and German GAAP
Consolidated financial statements
Investments in joint arrangements – Presentation of jointly
controlled entities
IFRS
German GAAP
A joint operator shall recognise in relation to Under HGB a joint venture is accounted by
its interest in a joint operation:
using either the proportionate consolidation
1. its assets, including its share of any
method or the equity method.
assets held jointly;
2. its liabilities, including its share of any
liabilities incurred jointly;
3. its revenue from the sale of its share of
the output arising from the joint operation;
4. its share of the revenue from the sale of
the output by the joint operation; and
5. its expenses, including its share of any
expenses incurred jointly.
A joint operator shall account for the assets,
liabilities, revenues and expenses relating to
its interest in a joint operation in accordance
with the IFRSs applicable to the particular
assets, liabilities, revenues and expenses.
A joint venturer shall recognise its interest
in a joint venture as an investment and
shall account for that investment using
the equity method in accordance with
IAS 28 Investments in Associates and
Joint Ventures unless the entity is exempted
from applying the equity method as
specified in that standard.
Similarities and Differences: IFRS and German GAAP 21
Consolidated financial statements
Investments in joint arrangements – Accounting for contributions to a
jointly controlled entity
IFRS
German GAAP
A venturer that contributes non-monetary
assets, such as shares, property, plant and
equipment or intangible assets, to a jointly
controlled entity in exchange for an equity
interest in the jointly controlled entity
recognises in its consolidated income
statement the portion of the gain or
loss attributable to the equity interests
of the other venturers, except when the
contribution lacks commercial substance,
as that term is described in IAS 16 Property,
Plant and Equipment. If such a contribution
lacks commercial substance, the gain or
loss is regarded as unrealised and is not
recognised unless IAS 28.31 also applies.
Such unrealised gains and losses shall
be eliminated against the investment
accounted for using the equity method
and shall not be presented as deferred
gains or losses in the entity’s consolidated
statement of financial position or in the
entity’s statement of financial position in
which investments are accounted for using
the equity method.
A contribution to a jointly controlled entity
in exchange for an equity interest is
recognised in the same way as an exchange
of assets.
Cost of the acquired equity interest can be
either:
• carrying amount of the consideration
given;
• fair value of the consideration given; or
• the carrying amount of the consideration
given plus any amount necessary to
compensate for the income tax resulting
from the exchange.
If the consideration comprises the exchange
of shares issued through an increase of
capital, in the financial statements of the
joint venture, any value within the range of
par value of these shares and the fair value
of the consideration received could be the
cost of the contribution.
Intra-group profits and losses must be
eliminated. Only the portion of gain or loss
When an entity acquires an interest in a joint attributable to the equity interests of the
operation in which the activity of the joint
other venturers is recognised.
operation constitutes a business, as defined
in IFRS 3, it shall apply, to the extent of its
share, all of the principles on business
combinations accounting in IFRS 3, and
other IFRSs, that do not conflict with the
guidance in IFRS 11 and disclose the
information that is required in those IFRSs.
This applies to the acquisition of both the
initial interest and additional interests in a
joint operation in which the activity of the
joint operation constitutes a business.7
These considerations also apply to the
formation of a joint operation if, and only if,
an existing business, as defined in IFRS 3,
is contributed to the joint operation on
its formation by one of the parties that
participate in the joint operation. However,
those paragraphs do not apply to the
formation of a joint operation if all of the
parties that participate in the joint operation
only contribute assets or groups of assets
that do not constitute businesses to the
joint operation on its formation.
7
he IASB noted that paragraph 2(a) of IFRS 3 excludes, from the scope of IFRS 3, only the accounting by the joint arrangements
T
themselves in their financial statements.
22 Similarities and Differences: IFRS and German GAAP
Consolidated financial statements
Investments in associates – Definition of associate
IFRS
German GAAP
An associate is an entity over which the
investor has significant influence. Significant
influence is the power to participate in the
financial and operating policy decisions of
the investee but is not control or joint
control of those policies.
An associate is an entity in which the group
has significant influence and which is
neither a subsidiary nor a joint venture of
one of the group’s entities. Signifi­cant
influence is defined as participation in the
financial and operating policy decisions
of an investee without the ability to control
the investee (directly or indirectly).
Significant influence is presumed if the
investor holds 20% or more of the voting
power of the investee. Significant influence
is usually also evidenced in one or more
of the following ways:
• representation on the board of directors
or equivalent governing body of the
investee;
• participation in policy-making processes,
inclu­ding participation in decisions about
dividends or other distributions;
• material transactions between the entity
and its investee;
• interchange of managerial personnel; or
• provision of essential technical
information.
In assessing whether potential voting rights
contribute to significant influence, the
entity examines all facts and circumstances
(including the terms of exercise of the
potential voting rights and any other
contractual arrangements whether
considered individu­ally or in combination) that
affect potential rights, except the intention of
management and the financial ability to
exercise or convert those potential rights.
Significant influence is rebuttably presumed
if an investor holds, directly or indirectly,
20% or more of the voting rights of an
investee.
Indicators for the existence of a significant
influence are:
• representation on the management board
or equivalent governing body of the
investee;
• participation in financial and operating
policy making processes of the investee;
• interchange of managerial personnel;
• material business relation­ships with the
investee;
• provision of essential know-how by the
shareholder.
The qualification as “associate” requires
the actual exercise of significant influence.
The sole possibility of exercising significant
influence is not sufficient.
Investments in associates – Presentation of associate results (in
separate financial statements)
IFRS
German GAAP
When separate financial statements are
prepared, investments in associates shall
be accounted for either:
• at cost; or
• in accordance with IAS 39/IFRS 9; or
• using the equity method as described in
IAS 28.
Investments in associates are included
under investments in separate financial
statements and are measured at cost less
impairment losses. See “Financial assets –
Subse­quent measurement”.
Investments accounted for at cost or using
the equity method that are classified as held
for sale or distribution shall be accounted
for in accordance with IFRS 5.
Similarities and Differences: IFRS and German GAAP 23
Consolidated financial statements
Investments in associates – Presentation of associate results (in
consolidated financial statements)
IFRS
German GAAP
In consolidated financial statements,
an investor accounts for an investment in
an associate using the equity method
(see “Equity method”).
In consolidated financial statements,
an investment in an associate is accounted
for using the equity method.
If an equity method invest­ment meets the
held for sale or distribution criteria in
accordance with IFRS 5, an investor records
the invest­ment at the lower of its (1) fair
value less costs to sell and (2) carrying
amount as of the date the investment is
classified as held for sale.
Investments in associates – Equity method
IFRS
German GAAP
The investor presents its share of the
investee’s (that is the associate’s or joint
venture’s) profits and losses in the income
statement. This is shown at a post-tax level.
The investor recognises in equity its share of
changes in the investee’s equity that have
not been recognised in the investee’s profit
or loss.
On acquisition of the invest­ment, the
investor accounts for the difference
between the acquisition costs and the
investor’s share of fair value of the net
identifiable assets as goodwill or as
negative consolidation difference in an
separate computation.
Under the equity method, on initial
recognition the inves­tor’s investment in the
investee is recognised at cost, and the
carrying amount is increased or decreased
to recognise the investor’s share of postacquisition profits or losses of the investee
less dividends received. Adjust­ments to the
carrying amount may also be necessary for
changes in the investor’s proportionate
interest in the investee arising from changes
in the investee’s other com­pehensive income
(for example from revaluation of property,
plant and equipment and from foreign
exchange translation differences).
24 Similarities and Differences: IFRS and German GAAP
The investor’s investment in the investee
is stated at cost, plus its share of postacquisition profits or losses, plus or less its
share of post-acquisition movements in
reserves, less dividends received. Goodwill
shall be amortised over its estimated useful
life in a separate computation. As a general
principle, goodwill shall be amortised using
the straight-line method.
Consolidated financial statements
IFRS
German GAAP
If an entity’s share of losses of an associate
or a joint venture equals or exceeds its
interest in the associate or joint venture,
the entity discontinues recognising its share
of further losses. The interest is the carrying
amount of the investment in the associate
or joint venture determined using the equity
method together with any long-term
interests that, in substance, form part of
the entity’s net investment in the associate
or joint venture. For example, an item for
which settlement is neither planned nor
likely to occur in the foreseeable future is,
in substance, an extension of the entity’s
investment in that associate or joint venture.
Such items may include preference shares
and long-term receivables or loans, but do
not include
A negative equity value for an associate
is not recognised in consolidated financial
state­ments. The negative equity value
shall be rolled forward in the separate
computation. The investment shall be
recognised as an asset as soon as the
accumulated negative amounts are
compensated by profits or shareholder
contributions.
trade receivables, trade payables or any
long-term receivables for which ade­quate
collateral exists, such as secured loans.
Losses recognised using the equity method
in excess of the entity’s investment in
ordinary shares are applied to the other
components of the entity’s interest in an
asso­ciate or a joint venture in the reverse
order of their seniority (ie priority in
liquidation). Further losses are provided for
as a liability only to the extent that the
investor has incurred legal or constructive
obligations to make payments on behalf
of the associate or joint venture.
The investor has to determine whether it
is necessary to recog­nise any additional
impairment loss with respect to the investor’s
net invest­ment in the associate or joint
venture and with the respect to the investor’s
interest in the associate or joint venture that
does not constitute part of the net
investment and the amount of that
impairment loss. Because goodwill that
forms part of the carrying amount of an
investment in an associate or joint venture
is not separately recognised, it is not tested
for impairment separately. Instead, the entire
carrying amount of the invest­ment is tested
for impair­ment as a single asset, by
comparing its recoverable amount with its
carrying amount. An impairment loss
recognised in those circum­stances is not
allocated to any asset, including goodwill,
that forms part of the carrying amount of the
investment in the associate or joint venture.
The equity-method carrying amount has
to be reviewed at each group reporting
date. If the equity-method carrying amount
exceeds the fair value of the investment in
the asso­ciate, an impairment loss shall be
recognised.
Impairment losses initially reduce the
goodwill which is being rolled forward in
the separate computation. Once goodwill
has been written down in full, the remaining
equity value is reduced. The reversal of
an impairment on the equity value is only
allowed as far as it is not based on goodwill.
Disclosure of information is required about
the results, assets and liabilities of
significant associates and joint ventures.
Similarities and Differences: IFRS and German GAAP 25
Business Combinations
DBusiness Combinations
Types of business combinations
IFRS
German GAAP
Business combinations within the scope of
IFRS 3 are accounted for as acquisitions.
A business combination is a transaction
or other event in which an acquirer obtains
control of one or more businesses. The
acquisition method applies. IFRS 3 excludes
from its scope business combinations
involving entities under common control,
a formation of a joint venture and the
acquisition of an asset or a group of assets
that does not constitute a business, as
defined by IFRS 3.
A business combination under German
GAAP is the acquisition of an entity.
According to GAS 19/GAS 23 entities
pursue commercial or economic interests
indepen­dently of their legal form by means
of an organisation that is apparent to third
parties.
A business is defined in IFRS 3 as an
integrated set of activities and assets
that is capable of being conducted and
managed for the purpose of providing either
a return in the form of dividends, lower
costs or other economic benefits directly
to investors or other owners, members or
participants. A business generally consists
of inputs, the processes applied to those
inputs and the resulting outputs that are or
will be used for generating revenues. Thus
the application of IFRS 3 does not depend
on the acquisition of a legal entity.
Acquisition date
IFRS
German GAAP
The acquisition date is the date on which
the acquirer obtains control of the acquiree.
The date on which the acquirer obtains
control of the acquiree is generally the
date on which the acquirer legally transfers
the consideration, acquires the assets and
assumes the liabili­ties of the acquiree –
the closing date. However, the acquirer
might obtain control on a date that is either
earlier or later than the closing date. For
example, the acquisition date precedes the
closing date if a written agreement provides
that the acquirer obtains control of the
acquiree on a date before the closing date.
An acquirer shall consider all pertinent facts
and circumstances in identi­f ying the
acquisition date.
A subsidiary shall be included in the
consolidated financial statement as from
the date on which a parent-subsidiary
relationship arose, i. e. the date the acquirer
(parent) obtains control over the acquiree
(subsidiary). Pre­condition for the existence
of a parent-subsidiary relation­ship usually
is that the acquirer is the beneficial owner
of the shares. Thus, the date of initial
consoli­dation is generally the date on which
beneficial ownership of the shares passes
to the acquirer. This can differ from the date
on which the shares are transferred in rem.
26 Similarities and Differences: IFRS and German GAAP
Business Combinations
IFRS
German GAAP
If a parent entity is required to prepare
consolidated financial statements for the
first time (for example: disconti­nuation of
the exemption rule of sec. 291, 292 or 293),
initial consolidation date of a subsidiary is
the beginning of the fiscal year for which
the consolidated financial state­ment is
prepared for the first time, unless the
parent-subsidiary relationship arose during
the fiscal year. This simplification rule may
also be applied correspondingly for
subsidiaries that have previously not been
included in the consolidated financial
statement (i. e.: inclusion options according
to sec. 296 HGB).
Share-based consideration
IFRS
German GAAP
Shares issued as considera­tion are
Similar to IFRS (carefully estimated fair
recorded at their fair value at the acquisition value).
date. The published price of a share at the
acquisition date is the best evidence of fair
value in an active market.
Contingent consideration
IFRS
German GAAP
If part of the purchase consideration is
contingent on a future event, IFRS requires
the recognition of the contingent
consideration at the acquisition-date fair
value as part of the consideration. An
obligation to pay contin­gent consideration
shall be classified as a liability or as equity.
If part of the purchase consideration is
contingent on a future event, such as
achieving certain profit levels (“earn-out
clause”), future payments of the acquirer
shall be recognised as a provision and
as an increase in the acquisition costs to
the extent that the future payment can
be reliably measured and it is probable that
the earn-out conditions will be met.
Financial liabilities are remeasured to fair
value at each reporting date. Any resulting
gain or loss is recognised in the income
state­ment. Equity-classified contingent
consideration is not remeasured at each
reporting date. Settlement is accounted for
within equity.
Changes in the value or probability of the
contingent consideration reflect adjust­
ments to the initial acqui­sition. Usually, (the
present value of) the change in contingent
consideration (present value of acquisition
date) has to be recorded against goodwill,
all other changes shall be recorded in profit
and loss.
Similarities and Differences: IFRS and German GAAP 27
Business Combinations
Contingent consideration arrangements requiring continued
employment
IFRS
German GAAP
Certain contingent consideration
Not specified.
arrangements may be tied to continued
employment of the acquiree’s employees.
Consideration of the facts and
circumstances and specific indicators
provided in IFRS is necessary to determine
whether the form of the contingent
considera­tion should be recognised as
compensation expenses or as part of the
consideration transferred. The terms of
continuing employ­ment by the selling
shareholders who become key employees
may be an indicator of the substance of a
contingent consideration arrangement.
Arrangements in which the contingent
pay­ments are not affected by employment
termination may indicate that the contingent
payments are additional consideration
rather than remuneration.
Transaction costs
IFRS
German GAAP
Transaction costs are expensed in the
periods in which the costs are incurred,
with one exception. The costs to issue
debt or equity securities shall be recognised
in accordance with other IFRSs.
Transaction costs are expenditures in
addition to the purchase price that serve
to acquire the shares (sec. 255 (1) HGB).
Only such expenditures that are directly
attributable and that arise following the
fundamental purchase decision shall be
recognised as transaction costs.
28 Similarities and Differences: IFRS and German GAAP
Business Combinations
Acquired assets and liabilities – General
IFRS
German GAAP
The identifiable assets acquired and
liabilities assumed (including contin­gent
liabilities) that existed at the acquisition date
are recog­nised by the acquirer separately
from goodwill. These assets and liabilities
are measured at their acquisition-date fair
values.
Similar to IFRS. All assets, liabilities,
prepaid expenses and deferred income, and
special reserve shall be recognised in full in
the revaluation balance sheet. All items
(with exception of provisions and deferred
taxes) shall be measured with their fair value
on the acquisition date. Provisions shall
be measured with the settlement amount
(prudent business judgement); defer­red
taxes for temporary differences between
the (fair) value and the tax base of an asset,
liability, item of prepaid expense or deferred
income, or a special reserve shall be
measured at the entity-specific tax rate of
the relevant subsidiary.
An exception to the recogni­tion and
measurement principle applies to deferred
taxes, employee benefits and
indemnification assets. Further­more an
exception to the measurement principle
applies to reacquired rights, share-based
payments and assets held for sale. These
items are accounted for in accordance with
the require­ments of particular standards or
other rules in IFRS 3.
However, an asset or liability shall not be
recognised separately if it cannot be
measured reliably; in this case it merges
into purchased goodwill.
Acquired assets and liabilities – Restructuring provisions
IFRS
German GAAP
The acquirer may recognise restructuring
provisions as part of the acquired liabilities
only if the acquiree has at the acquisition
date an existing liability for restructuring
recognised in accordance with the guidance
for provisions (IAS 37). Liabilities for future
losses or other costs expected to be
incurred as a result of the business
combination cannot be recognised.
Provisions for restructuring shall only be
recorded in the revaluation balance sheet if
the acquired subsidiary has already entered
into an obli­gation to another party in this
respect at the initial consolidation date.
Acquired assets and liabilities – Intangible assets
(for example in-process research and development (IPR&D))
IFRS
German GAAP
An intangible asset is recognised separately
from goodwill if it arises from contractual or
other legal rights or is capable of being
separated or divided and sold, transferred,
licensed, rented or exchanged.
All intangible assets that fulfill the general
recognition criteria shall be recognised.
Acquired in-process research and
development is recog­ni­sed as a separate
intangible asset if it meets the definition of
an intangible asset.
Also intangible assets that have not been
recognised in the single financial statement
of the subsidiary due to the exercise of the
recognition option for intangible assets
(sec. 248 (2) sentence 1 HGB) or for which
there was a recognition prohibition
(sec. 248 (2) sentence 2 HGB) shall be
recognised separately in the revaluation
balance sheet.
Similarities and Differences: IFRS and German GAAP 29
Business Combinations
IFRS
German GAAP
Customer base, non-contrac­tual customer
relationships, and favourable contracts shall
generally not be recognised as separate
assets and, thus, merge into purchased
goodwill.
Acquired assets and liabilities – Contingencies
IFRS
German GAAP
A contingent liability is recog­ni­sed at the
acquisition date if it meets the definition of a
liability and if its fair value can be measured
reliably.
Contingent liabilities of an acquired entity
shall only be recorded when they meet the
definition of a liability according to German
GAAP.
The contingent liability is measured
subsequently at the higher of the amount
that would be recognised in accor­dance with
IAS 37 or the amount initially recognised
less, if appropriate, cumu­lative amortisation
recognised in accordance with IAS 18.
Generally, contingent assets are not
recognised. However, according to GAS 23
(contin­gent) claims of the subsi­diary against
external third parties shall be recog­ni­sed
if they are recoverable and if the expenses
or losses to which the compensation
obligation of the obligor relate have already
been recognised within provisions in the
revaluation balance sheet.
Contingent assets are not recognised.
Indemnification assets are recognised as
assets of the acquirer at the same time and
on the same basis as indemni­fied items are
recog­ni­sed as liabilities of the acquiree.
Acquired assets and liabilities – Subsequent adjustments
IFRS
German GAAP
Fair values determined on a provisional
basis can be adjus­ted against goodwill
within 12 months of the acquisi­tion date.
Subsequent adjustments are recorded in
the income statement unless they are to
correct an error.
If at that date where the parent entity
obtained control over the subsidiary a
pur­chase price allocation cannot be
definitely determined, the values shall be
adjusted within a period of 12 months
subsequent to the date when control
was obtained. Adjust­ments to acquisition
accounting shall be recogni­sed directly
in equity.
30 Similarities and Differences: IFRS and German GAAP
Business Combinations
Minority interests/non-controlling interests
IFRS
German GAAP
In cases where an acquirer acquires less
than 100% of an acquiree, there is a choice
on a transaction-by-trans­action basis.
Non-controlling interests can be measured
at either fair value (full goodwill method) or
the non-con­trol­ling interest’s proportio­nate
share of the acquiree’s net identifiable
assets.
Similar to IFRS, however the full goodwill
method may not be applied.8
“Non-controlling interests” have to be
presented in a separate balance sheet item
within equity (sec. 307 (1) HGB).
Goodwill – Initial recognition and measurement
IFRS
German GAAP
Goodwill is an asset and separately
recognised. Goodwill is measured at the
acquisition date as the excess of a) over b):
Goodwill arises as the difference between
the cost of the acquisition and the
acquirer’s share of the fair value of the
identifiable assets and liabilities acquired
(full goodwill method shall not be applied).
Goodwill may be allocated to different lines
of business of an acquired subsidiary.
Goodwill is recogni­sed as an intangible
asset with a finite useful life.
a) the aggregate of:
• consideration transferred
• amount of any non-controlling interests
in the acquiree
• acquisition-date fair value of the
acquirer’s previously held equity interest
in the acquiree
b) acquisition-date amount of the
identifiable net assets acquired
For all subsidiaries where goodwill has been
charged to group equity in accordance
with the prior choice for the treatment of
goodwill (i. e. before BilMoG), this treat­ment
may be retained.
Where an entity acquires less than 100% of
a business and non-controlling interest is
measured at fair value goodwill will include
amounts relating to both the acquiring
entity’s interest and the non-controlling
interest in the business acquired. In the
case where noncontrolling interest is
measured at its proportionate shares in the
acquiree’s identifiable net assets goodwill
will only include amounts relating to the
acquiring entity’s interest in the business
acquired.
8
If prior to the initial application of BilMoG consolidation has been carried out according to the book value or pooling of interest method,
these values may be retained and need no adjustment.
Similarities and Differences: IFRS and German GAAP 31
Business Combinations
Goodwill – Bargain purchases
IFRS
German GAAP
A bargain purchase is a busi­ness
combination in which the amount of (b)
above (net assets acquired) exceeds the
aggregate amounts of (a) above (aggregate
of consi­dera­tion transferred, amount of
non-controlling interest and fair value of
previously held interests). The acquirer
reassesses the identification and
measurement of the assets acquired and
liabilities assumed and the measure­ment
the consideration trans­ferred, the noncontrol­ling interests and prior held interests
(if any).
Generally, if a negative consolidation
difference (badwill) is caused by a bargain
purchase it shall be recognised as income
on a systematic basis over the weighted
average remaining useful life of the finitelived assets that have been acquired.
Any excess remaining after reassessment
is recognised in profit or loss on the
acquisition date.
However, badwill can be have different
reasons. Thus, it can have the
characteristics of equity or debt or –
in excep­tio­nal cases – it can also arise
solely from consoli­dation procedures
(so called technical negative consoli­dation
difference). GAS 23 provides illustrative
rules for the treatment of badwill depending
on the reason of its inaccurance.
Goodwill – Assignment subsequent accounting
IFRS
German GAAP
Goodwill is not amortised but tested for
impairment annually and – furthermore –
if there is an indication that goodwill may
be impaired.
German GAAP requires goodwill to
be amortised over its economic life.
Amorti­sation shall allocate the cost of
goodwill over the financial years in which
is expected to be used. If goodwill is
allo­cated to several business lines of a
subsidiary then a separate amortisation
shall be recorded for each busi­ness line.
GAS 23 names factors that may be relevant
for estimating the expected useful life.
If it is not possible to estimate the useful life
in exceptional cases, purchased goodwill
should be amortised over a period of ten
years.
Goodwill is assigned to a cash generating
unit (CGU) or group of CGUs. A CGU is the
smallest identifiable group of assets that
generates cash inflows that are largely
inde­pendent of the cash inflows from
other assets or groups of assets. Each
unit or group of units which the goodwill
is allocated shall not be larger than an
operating segment in accordance with
IFRS 8.
German GAAP requires an explanation
of the economic life for each purchased
goodwill in the notes to the financial
statements.
32 Similarities and Differences: IFRS and German GAAP
Business Combinations
Goodwill – Impairment testing and measurement
IFRS
German GAAP
The recoverable amount of the CGU or
group of CGUs (i. e. the higher of its fair
value less costs of disposal and its value in
use) is compared with its carrying amount.
There is no explicit require­ment in German
GAAP to perform an annual impairment test
for goodwill. However, GAS 23 states that
the remaining useful life of goodwill should
be reviewed at each reporting date.
Any impairment loss is recog­nised in
operating results as the excess of the
carrying amount over the recoverable
amount. The impairment loss is allocated
first to goodwill and then on a pro rata basis
to the other assets of the CGU or group of
CGUs to the extent that the impairment
loss exceeds the book value of goodwill.
Impairment loss recognised for goodwill
shall not be reversed in a subsequent
period.
Goodwill shall be written down it is
expected to be impaired permanently.
GAS 23 lists possible indications for a
permanent goodwill impairment. If one or
more of these factors apply or if there is
other evidence of expected perma­nent
impairment, the recoverability of goodwill
shall be tested.
Goodwill is impaired if its carrying amount
exceeds its fair value. In contrast to other
assets, impairment of pur­chased goodwill
shall not be reversed.
Step acquisitions
IFRS
German GAAP
When an entity obtains control of an
acquiree in stages by successive share
purchases the business combination is
accounted for using the acquisition method
at the acquisition date. The previously
held equity interests are fair valued at
the acquisition date and a gain or loss is
recognised in profit or loss. The fair value of
the previously held interest then forms one
of the components that is used to calculate
goodwill.
Not specified. According to prevailing
opinion, the acquiree’s identifiable assets
and liabilities are remeasured to fair value
at the date when the entity finally became
a subsidiary. All assets and liabilities of
the acquiree should be recognised in the
consolidated financial state­ments based on
their fair values at this date. The adjust­ment
to any previously held interests of the
acquirer is treated without an effect on
income.
Business combinations involving entities under common control
IFRS
German GAAP
IFRS does not specifically address such
transactions. Entities elect and consistently
apply either acquisition or predecessor
accounting for all such transactions.
Not specified.
The accounting policy can be changed only
when criteria for a change in an accounting
policy are met in the appli­cable guidance in
IAS 8 (i. e., it provides more reliable and
more relevant infor­mation).
Similarities and Differences: IFRS and German GAAP 33
Revenue Recognition
ERevenue Recognition
General (IFRS 15)
IFRS
German GAAP
Revenue is a subset of income that arises
from the sale of goods or rendering of
services as part of an entity’s ongoing major
or central activities (ordinary activities).
Transactions that do not arise in the course
of an entity’s ordinary activities do not result
in revenue.
Sales revenues comprise the revenues
from the sale of products and from services
rendered, no matter whether the income
is related to ordinary activities of the
enterprise or not.
One primary standard (IFRS 15) provides a
com­prehen­sive framework for recog­nising
revenue from con­tracts with customers.
It contains principles that an entity will apply
to report useful information about the
nature, amount, timing, and uncertainty of
revenue and cash flows arising from its
contracts to provide goods or services to
customers.
The core principle requires an entity to
recognise revenue to depict the transfer of
goods or services to the customer in an
amount that reflects the consideration it
expects to be entitled to in exchange for
those goods or services.
The standard sets forth a five-step model
for recog­nizing revenue from contracts with
customers:
1. Identify the contract with a customer
2. Identify the performance obligations (PO)
in the contract
3. Determine the transaction price
4. Allocate the transaction price to the
performance obligations
5. Recognise revenue when (or as) each
performance obligation is satisfied.
Revenues may only be recognised if they
are realised at the balance sheet date
(realisation principle). Under specific
circumstances, dividends may be
recognised earlier than under IFRS in
single-entity financial statements.
German GAAP requires measure­ment
of revenues at the fair value of the
consideration received or receivable
(usually cash or cash equival­ents).
Where the inflow of cash or cash
equivalents is deferred, discounting to a
present value is required under German
GAAP (only if the underlying obligation
contains an interest component).
In principle the application of the percentage
of completion method is prohibited.
34 Similarities and Differences: IFRS and German GAAP
Revenue Recognition
Step 1: Identify the contract with a customer
IFRS
German GAAP
In a first step, the standard requires the
entity to identify the contract with the
custo­mer and whether it should combine,
for accounting purposes, two or more
con­tracts (including contract modifications),
to properly reflect the economics of the
underlying transaction. An entity will need
to conclude that it is “probable”9 at the
inception of the contract, that the entity will
collect the conside­ration to which it will
ultimately be entitled in exchange for the
goods or services that are transferred to the
customer in order for a contract to be in the
scope of the revenue standard.
No comparable explicit regulation with
regard to identifying a contract, but in
principle similar to IFRS. If several individual
contracts are considered as a uniform
transaction because of their close economic
connection, they might be considered as a
multi element arrangement. A differentiation
is to be made with regard to the realization
of its individual components.
An entity shall combine two or more
contracts entered into at or near the same
time with the same customer (or related
parties of the custo­mer) if one or more of
the following criteria are met:
• the contracts are nego­tiated with a single
commercial objective,
• the amount of consi­de­ration in one
contract depends on the other contract,
or
• the goods or services promised in the
contracts (or some goods or services
promised in each of the contracts)
are a single performance obligation
in accordance with the guidance for
identifying performance obligations.
A contract modification is treated as a
separate contract only if it results in
the addition of a separate performance
obligation and the price reflects the
“standalone selling price”10 of the addi­tio­nal
performance obligation. The modification is
otherwise accounted for as an adjust­ment
to the original contract either through a
cumulative catch-up adjustment to revenue
or a prospective adjustment to revenue
when future performance obli­ga­tions
are satisfied, depending on whether the
remaining goods and services are distinct.
While aspects of this model are similar to
existing literature, careful conside­ration will
be needed to ensure the model is applied to
the appropriate unit of account.
9
10
The term “probable” means more likely than not – that is, greater than 50 percent likelihood.
The stand-alone selling price is the price the good or service would be sold for if sold on a stand-alone basis.
Similarities and Differences: IFRS and German GAAP 35
Revenue Recognition
Step 2: Identify the performance obligations (PO) in the contract
IFRS
German GAAP
An entity should assess goods or services
promised in a contract with a customer and
should identify as a per­for­mance obligation
each promise to transfer a good or service
to the customer. These promises may not
be limted to those explicitly in­cluded in
written contracts.
No comparable explicit regulation with
regard to identifying performance
obligations, but similar to IFRS, as long
as principal performance obligations are
concerned.
An entity accounts for each promised good
or service as a separate performance
obli­gation if the good or ser­vice is capable
of being distinct (i. e., the customer can
benefit from the good or service either on
its own or together with other resources
readily available to the customer); and is
distinct within the context of the contract
(i. e., the good or service is separately
identifiable from other promises in the
contract).
Different principal perfor­mance obligations
may arise from multi element arrange­ments,
if several different services (amongst others
for example financing trans­actions) are
regulated in a single contract or several
individual contracts are considered as a
uniform transaction because of their close
economic connection. Despite the uniform
con­si­de­ration of these transactions,
a differentiation is to be made with regard to
the realization of the individual components.
Sales-type incentives such as free products
or customer loyalty programs, for exam­ple,
might be perfor­mance obligations under
IFRS 15. If so, revenue will be deferred until
such obligations are satisfied, such as when
a customer redeems loyalty points. Other
potential changes in this area include
accounting for return rights, licenses, and
options.
Step 3: Determine the transaction price
IFRS
German GAAP
The transaction price reflects the amount
The general revenue recog­nition criteria
of consideration that an entity expects
apply.
to be entitled to in exchange for goods
or services delivered. This amount is
measured using either a probabilityweighted or most-likely-amount approach;
whichever is most predictive. The amount
of expected consideration captures:
1. variable consideration if it is “highly
probable” that the amount will not
result in a significant revenue reversal if
estimates change,
2. an assessment of time value of money
(as a prac­ti­cal expedient, an entity need
not make this assess­ment when the period
bet­ween payment and the transfer of
goods or services is less than one year),
3. noncash consideration, generally at fair
value, and
4. consideration payable to customers.
36 Similarities and Differences: IFRS and German GAAP
Revenue Recognition
Step 4: Allocate the transaction price to the performance obligations
IFRS
German GAAP
For contracts with multiple performance
obligations, the performance obligations
should be separately accoun­ted for to the
extent that the pattern of transfer of goods
and services is different. Once an entity
identifies and determines whether to
sepa­rately ac­count for all the per­for­mance
obli­gations in a con­tract, the trans­action
price is allocated to these separate
perfor­mance obligations based on relative
stand­alone selling prices.
No specific guidance for multiple element
arrange­ments.
The general revenue reco­gni­tion
criteria apply. For this purpose, the total
remune­ra­tion of the multi component
arrangement must be divided between the
individual compo­nents in the ratio of the fair
values of the individual components and
then a sepa­rate realization of each of these
individual components must be examined.
The best evidence of stand-alone selling
price is the observable price of a good
or service when the entity sells that good
or service separately. The selling price is
estimated if a stand-alone selling price is
not available. The standard provides some
possible estimation methods. If the
stand-alone selling price is highly variable
or uncertain, entities may use a residual
approach to aid in estimating the
standalone selling price. An entity may also
allocate discounts and variable amounts
entirely to one (or more) performance
obligations if certain conditions are met.
Step 5: Recognise revenue when (or as) each performance obligation is
satisfied – Transfer of control
IFRS
German GAAP
An entity shall recognise revenue when
(or as) the entity satisfies a performance
obli­gation by transferring a promised good
or service (i. e. an asset) to the custo­mer.
An asset is transferred when (or as) the
customer obtains control of the asset.
For each performance obli­gation an entity
shall deter­mine at contract incep­tion
whether it satisfies the perfor­mance
obligation over time or at a point in time.
An entity shall recognise revenue when the
entity satisfies the principal perfor­mance
obligation (for example trans­fer of beneficial
owner­ship of an asset, similar to IFRS) and
(additionally) the entity has an indefeasible
right to the consideration agreed.
The realisation principle applies – revenue
is only to be recognised when it has been
realised at the balance sheet date.
Control of an asset refers to the ability to to
direct the use of, and obtain substantially all
of the remaining benefits from, the asset.
Control in­clu­des the ability to prevent
other entities from directing the use of and
obtaining the benefits from, an asset.
Deter­mining when control transfers will
require a sign­ifi­cant amount of judge­ment.
Similarities and Differences: IFRS and German GAAP 37
Revenue Recognition
Step 5: Recognise revenue when (or as) each performance obligation
is satisfied – Over time revenue recognition
IFRS
German GAAP
An entity satisfies a perfor­mance obligation
over time if one of the following criteria is
met:
1. the customer simulta­neously receives
and consumes the benefits provided by
the entity’s performance as the entity
performs;
2. the entity’s performance creates or
enhances an asset (for example, work in
progress) that the customer controls as
the asset is created or enhanced; or
3. the entity’s performance does not create
an asset with an alternative use to the
entity and the entity has an enforceable
right to payment for performance
completed to date.
Service transactions are generally
accounted for using the completed contract
method.
Entities need to apply to the specific facts
and circum­stances of individual perfor­
mance obligations.
The completed contract method follows the
general measurement principles.
Accordingly revenue may only be
recognised if it has been realised at the
balance sheet date.
An exception applies when the entitlement
to compen­sation for partial performance is
certain. In such cases partial revenue may
be recognised.
Construction contracts are generally
accounted for using the completed contract
method. The percentage of completion
method is allowed only in exceptional
circum­stances.11
If control is transferred continuously over
time, an entity may use output methods (for
example, units delivered) or input methods
(for example, costs incurred or passage
of time) to measure the amount of revenue
to be recognised. The method that best
depicts the transfer of goods or services to
the custo­mer should be applied consistently
throughout the contract and to similar
con­tracts with customers. The notion of an
earnings process is no longer appli­cable.
11
ADS provides a list of criteria which have to be fulfilled in order to apply the percentage of completion method under German GAAP.
38 Similarities and Differences: IFRS and German GAAP
Revenue Recognition
Step 5: Recognise revenue when (or as) each performance obligation
is satisfied – Point in time revenue recognition
IFRS
German GAAP
If none of the criteria indi­ca­ting that a
performance obli­gation is satisfied over
time are met, the entity satisfies the
performance obligation at a point in time.
The realisation principle applies – revenue
is only to be recognised when it has been
realised at the balance sheet date.
Revenue from products (and services) may
To determine the point in time at which a
be realised, when:
customer obtains control of a promised
• products have been delivered and risk
asset and the entity satisfies a perfor­mance
and rewards have been transferred; and
obligation, the entity shall consider the
• the supplier is indefeasibly entitled to
require­ments for control. In addition, IFRS 15
receive a consideration.
provides the following indicators to con­sider
in determining when the customer obtains
control of a promised asset:
• the entity has a present right to payment
for the asset,
• the customer has legal title to the asset,
• the entity has transferred physical
possession of the asset,
• the customer has the significant risks and
re­wards of ownership of the asset, and
• the customer has accepted the asset.
These indicators are not a checklist, nor
are they all-inclusive. All relevant factors
should be considered to determine whether
the customer has obtained control of a
promised asset.
Contract cost guidance
IFRS
German GAAP
Costs related to satisfied perfor­mance
No comparable regulation with regard to
obligations and costs related to inefficiencies contract costs.
should be expensed as incurred. Incremental
costs of obtaining a contract (for example, a
sales commission) should be recognised as
an asset if they are expected to be
recovered. As a practical expedient, an entity
may recognise the incremental costs of
obtaining a contract as an expense when
incurred if the amortisation period (of the
asset the entity otherwise would have
recognised) is one year or less. Entities
should evaluate whether direct costs
incurred in ful­filling a contract are in the
scope of other standards (e. g., inventory,
intangibles, or fixed assets). If so, the entity
should account for such costs in
accordance with those standards. If not, the
entity should capitalise those costs only if
the costs relate directly to a contract, relate
to future performance, and are expected to
be recovered under a contract.
Similarities and Differences: IFRS and German GAAP 39
Pensions and other long-term benefits
FPensions and other long-term benefits
General considerations – Classification of pension schemes
IFRS
German GAAP
Post-employment benefits (e. g. pensions)
are classified either as defined contribution
plans (DC plans) or defined benefit plans
(DB plans), depending on the economic
substance of the individual plans. Under DC
plans the entity’s legal or constructive
obligation is limited to the amount that it
agrees to contribute to the fund. There­fore
actuarial risks and investment risks remain
with the employee. All other plans are DB
plans.
The classification as DC plan or DB plans
does not apply to German GAAP. Instead,
depen­ding on whether a separate external
fund is used to settle the pension
entitlements, the plan has to be treated
as an indirect pension plan or direct
pension plan. In case of indirect pension
plans the external fund meets the
employees’ claims, however, the entity
remains liable for potential benefit
reductions by the external fund (for example
direct insurance, pension and support
funds). In case of direct pension plans the
entity is obliged to meet the employees’
claims directly. Thus, Contractual Trust
Arrange­ments normally are classified as
direct pension plans as well. Direct
pension obligations are split into new and
“legacy” commitments (i. e. pension plans
established before 1987).
General considerations – Differences of the categories
IFRS
German GAAP
For DC plans only the contri­butions that
are paid for each period for the rendered
emplo­yee services are recog­nised as
ongoing ex­penses. For DB plans a liability
is recognised in the balance sheet and
an ex­pense is recognised for the accrual
of the liability in profit or loss. Actuarial
assumptions are required to measure the
obligation and the expense from DB plans
so that actuarial gains or losses (recognised
in OCI) may arise. Moreover, the obligation
is measured on a discounted basis.
It is possible to account for obligations
arising from indirect pension plans offbalance and to account for the contributions
as an expense (underfunding then must be
disclosed in the notes). Obligations arising
from direct pension promises basically lead
to a provision which has to be recognised
in the balance sheet and to an expense for
the accrual of the provision which has to
be recognised in profit or loss. Obligations
arising from “legacy” commitments may be
accounted for as off-balance sheet liabilities
(the amount not recognised as a provision
must be disclosed in the notes). Actuarial
gains and losses are not recognised
separately in an “OCI statement”. All gains
and losses are recognised immediately in
the income statement. Interest-related
fluctuations are not as high as under IFRS
because the discount rate is determined by
a ten-year average.
40 Similarities and Differences: IFRS and German GAAP
Pensions and other long-term benefits
General considerations – Other long-term employee benefits
IFRS
German GAAP
Other long-term employee benefits include
for example jubilee benefits, deferred
compensation or bonuses that are not due
to be settled within 12 months after the end
of the period in which the employees render
the related service. Long-term employee
benefits are accounted for in the same way
as DB plans with the exception that
actuarial gains and losses and all past
service costs are recognised immediately
through profit or loss.
Other long-term employee benefits are
long-term in nature, comprise a benefit
characteristic and are subject to biotmetric
risks (for example benefits relating to
part-time employment prior to retirement,
benefits in the case of death or disability
or jubilee benefits). They are largely treated
in the same way as pension obligations.
The most prominent difference between the
accounting for pension obligations and
other long-term employee benefits is the
discount rate. Pension obligations are
discounted by the ten-year average market
rate whereas other long-term employee
benefits are discounted by the seven-year
average market rate.
Measurement of obligation – Actuarial valuation method
IFRS
German GAAP
The projected unit credit method (PUCM) is
used to determine the present value of the
entity’s defined benefit obligation (DBO).
No actuarial valuation method is specified.
Use of actuarial techniques shall result in an
economically reasonable amount (PUCM is
a permis­sible actuarial valuation method).
Measurement of obligation – Use of realistic parameters
IFRS
German GAAP
Actuarial valuation techniques are used to
make a reliable estimate of the atmount of
bene­fits that employees have earned in
return for their services. Based on the
pension promise these techniques have to
include realistic assumptions (for example
salary and/or pension in­crea­ses, turnover
rates and mortality probabilities) that will
influence the cost of the benefits.
The regulation to use realistic parameters
for the calculation of pension and
similar obli­ga­tions is comparable to IFRS.
Similarities and Differences: IFRS and German GAAP 41
Pensions and other long-term benefits
Measurement of obligation – Discount rate
IFRS
German GAAP
The rate used to discount post-employment
benefit obligations is determined by
reference to market yields at the end of the
reporting period on high quality corporate
bonds. The cur­rency and term shall be
consistent with the currency and estimated
term of the DBO.
Determination of the discount rate is based
on a specific law (RückAbzinsV). Every
month the German Federal Bank publishes
a yield curve based on the average market
yields for the past seven and ten years
respectively. Pension obligations are
discounted by the ten-year average market
rate whereas other long-term employee
benefits are dis­counted by the seven-year
average market rate. Regar­ding pension
obligations there has to be made an
addi­tional auxiliary calculation using the
seven-year average market rate as well.
The difference between the amount using
the ten-year average market rate (i. e. the
balance sheet recognition amount) and
the amount using the seven-year average
market rate has to be dis­closed in the notes.
The discount rate shall basically be chosen
consistent with the remaining term of
the obli­gation, but in order to simplify the
calculation, it is accept­able to assume a
dura­tion of 15 years if no material over- or
underesti­mation of the obli­gations results
from doing so.
Plan assets – Criteria
IFRS
Plan assets comprise:
• assets held by a long-term employee
benefit fund; and
• qualifying insurance policies (issued by
an insurer that is not a related party as
defined in IAS 24).
German GAAP
In general the criteria for plan assets are
similar to IFRS, in particular the assets shall
be held solely for the purpose of paying or
funding employee benefits and cannot be
used by the employer for any other purpose,
including settlement of liabilities on the
employer’s liquidation. However German
In both cases above, the assets shall be
GAAP additionally requires plan assets to
held solely for the purpose of paying or
be non-operating assets whereas plan
funding employee benefits and cannot be
assets need not to be held by a separate
used by the employer for any other pur­pose, legal entity.
including settlement of liabilities on the
employer’s liquidation.
Assets held by a separate legal entity only
meet the criteria of potential plan assets if
employer qualifies as their beneficial owner
(for example based on trust agreements).
Assets held by a separate external fund
that is obliged to settle the pensions in the
context of an indirect pension plan normally
do not qualify as plan assets.
42 Similarities and Differences: IFRS and German GAAP
Pensions and other long-term benefits
Plan assets – Valuation units
IFRS
German GAAP
Plan assets should be measured at fair
value. The fair value of insurance policies
should be estimated using, for example,
a discounted cash flow model with a
discount rate that reflects the associated
risk and the expected maturity date or
expected disposal date of the assets.
Qualifying insurance policies that exactly
match the amount and timing of some or all
of the benefits payable under the plan are
measured at the present value of the related
obligations.
Plan assets should be measured at fair value.
If benefits payable under a plan are
determined solely by reference to the
fair value of the underlying assets, the
obligation basically has to be measured at
the fair value of the assets (but not below the
present value of guaranteed benefits).
The prevailing view is that this is also valid for
insured benefits to the extent the insurance
policies match the amount and timing of the
benefits payable under the plan.
Plan assets – Distribution-barrier
IFRS
German GAAP
No specific guidance under IFRS.
As plan assets should be measured at fair
value unrealised gains are recog­nised in the
balance sheet and profit and loss statement
to the extent the fair value measurement
leads to a measurement above historical
costs. These unrealised gains are not
available for dividend distribution.
In addition, the difference which arises from
discounting pension obligations with the
ten-year average market rate as opposed to
using the seven-year average market rate
(which has to be used for other obligations)
is also subject to a dividend distr­ibu­tionbarrier. There has to be made an auxiliary
calcu­lation to determine this differential
amount which besides has to be disclosed
in the notes.
Similarities and Differences: IFRS and German GAAP 43
Pensions and other long-term benefits
Recognition – Net defined benefit liability
IFRS
German GAAP
The net defined benefit lia­bility (asset) is the
deficit or surplus, adjusted for any effect of
limiting a net defined benefit asset to the
asset ceiling.
The net defined benefit liability (asset) is the
net total of the present value of the pension
obligation and the fair value of plan assets.
A deficit has to be recognised as “provision
for pensions” whereas a surplus has to be
recognised as “Excess of plan assets over
post-employment benefit liability”.
The deficit or surplus is:
1. the present value of the defined benefit
obligation less
2. the fair value of plan assets (if any).
Due to the fact that assets held by a
separate legal entity only meet the criteria
The asset ceiling is the present value of any of poten­tial plan assets if the employer
eco­nomic benefits available in the form of
qualifies as their beneficial owner (for
refunds from the plan or reductions in future example based on trust agreements) there
contributions to the plan.
is no need for an asset ceiling regulation
comparable to IFRS.
The present value of a defined benefit
obligation is the present value, without
deducting any plan assets, of expected
future payments required to settle the
obligation resulting from employee service
in the current and prior periods.
Recognition – Actuarial gains/losses
IFRS
German GAAP
Actuarial gains and losses are recognised in Actuarial gains and losses are recognised
other com­prehen­sive income.
immediately in the income statement.
Actuarial gains and losses are changes in
the present value of the defined benefit
obli­gation resulting from:
1. experience adjustments (the effects
of differences between the previous
actuarial assumptions and what has
actually occurred); and
2. the effects of changes in actuarial
assumptions.
Recognition – Treatment of surpluses
IFRS
German GAAP
If the fair value of plan assets exceeds the
present value of DBO, this surplus has to be
tested for whether it can be recognised as
an asset or not (so-called asset ceiling test).
Each surplus (fair value of plan assets
exceeds present value of pension
obligation) shall be accounted for as an
asset. Such an asset is to be recognised as
a separate line item (“Excess of plan assets
over post-employment benefit liability”).
44 Similarities and Differences: IFRS and German GAAP
Pensions and other long-term benefits
Recognition – Net pension expense
IFRS
German GAAP
An entity shall recognise the components
of defined benefit cost as follows:
1. service cost in profit or loss;
2. net interest on the net defined benefit
liability (asset) in profit or loss; and
3. remeasurements of the net defined
benefit liability (asset) in other
comprehensive income.
All gains and losses are recognised
immediately in the income statement.
Thus actuarial gains and losses are
not recognised separately in an
“OCI statement”.
Income and expenses from discounting
pension pro­visions shall be offset with
interest on plan assets.
Remeasurements of the net defined benefit
liability (asset) comprise:
1. actuarial gains and losses;
2. the return on plan assets, excluding
amounts in­clu­ded in net interest on the
net defined benefit liability (asset); and
3. any change in the effect of the asset
ceiling, excluding amounts included in net
interest on the net defined benefit liability
(asset).
Actuarial gains and losses are changes in
the present value of the defined benefit
obli­gation resulting from:
1. experience adjustments (the effects
of differences between the previous
actuarial assumptions and what has
actually occurred); and
2. the effects of changes in actuarial
assumptions.
Presentation and disclosures – Presentation
IFRS
German GAAP
The entity may choose whether net interest
components should be included as an
operating expense or as a component of
finance income.
Income and expenses from discounting
pension pro­visions shall be offset with
interest on plan assets. The net amount has
to be in­clu­ded in finance income.
The actual return on plan assets, excluding
amounts included in net interest on the net
defined benefit liability (asset) is recognised
in other comprehensive income.
German GAAP provides a choice regarding
profit or loss derived from discount raterelated fluctuations, profit or loss due to
changes in the fair value of plan assets
and non-interest income from plan assets.
All three com­po­nents may consistently be
recognised in operating or finance income/
expense.
Similarities and Differences: IFRS and German GAAP 45
Pensions and other long-term benefits
Presentation and disclosures – General disclosures
IFRS
German GAAP
An entity shall disclose information that:
1. explains the characteristics of its defined
benefit plans and risks associated with
them;
2. identifies and explains the amounts in
its financial statements arising from its
defined benefit plans; and
3. describes how its defined benefit plans
may affect the amount, timing and
uncertainty of the entity’s future cash
flows.
In particular, the following disclosures are
required:
• actuarial method used
• information regarding the valuation
parameters (e. g. discount rate, assumed
salary trend)
• book value and fair value of plan assets
• present value of obligations (if offset
against plan assets)
• components of the net interest expense/
income
• deficits arising from indirect pension
schemes
• amount not recognised for legacy
commitments
• difference between the present value
of the pension obligations using the
ten-year average market rate (i. e. the
balance sheet recognition amount) and
the amount using the seven-year average
market rate (auxiliary calculation)
See IAS 19.135 ff. for the extensive
disclosure requirements.
Transition rules – Transitional liability
IFRS
German GAAP
Not applicable.
In case the implementation of German
GAAP modifications due to “BilMoG”
(in FY 2009 or 2010) had resulted in a higher
present value of the pension obligations,
there had been a choice whether to
recognise the increase over a period of up
to 15 years (minimum recognition: 1/15 p. a.)
or immediately. Either way the increase has
to be recognised in profit or loss. Thus,
some entities will recognise an additional
expense in the amount of 1/15 p. a. until
the end of FY 2024. The expense shall be
included in other operating expenses and
shall be pre­sented separately (within the
income statement or in the notes)
46 Similarities and Differences: IFRS and German GAAP
Non-financial assets
GNon-financial assets
Property, plant and equipment – Initial measurement
IFRS
German GAAP
An item or property, plant and equipment
(PPE) that qualifies for recognition shall
initially be measured at its cost (i. e. cost of
acquisition (see section “Acquisition cost”)
or cost of conversion (see section “Costs of
conversion”).
PPE is initially measured at its acquisition
costs or pro­duc­tion costs.
Acquisition costs comprise all expenses
that arise to acquire an asset and to bring it
into its operational condition as far as the
expenses can be directly assigned to asset
(see section “Acquisitions costs”).
Production costs comprise expenditures
incurred through the con­sumption of goods
and the use of services to manu­facture,
enlarge or improve an asset significantly
beyond its original condition (see section
“Costs of conversion”).
Property, plant and equipment – Subsequent measurement
IFRS
German GAAP
Subsequently PPE is accounted for using
the cost model (cost less accumulated
depreciation and impairment losses) or the
revaluation model (which must be adopted
for an entire
class of PPE).
According to German GAAP, subsequent
measurement of PPE shall be based on the
cost model (cost less accu­mu­lated
depreciation and impairment losses). The
revaluation model is not permitted.
If the revaluation model is used:
• an increase on revaluation is credited
directly to equity (“revaluation surplus”),
unless it reverses a revalua­tion decrease
for the same asset previously recognised
in profit or loss and
• a decrease on revaluation is charged
directly against any related revaluation
sur­plus for the same asset; any excess is
recognised as an expense.
For assets that are design­ated as plan
assets see section “Plan assets”.
Not applicable.
Similarities and Differences IFRS and German GAAP 47
Non-financial assets
Property, plant and equipment – Separate depreciation of significant
parts of PPE (“component approach”)
IFRS
German GAAP
An item of PPE with a cost that is significant
in relation to the total cost of the item shall
be depreciated separately (component
approach). How­ever, parts that have the the
same useful life and the same depreciation
method may be grouped in deter­mining the
depreciation charge.
Separate depreciation of signi­ficant parts
not specified under German GAAP is only
permitted under specific conditions but not
required.
Consistent with the com­po­nent approach,
replace­ment cost is recognised as PPE if
the recognition criteria are met. The
carrying amount of the replaced parts is
dere­cogni­sed.
Similar to IFRS. Under German GAAP,
impairment can only be applied to an asset
as a whole.
The residual value, useful life and
depreciation method are reviewed at least
at each financial year-end.
Property, plant and equipment – Acquisition cost
IFRS
German GAAP
PPE comprises the cost directly attributable
to the asset. The following costs are
included in the initial mea­sure­ment of
purchased PPE under IFRS:
• purchase price (incl. import duties and
nonrefundable purchase taxes, less trade
discounts and rebates)
• any costs directly attri­but­able to bringing
the asset to the location and conditions
necessary for it to be capable of
operating
• the initial estimate of the costs of
dismantling and removing the item and
restoring the site on which it was located
Examples of directly attributable costs:
• initial delivery and handling costs
• installation and assembly costs
• costs of employee benefits arising directly
from the construction or acquisition of the
item of PPE
• costs of testing whether the asset is
functioning properly, after deducting
the net proceeds from selling any items
produced while bringing the asset to that
location and condition (such as samples
produced when testing equipment)
• professional fees
• costs of site preparation
PPE comprises the cost individually
attributable to the asset. The following
costs are included in the initial measure­
ment of purchased PPE under German
GAAP:
• purchase price (incl. import duties and
nonrefundable purchase taxes, less trade
discounts and rebates)
• any costs directly attribut­able to bringing
the asset to the location and conditions
necessary for it to be capable of
operating
• costs of site preparation
• initial delivery and handling costs
• installation and assembly costs
• costs of testing the asset for proper
functionality
• professional fees (not advisory fees paid
in the context of inducing the acquisition
decision)
48 Similarities and Differences IFRS and German GAAP
The cost of dismantling and removing the
asset and restoring the site are not
included in the initial mea­sure­ment of the
asset. In case of a legal or contractual obli­
gation, a provision has to be recognised
over the useful life of the asset on a straight
line basis.
Non-financial assets
Costs of conversion
IFRS
German GAAP
Costs of conversion comprise the costs
directly attributable to the asset:
• direct material costs
• direct labour costs
• variable production over­heads such as
indirect materials and indirect labour
costs
• fixed production overheads such as
depreciation and maintenance of factory
buildings and equip­ment, and the cost of
fac­tory management and administration
allocated based on the normal capacity of
the production facilities
Costs of conversion comprise:
• direct material cost
• direct labour cost
• special cost of production
• an appropriate share of indirect
material cost, indirect production costs,
indirect labour costs and depreciation/
amortisation to the extent that they are
attributable to the production process
Research costs, selling costs and general
administrative overheads are explicitly
excluded from the cost of conversion.
The consideration of appro­priate shares of
general and administrative costs, expen­ses
for social amenities of the company and the
costs of voluntary social benefits and
occupational pensions as part of the
conversion costs is optional. For the
optional consideration of borrowing costs
see section “Capitali­sation of borrowing
costs”. Measurement policies used in a
financial statement shall be retained.
Research costs and selling expenses are
explicitly excluded from costs of
conversion.
Capitalisation of borrowing costs
IFRS
German GAAP
Borrowing costs that are directly
attributable to the acquisition, construction
or production of a qualifying asset (asset
that necessarily takes a substantial period
of time to get ready for its inten­ded use or
sale) are capitali­sed as part of the cost of
the asset.
Borrowing costs may only be capitalised if
they are used to finance the production of
an asset and to the extent that they are
directly attributable to the production
period. They may not be capitalised if they
relate to acquisition costs.
For general purpose borrowings, borrowing
costs are determined by applying the
capitalisation rate (borrowing costs divided
by the weighted average outstanding
borrowing balance) to the expenditures on
the qualified asset.
The amount of borrowing costs that has
been capitalised in the reporting period has
to be disclosed in the notes.
Borrowing costs may include:
• interest expense calculated using
effective interest method
• finance charges of finance leases
• exchange differences arising from foreign
currency borrowings regarded as an
adjustment to interest costs
Similarities and Differences IFRS and German GAAP 49
Non-financial assets
Internally generated intangible assets – General
IFRS
German GAAP
An internally generated intangible asset is
recognised if it is probable that the
expected future economic benefits that are
attributable to the asset will flow to the
entity, and the cost of the asset can be
measured reliable.
Internally generated non-current intangible
asset may be recognised (option) if certain
conditions are met (for example highly
probable that planned intangible asset will
arise, development costs can be reliably
attributed to the asset).
Recognition of internally generated brands,
mast­heads, publishing titles, customer lists
or similar non-current intangible assets is
prohibited.
Expenditure incurred during the research
phase is expensed when incurred.
Expenditure incurred during the
development phase is capitalised from the
point when the recognition criteria of an
intangible asset are met.
Similar to IFRS. If research and
development phase cannot be separated
reliably, capitalisation of development costs
is not allowed.
It is not allowed to recognise internally
generated goodwill as an asset.
It is not allowed to recognise internally
generated goodwill as an asset.
Internally generated intangible assets – Recognition
IFRS
German GAAP
To assess whether an inter­nally generated
intangible asset meets the criteria for
recognition, an entity classi­fies the
generation of the asset into a research and
a development phase. Expendi­tures arising
from research (or from the research phase
of an intangible pro­ject) shall be recognised
as an expense when incurred. Costs in the
development phase are capi­tal­ised if all of
the following six criteria are demonstrated:
• technical feasibility of com­pleting the
intangible asset
• intention to complete the intangible asset
• ability to use or sell the intangible asset
• how the intangible asset will generate
future eco­nomic benefits (the entity
should demonstrate the existence of a
market or, if for internal use, the use­
fulness of the intangible asset)
• availability of adequate resources to
complete the development
• ability to measure reliably the expenditure
attributable to the intangible asset during
its development
Non-current intangible items in the process
of creation may be recognised if (GAS 24):
• the item is an asset under development
• the item meets the general recognition
criteria for assets
• it is highly probable that the planned
intangible asset will arise
• development costs can be reliably
attributed to the intangible asset
• no explicit prohibition on recognition
exists (for example internally generated
brands, mastheads, etc.)
50 Similarities and Differences IFRS and German GAAP
Non-financial assets
IFRS
German GAAP
If an entity cannot distinguish the research
phase from the development phase of an
internal project to create an intangible
asset, the entity treats all expenditure as if it
were incurred in the research phase only.
Distinction between research phase and
development phase is crucial: expenditures
from the research phase – in contrast to
expenditures from the development
phase – shall not be recognised.
Research is the original and planned
investigation under­taken to gain new
scientific of technical know­ledge or
ex­perien­ces of general nature, about whose
usa­bility and economic pros­pects no
statements can be made.
Development is the appli­cation of research
findings or other knowledge to develop/
enhance new/existing goods or process.
Capitalisation of development expenditures
is prohibited if the research and develop­
ment phase cannot be reliably separated.
Expenditures on internally generated
Similar to IFRS.
brands, mast­heads, publishing titles,
customer lists and items similar in
substance cannot be distinguished from the
cost of developing the business as a whole.
There­fore, such items are not recognised as
intangible assets. Also, internally gene­rated
goodwill shall not be recognised as an
asset.
Development costs initially recognised as
expenses cannot be capitalised in a
subsequent period.
Similar to IFRS. Development expenditures
that already have been recognised as
expense in financial state­ments (for
example prior year) may not be included in
the cost of the intangbile asset.
Note: when internally gen­er­ated intangible
assets are recognised, profits may only be
distributed if the reserves available for
distri­bution (+/– profit or loss brought
forward) remaining after such a distribution
are at least of the same amount as the
recognised intangible assets (less deferred
tax liabilities recognised for these intangible
assets).
Similarities and Differences IFRS and German GAAP 51
Non-financial assets
Internally generated intangible assets – Measurement and
amortisation
IFRS
German GAAP
Initial recognition at cost, which comprises
all expen­ditures that can be directly
attributed or allocated to creating,
producing and preparing the asset from the
date when the recognition criteria are met
(see “Acqui­sition cost”).
Acquired intangible assets are initially
measured at acquistion costs. Subse­
quently intangible assets are accounted for
using the cost model (= cost less accumu­
lated depreciation and impair­ment losses).
Use of the revaluation model is prohibited.
Sub­sequently intangible assets are
accoun­ted for using the cost model or the
revaluation model (provided fair value can
be determined with reference to an active
market).
Non-currrent intangible assets must be
amortised over their expected entityspecific useful life. If, in exceptional cases,
the entity-specific useful life of an internally
generated intangible asset cannot be
estimated reliably, the asset shall be
amortised over a period of ten years.
Intangible assets that can be used
indefinitely are not amortised. If
maintenance measures are the reason why
these intangible assets can be used
indefinitly, these assets have a useful life
and must be amortised.
An entity should assess whether the useful
life is finite or indefinite. If finite, the useful
life is the expected period available for use
or the number of production or similar units
expected to be obtained from the asset.
• Intangibles with a finite useful life are
amortised over their useful life. The
depreciable amount is allocated by a
systematic method that reflects the
pattern in which the asset’s future
economic benefits are expected to be
con­sumed. If the pattern cannot be
determined reliably, the straight-line
method should be used. The residual
value is assum­ed to be zero unless
there is a commitment by a third party
to purchase the asset at the end of its
useful life or there is an active market
and residual value can be determined by
reference to that market and it is probable
that such a market will exist at the end of
the asset’s useful life. The amortisation
period and method should be reviewed at
each financial year-end.
• An intangible asset with an indefinite
useful life is not amortised but tested
for impairment annually and whenever
there is an indication that the intangible
asset may be impaired. Its useful life is
reviewed each period. If there is a change
in circum­stances, the asset should be
changed to one with a finite life.
52 Similarities and Differences IFRS and German GAAP
Non-financial assets
Inventories
IFRS
German GAAP
Carried at lower of cost and net realisable
value. Reversal is required for subsequent
increase in value of previous write-downs.
Materials and other supplies held for use in
the production of inventories are not written
down below cost if the finished products in
which they will be incor­porated are
expected to be sold at or above cost.
Inventories are initially measured at
acquisition/production cost. Subse­quently,
inventories are measured at (strict) lower of
cost or market value (re­place­ment costs or
net realisable value depending on circum­
stances). When the reasons for an
impairment/write-down no longer apply, a
lower carry­ing value resulting from a
previous impairment/write-down may not
FIFO or weighted average method is used to be retained (reversal of impair­ment).
determine cost. LIFO is prohibited.
Constant values can be used under certain FIFO, LIFO and weighted average may be
conditions.
used. Cons­tant values may be used under
certain conditions.
IAS 23 identifies limited cir­cum­stances
where borrowing costs are included in the
Advance payments are pre­sen­ted as
cost of inventories.
separate balance sheet item within
inventories.
Advance payments are presented in other
assets.
Investment property
IFRS
German GAAP
Investment property is pro­perty (land and/
or buil­dings) held in order to earn rentals
and/or for capital appreciation including
pro­perty being con­structed or developed
for future use as invest­ment pro­perty. The
defi­nition does not include owner
occupied pro­perty or property held for sale
in the ordinary course of business.
No specific guidance for investment
property under German GAAP (similar to
treatment of PPE):
• initial measurement at acquisition/
production cost
• cost model (revaluation model is
prohibited)
• write-down if permanently impaired (see
“Impairment of long lived assets”)
Investment property may be accounted for
on a historical-cost basis or on a fair value
For investment property that is designated
basis. When fair value is applied, the gain or as plan asset see section “Plan Assets”.
loss arising from a change in the fair value is
recognised in the income statement and the
carrying amount is not depre­ciated.
Where fair value is not reliably measurable
for an investment property under
construction or development, the property
may be measured at cost until completion
of the construc­tion or the date when fair
value becomes reliably mea­sur­able,
whichever is earlier.
Similarities and Differences IFRS and German GAAP 53
Non-financial assets
Impairment of long-lived assets held for use
IFRS
German GAAP
An entity should assess at each reporting
date whether there are any indications that
an asset may be impaired. Irrespective of
indication, an annual impairment test is also
required for intangible assets with indefinite
useful lives and not yet ready for use (as
well as for goodwill).
Fixed assets must be written down to the
lower of cost or market value if it is
permanently lower than the carrying
amount. Impairment is permanent if it lasts
longer than half of the remaining useful life
of the asset (maximum of 3–5 years).
IFRS uses a one-step impair­ment test. The
carrying amount of an asset is com­pared
with the recover­able amount, which is the
higher of:
• the asset’s fair value less costs of
disposal; and
• the asset’s value in use.
In practice, individual assets do not usually
meet the definition of a CGU. As a result
assets are rarely tested for impairment
individually but are tested within a group of
assets.
Fair value less costs of dis­posal represents
the amount obtainable from the sale of an
asset or CGU in an arm’s-length transaction
between knowledgeable, willing parties less
the costs of disposal.
Value in use represents the future cash
flows discounted to present value by using
a pre-tax, market-determined rate that
reflects the current assessment of the time
value of money and the risks speci­fic to the
asset for which the cash flow estimates
have not been adjusted.
The use of entity-specific discounted cash
flows is required in the first step of the value
in use analysis. Changes in market interest
rates can potentially trigger impair­ment and
hence are impair­ment indicators.
Impairment losses are re­ver­sed, except for
goodwill, when there has been a change in
economic condi­tions or in the expected use
of the asset.
For non-current, non-financial assets
(excluding investment properties) carried at
revalued amounts instead of deprecia­ted
cost, impairment losses related to the
revaluation are recorded directly in equity to
the extent of prior upward revaluations.
54 Similarities and Differences IFRS and German GAAP
When the reasons for an impair­ment/
write-down no longer apply, a lower carrying
value resulting from a pre­vious impairment/
write-down may not be retained – the
impair­ment has to be rever­sed. The reversal
of goodwill impair­ment is prohibited.
Non-financial assets
Lease arrangements – Leases – classification – IAS 17
IFRS
German GAAP
The guidance focuses on the overall
substance of the trans­action. Leases are
classified as an operating lease or a finance
lease. Classification in finance and operating
lease depends on whether the lease
transfers substantially all of the risks and
rewards of ownership to the lessee. Examples
of situ­ations that would normally lead to a
lease being classified as a finance lease:
• transfer of ownership at the end of the
lease term
• bargain purchase option
• lease term is for the major part of the
economic life of the leased asset
• present value of the mini­mum lease
payments amounts to at least substan­tially
all of the fair value of the leased asset
• leased assets are of a specialised nature
• if the lessee can cancel the lease, the
lessor´s losses associated with the
cancellation are borne by the lessee
• gains or losses from the fluctuation in the
fair value of the residual accrue to the
lessee
• the lessee has the ability to continue the
lease for a secondary period at a rent that
is substantially lower than market rent.
According to German GAAP the attribution
of rental assets depends on the beneficial
ownership. Beneficial owner of the leased
assets is who bears the majority of the
chances and risks born by the leased
assets. However, lease accounting follows
the treatment for tax-purposes which is
treaten in certain decrees of the Federal
Ministry of Finance. Accor­ding to these the
lessee is regarded as the beneficial owner
of the leased asset (= finance lease) if:
• under a full-payout lease of moveable
property and buildings:
–– the lease term is less than 40% or more
than 90% of the economic life of the
asset;
–– the lease term is between 40% and
90% of the ex­pected useful life of the
asset and
–– the lessee has a bargain purchase
option and the carrying amount or
the lower market value exceeds the
purchase price or
–– the lessee has the ability to continue
the lease beyond the original lease term
for a rent which is lower than market
rent (for buildings: 75% or lower than
market rent) or
–– the leased asset is of a specialised
nature that only the lessee can use it
without major modification.
Minimum lease payments are the payments
over the lease term that the lessee is or can
be required to make, exclu­ding contingent
rent, costs for services and taxes to be paid
by and reimbursed to the lessor, together
with:
a) for a lessee, any amounts guaranteed
by the lessee or by a party related to the
lessee; or
b) for a lessor, any residual value
guaranteed to the lessor by:
–– the lessee;
–– a party related to the lessee; or
–– a third party unrelated to the lessor that
is financially capable of discharging the
obligations under the guarantee.
However, if the lessee has an option to
purchase the asset at a price that is
expected to be sufficiently lower than fair
value at the date the option becomes
exercisable for it to be reasonably certain,
at the inception of the lease, that the option
will be exercised, the minimum lease
payments comprise the minimum pay­ments
payable over the lease term to the expected
date of exercise of this pur­chase option and
the pay­ment required to exercise it.
Similarities and Differences IFRS and German GAAP 55
Non-financial assets
IFRS
German GAAP
The interest rate implicit in the lease would,
under IFRS, generally be used to calculate
the present value of minimum lease
payments. If not pra­ctic­able, the lessor’s
incre­mental borrowing rate can be used. In
a lease of land and building, the land and
building elements must be considered
separately for lease classifi­cation, unless
the land ele­ment is not material.
• under a full-payout lease of property:
–– only if there is a purchase option and
the lessee is beneficial owner of the
related building (see above).
• under a partial-payout lease of
moveable property:
–– the lease term is more than 90% of the
expected useful life of the asset
–– otherwise the attribution of the
Under IFRS, transactions that are not in the
beneficial owner­ship depends on the
legal form of a lease may in substance be or
distribution of chances and risks of
include a so-called “em­bed­ded” lease
the recovery of the leased asset (for
agreement. Where the fulfilment of an
example if the lessee alone bears the
arrange­ment depends on the use of a
risk of a decrease in value of the asset
specific asset and the arrange­ment conveys
without being able to benefit from an
the right to use the asset , the identified
increase in value, more than 75% of the
embedded lease is accounted for according
gain on disposal of the leased property
to IAS 17.
is transferred to the lessee or the lease
contract includes a bargain purchase
option or the ability to continue the
lease beyond the original lease term for
a rent which is substantially lower than
market rent).
• under a partial-payout lease of
buildings and property (the attribution
of property depends on the attribution of
the building):
–– the lease term is more than 90% of the
expec­ted useful life of the asset;
–– the lease contract includes a bargain
purchase option or the ability to
continue the lease beyond the original
lease term for a rent and if the purchase
price is lower than the carrying amount
or if the subsequent rent is lower
than 75% of the rent for comparable
property or
–– the lessee takes over certain typical
risks of an owner (in that case, the
lessor is precluded from being the
beneficial owner).
• under a partial-payout lease of land:
–– if the lease contract includes a bargain
purchase option or the ability to
continue the lease beyond the original
lease term for a rent and if the purchase
price is lower than the carrying amount
or if the subsequent rent is lower
than 75% of the rent for comparable
property or
–– if the lessee takes over certain risks (in
that case, the lessor is precluded from
being the beneficial owner).
56 Similarities and Differences IFRS and German GAAP
Non-financial assets
Lease arrangements – Lessor accounting – finance leases – IAS 17
IFRS
German GAAP
Amounts due under finance leases are
recorded as a receivable.
German GAAP requires the amount due
from a lessee to be recognised as a
receivable at the amount of the net invest­
Gross earnings are allocated to give a
ment in the lease. The receivable to be
constant rate of return based on (pre-tax)
recognised consists only of those rentals
net investment method.
that the lessee is required to pay to the
lessor plus any guaranteed and unguaran­
IFRS requires the amount due from a lessee teed residual value.
under a finance lease to be recognised as a
receivable at the amount of the net
Lease payments are to be allocated to
investment in the lease (total of the
principle and interest payments.
future mini­mum lease payments less gross
earnings allocated to future periods).
The gross earnings are allo­cated between
receipt of the capital amount and receipt of
finance income on a basis so as to provide
a constant rate of return. Initial direct costs
should be amor­tised over the lease term
except for manu­facturer or dealer lessors.
Lease arrangements – Lessor accounting – operating leases – IAS 17
IFRS
German GAAP
IFRS requires an asset leased under an
operating lease to be recognised by a lessor
and depreciated/amortised over its useful
life. Rental income is generally recognised
on a straight-line basis over the lease term.
German GAAP requires an asset leased
under an opera­ting lease to be recog­­nised
by a lessor as PPE and depre­ciated over its
useful life. Rental income is generally
recognised on a straight-line basis over the
lease term.
Lease arrangements – Lessee accounting – finance leases – IAS 17
IFRS
German GAAP
IFRS requires recognition of an asset held
under a finance lease with a corresponding
obligation for future rentals, at an amount
equal to the lower of the fair value of the
asset and the present value of the future
minimum lease pay­ments (MLPs) at the
inception of the lease. The asset is depre­
ciated over its useful life or the lease term if
shorter. The interest rate impli­cit in the lease
is nor­mally used to cal­cu­late the present
value of the MLPs. The lessee’s incre­mental
borrowing rate is used if the implicit rate is
not prac­ticable to determine.
When attributed to the lessee, finance
leases are recorded as an asset with a
corresponding obligation for future rentals
(present value). The asset is depreciated
over its useful life. Rental payments are
apportioned into principle and interest
payments.
Similarities and Differences IFRS and German GAAP 57
Non-financial assets
Lease arrangements – Lessee accounting – operating leases – IAS 17
IFRS
German GAAP
Under IAS 17 the rental expense under an
operating lease must generally be
recognised on a straight-line basis over the
lease term.
Rental expense is recognised on a straightline basis over the lease term.
Lease arrangements – Sale and leaseback transactions – IAS 17
IFRS
German GAAP
Recognition of profit or loss from a sale and
leaseback transaction depends on whether
the leaseback is a finance or an operating
lease and whether the sale is at or below/
above fair value.
In a sale and leaseback trans­action, the
seller-lessee sells an asset to the buyerlessor and leases the asset back. There are
certain differences in the rules on dealing
with profit and losses arising on sale and
leaseback trans­action which are related to
the beneficial ownership as decisive factor
(see following sections).
Lease arrangements – Finance leaseback – IAS 17
IFRS
German GAAP
Any profit or loss on sale is deferred and
amortised over the term of the leaseback
agreement.
If the beneficial ownership remains by the
seller-lessee, a realisation of profits from the
sale is not allowed.
The lease object stays capi­talised in the
seller-lessee’s financial statement. For the
amount received from the buyer-lessor a
corres­pond­ing liability has to be recognised
and amortised over the contractual lease
term.
Lease arrangements – Operating leaseback – sale at fair value – IAS 17
IFRS
German GAAP
Any profit or loss is recog­ni­sed immediately Any profit or loss on sale is recognised
except for off-market transactions.
immediately.
Lease arrangements – Operating leaseback – sale at a price lower than
fair value – IAS 17
IFRS
German GAAP
Immediate recognition of any profit or loss,
unless the loss is compensated by future
rentals. In such cases, the loss is deferred
over the period over which the asset is
expected to be used.
Immediate recognition of any profit or loss,
unless the loss is compensated by lower
future rentals. In such cases, the difference
is deferred over the period over which the
asset is expected to be used.
58 Similarities and Differences IFRS and German GAAP
Non-financial assets
Lease arrangements – Operating leaseback – sale at a price higher than
fair value – IAS 17
IFRS
German GAAP
Excess of the sales price over the fair value
of the asset sold is deferred over the period
for which the asset is expected to be used.
Excess of the sale price over the fair value is
deemed to be a borrowing and must there­
fore be deferred and amor­ti­sed over the
con­trac­tual lease term.
Lease arrangements – Leases – general – IFRS 16
IFRS
German GAAP
IFRS 16 introduces a single lessee
accounting model and requires a lessee to
recognise assets and liabilities for all leases
with a term of more than 12 months, unless
the underlying asset is of low value.
According to German GAAP the attribution
of rental assets depends on the beneficial
ownership. Beneficial owner of the leased
assets is who bears the majority of the
chances and risks born by the leased
assets. However, lease accounting follows
the treat­ment for tax-purposes which is
treaten in certain decrees of the Federal
Ministry of Finance. Accor­ding to these the
lessee is regarded as the beneficial owner
of the leased asset (= finance lease) if:
IFRS 16 substantially carries forward the
lessor accounting requirements in IAS 17.
Accor­dingly, a lessor conti­nu­es to classify
its leases as operating leases or finance
leases, and to account for those two types
of leases differently.
• under a full-payout lease of moveable
property and buildings:
–– the lease term is less than 40% or more
than 90% of the economic life of the
asset;
–– the lease term is between 40% and
90% of the ex­pec­ted useful life of the
asset and
–– the lessee has a bargain purchase
option and the carrying amount or
the lower market value exceeds the
purchase price or
–– the lessee has the ability to continue
the lease beyond the original lease term
for a rent which is lower than market
rent (for buildings: 75% or lower than
market rent) or
–– the leased asset is of a specialised
nature that only the lessee can use it
without major modification.
• under a full-payout lease of property:
–– only if there is a purchase option and
the lessee is beneficial owner of the
related building (see above).
Similarities and Differences IFRS and German GAAP 59
Non-financial assets
IFRS
German GAAP
• under a partial-payout lease of
moveable property:
–– the lease term is more than 90% of the
ex­pec­ted useful life of the asset
–– otherwise the attribution of the
beneficial owner­ship depends on the
distri­bution of chances and risks of
the recovery of the leased asset (for
example if the lessee alone bears the
risk of a decrease in value of the asset
without being able to benefit from an
increase in value, more than 75% of the
gain on disposal of the leased property
is transferred to the lessee or the lease
contract includes a bar­gain purchase
option or the ability to continue the
lease beyond the original lease term for
a rent which is substantially lower than
market rent).
• under a partial-payout lease of
buildings and pro­perty (the attribution
of property depends on the attribution of
the building):
–– the lease term is more than 90% of the
expec­ted useful life of the asset;
–– the lease contract in­cludes a
bargain pur­chase option or the ability to
continue the lease beyond the original
lease term for a rent and if the purchase
price is lower than the carrying amount
or if the subsequent rent is lower
than 75% of the rent for comparable
property or
–– the lessee takes over certain typical
risks of an owner (in that case, the
lessor is precluded from being the
beneficial owner).
60 Similarities and Differences IFRS and German GAAP
Non-financial assets
Lease arrangements – Identifying a lease – IFRS 16
IFRS
German GAAP
A lease is a contract, or part of a contract,
that conveys the right to control the use of
an identified asset (the un­der­lying asset) for
a period of time in exchange for con­si­
deration. (All leases are in the scope of
IFRS 16, except for certain issues in
IFRS 16.3.)
According to German GAAP the attribution
of rental assets depends on the beneficial
ownership.
See prior chapter.
1. Identified asset:
An asset is typically identi­fied by being
explicitly specified in a contract.
How­ever, an asset can also be identified
by being implicitly specified at the time
that the asset is made available for use by
the customer. There is no identified asset
if the supplier has the substantive right to
substitute the asset throughout the period
of use.
The right to substitute the asset is
substantive, if the supplier has the
practical ability to substitute alter­native
assets and would benefit economically
from the exercise of its right to
substitute the asset. When it cannot be
readily determined whether the right is
substantive, there is the presumption that
the right is not substantive.
2. Control of use:
To control the use of an identified asset,
a customer is re­quired to have the right
to obtain substantially all of the economic
benefits and to direct the use throughout
the period of use.
For a contract that is, or con­tains, a lease,
an entity shall account for each lease
component within the con­tract as a lease
separately from non-lease components of
the contract, unless a lessee applies the
following practical expedient: A lessee may
elect, by class of under­lying asset, not to
sepa­rate non-lease compo­nents from lease
compo­nents, and in­stead account for each
lease component and any asso­ciated
non-lease compo­nents as a single
lease com­po­nent. A lessee shall not apply
this practical expedient to em­bed­ded
derivatives that meet the criteria in
paragraph 4.3.3 of IFRS 9 Financial
Instru­ments.
Similarities and Differences IFRS and German GAAP 61
Non-financial assets
IFRS
German GAAP
For a contract that contains a lease
compo­nent and one or more addi­tional
lease or non-lease components,
–– a lessee shall allocate the
consideration in the contract to each
lease component on the basis of
the relative stand-alone price of the
lease component and the aggregate
stand-alone price of the non-lease
components.
–– a lessor shall allocate the consideration
in the contract applying paragraphs
73–90 of IFRS 15.
An entity shall combine two or more
contracts entered into at or near the same
time with the same counterparty (or related
parties of the counter­party), and account for
the contracts as a single contract if certain
criteria are met.
Lease arrangements – Lease term – IFRS 16
IFRS
German GAAP
An entity shall determine the lease term as
An entity shall determine the lease term as
the non-can­cell­able period of a lease,
the non-cancell­able period of a lease.
together with both:
a) periods covered by an option to extend
the lease if the lessee is reasonably
certain to exercise that option; and
b) periods covered by an option to
terminate the lease if the lessee is
reasonably certain not to exercise that
option.
A lease is no longer enforce­able when the
lessee and the lessor each has the right to
terminate the lease without permission from
the other party with no more than an
insignificant penalty.
If only a lessee has the right to termi­nate a
lease, that right is considered to be an
option to terminate the lease available to the
lessee that an entity considers when
determining the lease term. If only a lessor
has the right to terminate a lease, the
non-cancellable period of the lease includes
the period covered by the option to
terminate the lease.
62 Similarities and Differences IFRS and German GAAP
Non-financial assets
IFRS
German GAAP
After the commencement date, a lessee
reassesses the lease term upon the
occur­rence of a significant event or a
significant change in cir­cum­stances that is
within the control of the lessee and affects
whether the lessee is reasonably certain to
exercise an option not previously in­clu­ded
in its determination of the lease term, or not
to exer­cise an option previously included in
its determination of the lease term.
Lease arrangements – Lessee – recognition – IFRS 16
IFRS
German GAAP
IFRS 16 introduces a single lessee
accounting model and requires a lessee to
recognise assets and liabilities for all leases.
Therefore, at the commencement date, a
lessee shall recognise a right-of-use asset
and a lease liability.
According to German GAAP the attribution
of rental assets depends on the beneficial
ownership.
When attributed to the lessee, finance
leases are recorded as an asset with a
corresponding obligation for future rentals
Recognition exemp­tion: A lessee may elect (present value). The asset is depreciated
not to apply the requirements in IFRS 16 for: over its useful life. Rental payments are
a) short-term leases
apportioned into principle and interest
(≤ 12 months); and
payments.
b) leases for which the underlying asset
is of low value (approximately not more When the asset is attribute to the lessor (=
than 5.000 $, however certain types of operating lease), rental expense is
assets do not qualify).
recognised on a straight-line basis over the
lease term.
IFRS 16 specifies the accoun­ting for an
individual lease. However, as a practical
expedient, an entity may apply this
Standard to a port­folio of leases with similar
characteristics if the entity reasonably
expects that the effects on the
financial state­ments of applying this Stan­
dard to the portfolio would not differ
materially from applying this Standard to the
individual leases within that portfolio. If
accounting for a portfolio, an entity shall
use estimates and assump­tions that reflect
the size and com­position of the portfolio.
Similarities and Differences IFRS and German GAAP 63
Non-financial assets
Lease arrangements – Lessee – presentation – IFRS 16
IFRS
German GAAP
A lessee shall either present in the
See chapter “Lessee – recognition”.
statement of financial position, or disclose
in the notes:
a) right-of-use assets separately from
other assets. If a lessee does not
present right-of-use assets separately
in the statement of financial position,
the lessee shall:
–– include right-of-use assets within the
same line item as that within which the
corresponding underlying assets would
be presented if they were owned; and
–– disclose which line items in the
statement of finan­cial position include
those right-of-use assets.
b) lease liabilities separately from other
liabilities. If the lessee does not present
lease liabilities separately in the state­
ment of financial position, the lessee
shall disclose which line items in the
statement of financial position include
those liabilities.
Lease arrangements – Lessee – measurement – IFRS 16
IFRS
German GAAP
Initial measurement of the right-of-use
See chapter “Lessee - recognition”.
asset:
At the commencement date, a lessee shall
measure the right-of-use asset at cost. The
cost of the right-of-use asset shall
comprise:
a) the amount of the initial measurement
of the lease liability;
b) any lease payments made at or before
the commencement date, less any
lease incentives received;
c) any initial direct costs incurred by the
lessee; and
d) an estimate of costs to be incurred by
the lessee in dismantling and removing
the underlying asset, restoring the
site on which it is located or restoring
the underlying asset to the condition
required by the terms and conditions
of the lease, unless those costs are
incurred to produce inventories. The
lessee incurs the obligation for those
costs either at the commencement date
or as a consequence of having used
the under­lying asset during a particular
period.
64 Similarities and Differences IFRS and German GAAP
Non-financial assets
IFRS
German GAAP
Initial measurement of the lease liability:
At the commencement date, a lessee shall
measure the lease liability at the present
value of the lease payments that are not
paid at that date.The lease payments shall
be discounted using the interest rate implicit
in the lease, if that rate can be readily
deter­mined. If that rate cannot be readily
determined, the lessee shall use the
lessee’s incremental borrowing rate.
At the commencement date, the lease
payments included in the measurement of
the lease liability comprise the following
payments for the right to use the underlying
asset during the lease term that are not paid
at the commencement date:
a) fixed payments (including in-substance
fixed pay­ments), less any lease
incentives receivable;
b) variable lease payments that depend
on an index or a rate, initially measured
using the index or rate as at the
commencement date;
c) amounts expected to be payable by the
lessee under residual value guarantees;
d) the exercise price of a purchase option
if the lessee is reasonably cer­tain to
exercise that option; and
e) payments of penalties for terminating
the lease, if the lease term reflects the
lessee exercising an option to terminate
the lease.
Subsequent measurement of the
right-of-use asset: B8
After the commencement date, a lessee shall
measure the right-of-use asset apply­ing a
cost model, unless it applies either the fair
value model to right-of-use assets that meet
the definition of investment property in IAS 40
or the revaluation model in IAS 16. A lessee
shall apply the depreciation requirements in
IAS 16 Property, Plant and Equipment in
depreciating the right-of-use asset.
Subsequent measurement of the lease
liability:
After the commencement date, a lessee
shall measure the lease liability by:
a) increasing the carrying amount to
reflect interest on the lease liability;
b) reducing the carrying amount to reflect
the lease payments made; and
c) remeasuring the carrying amount to
reflect any reassessment or lease
modifications or to reflect revised insubstance fixed lease payments.
Similarities and Differences IFRS and German GAAP 65
Non-financial assets
Lease arrangements – Lessee – lease modifications – IFRS 16
IFRS
German GAAP
A lessee shall account for a lease
German GAAP does not define or include
modification as a separate lease if both:
specific accounting guidance for lease
a) the modification in­crea­ses the scope of modifications.
the lease by adding the right to use one
or more underlying assets; and
b) the consideration for the lease
increases by an amount commensurate
with the stand-alone price for the
increase in scope and any appro­priate
adjustments to that stand-alone price
to reflect the circumstances of the
particular contract.
For a lease modification that is not
accounted for as a separate lease, at
the effec­tive date of the lease modi­fi­cation a
lessee shall:
a) allocate the consideration in the
modified contract;
b) determine the lease term of the
modified lease and
c) remeasure the lease lia­bility by
discounting the revised lease pay­ments
using a revised discount rate.
For a lease modification that is not
accounted for as a se­pa­rate lease, the
lessee shall account for the re­mea­sure­ment
of the lease liability by:
a) decreasing the carrying amount of the
right-of-use asset to reflect the partial
or full termination of the lease for lease
modifications that de­crease the scope
of the lease. The lessee shall recognise
in profit or loss any gain or loss relating
to the partial or full termi­nation of the
lease.
b) making a corresponding adjustment to
the right-of-use asset for all other lease
modifications.
66 Similarities and Differences IFRS and German GAAP
Non-financial assets
Lease arrangements – Lessor – classification – IFRS 16
IFRS
German GAAP
A lessor shall classify each of its leases as
either an oper­ating lease or a finance lease.
According to German GAAP the attribution
of rental assets depends on the beneficial
ownership.
A lease is classified as a finance lease if it
transfers substantially all the risks and
rewards incidental to owner­ship of an
underlying asset. A lease is classified as
an oper­ating lease if it does not trans­fer
substantially all the risks and rewards
incidental to ownership of an underlying
asset.
See chapter “Leases – General – IFRS 16”.
Examples of situations that individually or in
combination would normally lead to a lease
being classified as a finance lease are:
a) the lease transfers ownership of the
underlying asset to the lessee by the
end of the lease term;
b) the lessee has the option to purchase
the underlying asset at a price that
is expected to be sufficiently lower
than the fair value at the date the
option becomes exercisable for it to
be reasonably certain, at the inception
date, that the option will be exercised;
c) the lease term is for the major part of
the economic life of the underlying
asset even if title is not transferred;
d) at the inception date, the present value
of the lease payments amounts to at
least substantially all of the fair value of
the underlying asset; and
e) the underlying asset is of such a
specialised nature that only the lessee
can use it without major modifications.
Indicators of situations that individually or in
combination could also lead to a
lease being classified as a finance lease
are:
a) if the lessee can cancel the lease, the
lessor’s losses associated with the
cancellation are borne by the lessee;
b) gains or losses from the fluctuation in
the fair value of the residual accrue to
the lessee; and
c) the lessee has the ability to continue
the lease for a secondary period at
a rent that is substantially lower than
market rent.
Similarities and Differences IFRS and German GAAP 67
Non-financial assets
Lease arrangements – Lessor – operating leases – IFRS 16
IFRS
German GAAP
A lessor shall recognise lease payments
from operating leases as income on either a
straight-line basis or another systematic
basis. The lessor shall apply another
syste­matic basis if that basis is more
representative of the pattern in which
benefit from the use of the underlying asset
is diminished. A lessor shall recognise
costs, in­clu­ding depreciation, in­curred in
earning the lease income as an expense.
German GAAP requires an asset leased
under an operating lease to be recog­nised
by a lessor as PPE and depreciated over its
useful life. Rental income is gener­a­lly
recognised on a straight-line basis over the
lease term.
The depreciation policy for depre­ciable
underlying assets subject to operating
leases shall be consistent with the lessor’s
normal depreciation policy for similar
assets. A lessor shall calculate depre­ciation
in accordance with IAS 16 and IAS 38.
A lessor shall apply IAS 36 to deter­mine
whether an underlying asset subject to an
operating lease is impaired and to account
for any impairment loss identified.
Lease arrangements – Lessor – finance leases – IFRS 16
IFRS
German GAAP
At the commencement date, a lessor shall
recognise assets held under a finance lease
in its statement of fin­an­cial position and
present them as a receivable at an amount
equal to the net investment in the lease.
German GAAP requires the amount due
from a lessee to be recognised as a
receivable at the amount of the net invest­
ment in the lease. The receivable to be
recognised consists only of those rentals
that the lessee is required to pay to the
lessor plus any guaranteed and unguar­an­
teed residual value.
Lease payments are to be allocated to
principle and interest payments.
68 Similarities and Differences IFRS and German GAAP
Non-financial assets
IFRS
German GAAP
Initial measurement:
At the commencement date, the lease
payments included in the measurement of
the net investment in the lease com­prise the
following pay­ments for the right to use
the under­lying asset during the lease term
that are not re­ceiv­ed at the commen­ce­ment
date:
a) fixed payments (including in-substance
fixed pay­ments), less any lease
incentives payable;
b) variable lease payments that depend
on an index or a rate, initially measured
using the index or rate as at the
commencement date;
c) any residual value guaran­tees provided
to the lessor by the lessee, a party
related to the lessee or a third party
unrelated to the lessor that is financially
capable of discharging the obligations
under the guarantee;
d) the exercise price of a purchase option
if the lessee is reasonably certain to
exercise that option; and
e) payments of penalties for terminating
the lease, if the lease term reflects the
lessee exercising an option to terminate
the lease.
The lessor shall use the interest rate implicit
in the lease to measure the net investment
in the lease.
Subsequent measurement:
A lessor shall recognise fin­an­ce income
over the lease term, based on a pattern
re­flecting a constant periodic rate of return
on the lessor’s net investment in the lease.
A lessor aims to allocate fin­an­ce income
over the lease term on a systematic and
rational basis. A lessor shall apply the lease
payments relating to the period against the
gross investment in the lease to reduce both
the princi­pal and the unearned finance
income.
A lessor shall apply the de­re­cog­nition and
impairment requirements in IFRS 9 to the
net investment in the lease. A lessor shall
review regularly estimated
unguaranteed resi­dual values used in com­
puting the gross investment in the lease. If
there has been a reduction in the estimated
un­guaranteed residual value, the lessor
shall revise the income allocation over the
lease term and recognise immediately any
reduction in respect of amounts accrued.
Similarities and Differences IFRS and German GAAP 69
Non-financial assets
Lease arrangements – Lessor – lease modifications – IFRS 16
IFRS
German GAAP
Finance Lease:
German GAAP does not define or include
A lessor shall account for a modification to specific accounting guidance for lease
a finance lease as a separate lease if both:
modifications.
a) the modification in­crea­ses the scope of
the lease by adding the right to use one
or more underlying assets; and
b) the consideration for the lease
increases by an amount commensurate
with the stand-alone price for the
increase in scope and any appro­priate
adjustments to that stand-alone price
to reflect the circumstances of the
particular contract.
For a modification to a fin­ance lease that is
not accoun­ted for as a separate lease, a
lessor shall account for the modification as
follows:
a) if the lease would have been classified
as an operating lease had the
modification been in effect at the
inception date, the lessor shall:
–– account for the lease modification as a
new lease from the effective date of the
modification; and
–– measure the carrying amount of the
underlying asset as the net invest­
ment in the lease imme­dia­tely before
the effec­tive date of the lease modi­
fication.
b) otherwise, the lessor shall apply the
require­ments of IFRS 9.
Operating Lease:
A lessor shall account for a modification to
an operating lease as a new lease from the
effective date of the modi­fi­cation,
considering any pre­paid or accrued lease
pay­ments relating to the original lease as
part of the lease payments for the new
lease.
70 Similarities and Differences IFRS and German GAAP
Non-financial assets
Lease arrangements – Sub-leases – IFRS 16
IFRS
German GAAP
Sub-lease:
The sublease shall be classi­fied by
A transaction for which an underlying asset reference to the underlying asset.
is re-leased by a lessee (‘inter­mediate
lessor’) to a third party, and the lease (‘head See chapter „Leases – General – IFRS 16“.
lease’) between the head lessor and lessee
remains in effect.
In classifying a sublease, an intermediate
lessor shall classify the sublease as a
finance lease or an operating lease as
follows:
a) if the head lease is a short-term lease
the sublease shall be classi­fied as an
operating lease.
b) otherwise, the sublease shall be
classified by reference to the rightof-use asset arising from the head
lease, rather than by reference to the
underlying asset (for exam­ple, the item
of pro­perty, plant or equip­ment that is
the subject of the lease).
Similarities and Differences IFRS and German GAAP 71
Non-financial assets
Lease arrangements – Sale and leaseback transactions – IFRS 16
IFRS
German GAAP
A sale and leaseback trans­action occurs if
an entity (the seller-lessee) transfers an
asset to another entity (the buyer-lessor)
and leases that asset back from the
buyer-lessor.
In a sale and leaseback trans­action, the
seller-lessee sells an asset to the buyerlessor and leases the asset back. There are
certain differences in the rules on dealing
with profit and losses arising on sale and
leaseback transaction which are related to
the beneficial ownership as decisive factor.
If the transfer of an asset by the sellerlessee satisfies the requirements of IFRS 15
to be accounted for as a sale of the asset:
a) the seller-lessee shall measure the
right-of-use asset arising from the
leaseback at the proportion of the
previous carrying amount of the asset
that relates to the right of use retained
by the seller-lessee. Accordingly, the
seller-lessee shall recognise only the
amount of any gain or loss that relates
to the rights transferred to the buyerlessor.
b) the buyer-lessor shall account for
the purchase of the asset applying
applicable Standards, and for the
lease apply­ing the lessor accounting
requirements in IFRS 16.
Finance-Leaseback:
If the beneficial ownership remains by the
seller-lessee, a realisation of profits from the
sale is not allowed. The lease object stays
capitalised in the seller-lessee’s financial
statement.
For the amount received from the buyerlessor a corresponding liability has to be
recognised and amortised over the
contractual lease term.
Operating-Leaseback:
Sale at fair value: Any profit or loss on sale
is recognised immediately. Sale lower than
fair value: Immediate recogni­tion of any
profit or loss, unless the loss is compen­
If the fair value of the consideration for the
sated by lower future rentals. In such cases,
sale of an asset does not equal the fair
the difference is deferred over the period
value of the asset, or if the payments for the over which the asset is expected to be
lease are not at market rates, an entity shall used.
make the following adjustments to measure
the sale proceeds at fair value:
Sale higher than fair value: Excess of the
• any below-market terms shall be
sale price over the fair value is deemed to
accounted for as a prepayment of lease
be a borrow­ing and must there­fore be
payments; and
deferred and amor­ti­sed over the contrac­tual
• any above-market terms shall be
lease term.
accounted for as additional financing
provided by the buyer-lessor to the sellerlessee.
If the transfer of an asset by the sellerlessee does not satisfy the requirements of
IFRS 15 to be accounted for as a sale of the
asset:
a) the seller-lessee shall continue to
recognise the transferred asset and
shall recognise a financial liability
equal to the trans­fer proceeds. It
shall account for the financial liability
applying IFRS 9.
b) the buyer-lessor shall not recognise the
transferred asset and shall recognise
a financial asset equal to the transfer
proceeds. It shall account for the
financial asset applying IFRS 9.
72 Similarities and Differences IFRS and German GAAP
Financial assets
HFinancial assets
Definition
IFRS
German GAAP
Financial assets include:
• cash
• a contractual right to receive cash or
another financial asset from another entity
or to exchange financial instruments with
another entity under conditions that are
potentially favourable
• an equity instrument of another entity
• a contract that will or may be settled in
the entity’s own equity instruments and is
a) a non-derivative for which the entity is
or may be obliged to receive a variable
number of the entity’s own equity
instruments or
b) a derivative (see “Derivatives and
hedging”) that will or may be settled
other than by the exchange of a fixed
amount of cash or another financial
asset for a fixed number of the entity’s
own equity instruments.
Financial assets include non-current
financial assets:
• shares in affiliated enterprises
• loans to affiliated enterprises
• enterprises in which investments are held
• loans to enterprises in which investments
are held
• securities kept as non-current assets
• other loans and current financial assets:
• trade receivables
• receivables from affiliated enterprises
• receivables from enterprises in which
investments are held
• other assets (for example derivatives)
• shares in affiliated enterprises
• other securities
• cash on hand and cash deposited with
the German central bank, bank deposits
and cheques.
See “Derivatives and hedging” for the
accounting of derivatives.
Recognition
IFRS
German GAAP
IFRS requires an entity to recognise a
financial asset when, and only when, the
entity becomes party to the contractual
provisions of the financial instrument.
In principle, all legal claims arising from
financial assets that still exist are to be
recognised as long as the recognition does
not infringe the prudence principle.
Categories
IFRS
German GAAP
An entity shall classify financial assets as
subsequently measured at
• amortised cost
• fair value through other comprehensive
income or
• fair value through profit or loss
Accounting treatment of financial assets
depends on whether the asset is current or
non-current. Distinction between current
and non-current is determined by the
intention to serve the busi­ness operation in
the long term.
Similarities and Differences IFRS and German GAAP 73
Financial assets
Financial assets measured at amortised costs
IFRS
German GAAP
A financial asset shall be measured at
In principle, all financial assets must be
amortised cost if both of the following
valued at amortized cost.
conditions are met:
1. the financial asset is held within a
business model whose objective is to
hold financial assets in order to collect
contractual cash flows and
2. the contractual terms of the financial
asset give rise on specified dates to cash
flows that are solely payments of principal
and interest on the principal amount
outstanding.
Financial assets measured at fair value through other comprehensive
income
IFRS
German GAAP
A financial asset shall be measured at fair
Not applicable.
value through other comprehensive income
if both of the following conditions are met
1. the financial asset is held within a
business model whose objective is achie­
ved by both collecting contrac­tual cash
flows and selling financial assets and
2. the contractual terms of the financial
asset give rise on specified dates to cash
flows that are solely payments of principal
and interest on the principal amount
outstanding.
The new standard requires that all equity
investments be measured at fair value. IFRS
9 removes the cost exemption for unquoted
equities and derivatives on unquoted
equities but provides gui­dan­ce on when
cost may be an appropriate estimate of fair
value. Fair value changes of equity
investments are recog­nized in profit and
loss unless management has elec­ted the
option to present in OCI unrealized and
realized fair value gains and losses. How­
ever, this option does not apply to equity
investments that are held for trading, put­
table instruments, or contin­gent
consideration. Such designation is available
on initial recognition on an instrument-byinstrument basis and is irrevocable. There is
no subsequent recycling of fair value gains
and losses to profit or loss; however,
ordinary dividends from such investments
will continue to be recognized in profit or
loss.
74 Similarities and Differences IFRS and German GAAP
Financial assets
Financial assets at fair value through profit or loss (incl. held-fortrading financial assets)
IFRS
German GAAP
A financial asset shall be measured at fair
value through profit or loss unless it is
measured at amortised cost or at fair value
through other comprehensive income in
accordance. However an entity may make
an irre­voc­able election at initial recog­nition
for particular invest­ments in equity
instruments that would other­wise be
measured at fair value through profit or loss
to present subsequent changes in fair value
in other compre­hensive income.
Only assets which other cre­ditors can not
access and which are used solely for the
purpose of fulfilling debt aris­ing from
retirement obli­gations or comparable obli­
gations with a long-term ma­turi­ty are to be
measured at fair value through profit or loss.
An entity may, at initial recog­nition,
irrevocably designate a financial asset as
measured at fair value through profit or loss
if doing so eliminates or significantly
reduces a mea­sure­ment or recognition
inconsistency (sometimes referred to as an
‘accounting mismatch’) that would other­
wise arise from measuring assets or
liabilities or recog­nising the gains and
losses on them on different bases.
Initial measurement
IFRS
German GAAP
Except for trade receivables, at initial
recognition, an entity shall measure a
financial asset at its fair value plus, in the
case of a financial asset not at fair value
through profit or loss, transaction costs that
are directly attributable to the acquisition of
the financial asset.
Under German GAAP the general
recognition and measurement criteria for
assets apply. The initial measurement of
financial assets is at cost including
incidental acquisition expenses.
An entity shall measure trade receivables
that do not have a significant financing
compo­nent (determined in accor­dance with
IFRS 15) at their transaction price (as
defined in IFRS 15).
One exemption applies to assets which are
deprived of all other creditors’ access and
are used exclusively to cover pension
obligations or comparable long-term lia­
bilities. They have to be mea­sured at fair
value.
Similarities and Differences IFRS and German GAAP 75
Financial assets
Subsequent measurement
IFRS
German GAAP
Depends on the category. After initial
recognition, an entity shall measure
a finan­cial asset at:
1. amortised cost;
2. fair value through other comprehensive
income; or
3. fair value through profit or loss.
Current financial assets:
For current investments the lower of cost or
quoted/market price applies. They must be
impaired if the fair value is less than
their carry­ing amount. An impair­ment shall
be reversed if the rea­sons for the writedown no longer apply.
Amortised costs:
Interest revenue shall be calcu­lated by using
the effective interest method. This shall be
calculated by applying the effective interest
rate to the gross carrying amount of a
financial asset except for purchased or
originated credit-impaired financial assets
or financial assets that are not purchased or
originated credit-impaired financial assets
but sub­sequent­ly have become creditimpaired financial assets.
Non-current financial assets:
Non-current assets are carried at amortised
cost. One exemption applies to assets
which are deprived of all other creditors’
access and are used exclusively to cover
pension obligations or comparable longterm liabilities. They have to be reported at
fair value. An impairment loss must be
recorded if the decrease in value is not
temporary; if the decrease in value is
tempor­ary, impairment is optional. An
impairment shall be rever­sed if the reasons
for the write-down no longer apply (except
for impairments on goodwill, which are
never reversed).
An entity shall apply the impairment
requirements (expected loss model) to
financial assets that are measured at
amortised cost and to financial assets that
are measured at fair value through other
comprehensive income (see Impairment
Model).
Impairment model – Financial assets
IFRS
German GAAP
IFRS 9, Financial instruments, includes the
expected credit loss impairment model that
replaces the former incurred loss model.
The “expected credit losses” model, has the
following key elements.
No comparable explicit impair­ment model.
76 Similarities and Differences IFRS and German GAAP
For non-current financial assets an
impairment loss must be recorded if the
de­crease in value is not temporary; if the
decrease in value is temporary, impair­ment
is optional. An impair­ment shall be reversed
if the reasons for the write-down no longer
apply.
Financial assets
IFRS
German GAAP
General model:
Under the general model, an entity will
recognize an im­pair­ment loss at an amount
equal to the 12-month expec­ted credit loss
(stage 1). If the credit risk on the financial
instrument has increased significantly since
initial recog­nition (even without objec­tive
evidence of impair­ment), it should recog­nize
an impairment loss at an amount equal to
the lifetime expected credit loss (stage 2).
Interest income is calculated using the
effective interest method on the gross
carrying amount of the asset. When there is
objective evi­dence of impairment (for
example significant financial difficulty of the
issuer/borrower, a breach of contract; ref.
IFRS 9.A credit-impaired financial asset for
further criteria, lifetime expected credit
losses are recognized and interest is
calculated on the net carrying amount after
impairment (stage 3).
The (lower) fair value of equity investments
shall be deter­mined by an income app­roach
or DCF-model. The stock market price
should be included as the case may be for
assessing plausibility (IDW S. 1 i.d.F. 2008).
The (lower) fair value of loans shall be
determined by the market price. An
impairment shall be reversed where the
reasons for the write-down no longer apply.
Trade receivables will be impaired by a
specific valuation allowance if there are
indicators that the cash inflow may be
doubtful. Further­more a general valuation
allowance with regard to the general credit
risk is recognised for all other trade
receivables which are not individually
impaired.
The 12-month expected credit loss
measurement represents all cash flows not
expected to be received (“cash shortfalls”)
over the life of the financial instrument that
result from those default events that are
possible within 12 months after the
reporting date. Lifetime expected credit loss
represents cash shortfalls that result from
all possible default events over the life of the
financial instrument.
Scope:
The guidance of IFRS 9 applies to:
a) debt instruments mea­sured at
amortized cost;
b) debt instruments measured at fair value
through other compre­hensive income;
c) all issued loan commit­ments not
measured at fair value through profit or
loss (FVPL);
d) financial guarantee con­tracts within the
scope of IFRS 9 that are not accounted
for at FVPL; and
e) lease receivables within the scope of
IAS 17, Leases, and contract assets
resulting from IFRS 15, Revenue from
Contracts with Customers.
Similarities and Differences IFRS and German GAAP 77
Financial assets
IFRS
Calculation of the impair­ment:
Expected credit losses are determined
using an unbia­sed and probability-weighted
approach and should reflect the time value
of money and reasonable and supportable
information that is available without undue
cost or effort at the reporting date about
past events, current condi­tions and
forecasts of future economic conditions.
The calculation is not a best-case or
worst-case estimate. Rather, it should
incorporate at least the probability that a
credit loss occurs and the probability that
no credit loss occurs.
Assessment of credit deterioration:
When determining whether lifetime
expected losses should be recognized, an
entity should consider the best information
available, including actual and expected
changes in external market indicators,
internal factors, and borrower-specific infor­
mation. Where more forward-looking
information is not available, delinquency
data can be used as a basis for the
assess­ment.
Under the general model in IFRS 9, there is
a rebuttable presumption that lifetime
expected losses should be provided for if
contractual cash flows are 30 days past
due. An entity has an option to recognize
12-month expec­ted credit losses (i. e., not
to apply the general model) for financial
instruments that are equi­valent to
“investment grade.
Purchased or originated credit impaired
assets Impair­ment is determined based on
full lifetime expec­ted credit losses for
assets where there is objective evidence of
impairment on initial recognition. Lifetime
expected credit losses are included in the
estimated cash flows when calculating the
asset’s effective interest rate (“creditadjusted effec­tive interest rate”), rather than
being recognized in profit or loss. Any later
changes in lifetime expected credit losses
will be recognize immediately in profit or
loss.
78 Similarities and Differences IFRS and German GAAP
German GAAP
Financial assets
IFRS
German GAAP
Trade and lease receivables:
For trade receivables or con­tract assets
which contain a significant financing
com­ponent in accordance with IFRS 15 and
lease receivables, an entity has an
accounting policy choice: either it can apply
the simplified approach (that is, to measure
the loss allowance at an amount equal to
lifetime expected credit loss at initial
recognition and throughout its life), or it can
apply the general model. The use of a
provision matrix is allowed, if appropriately
adjusted to reflect current events and
forecast future conditions.
If the trade receivables or contract assets
do not contain a significant financing
component, lifetime expected credit losses
shall be recognized.
Disclosures:
Extensive disclosures are required,
including recon­ciliations of opening to
closing amounts and dis­clo­sure of
assumptions and inputs.
Derecognition of financial assets
IFRS
German GAAP
In consolidated financial statements, the
requirements in IFRS 9 are applied at a
consolidated level. Hence, an entity first
consolidates all subsidiaries in accordance
with IFRS 10 and then applies those
paragraphs to the resulting group.
German GAAP adopts a risk-oriented
approach to determine whether dere­
cognition of a financial asset is appropriate.
It is focused on whether substantially all
risks and rewards of an asset are
permanently retained by or transferred to an
entity. For receivables the credit risk is one
Before evaluating whether, and to what
of the substantial risks. Other financial
extent, derecognition is appropriate an
assets may have other risks and rewards
entity deter­mines whether those para­graphs (for example a participation right or the right
should be applied to a part of a financial
to transfer a financial asset).
asset (or a part of a group of similar
finan­cial assets) or a financial asset (or a
group of similar financial assets).
An entity shall derecognise a financial asset
when, and only when
1. the contractual rights to the cash flows
from the financial asset expire, or
2. it transfers the financial asset and the
transfer qualifies for derecognition (see
below).
Similarities and Differences IFRS and German GAAP 79
Financial assets
IFRS
An entity transfers a financial asset if, and
only if, it either
1. transfers the contractual rights to receive
the cash flows of the financial asset, or
2. retains the contractual rights to receive
the cash flows of the financial asset, but
assumes a contractual obligation to pay
the cash flows to one or more recipients
in an arrangement that meets the
following conditions:
a) The entity has no obli­gation to pay
amounts to the eventual recipients
unless it collects equi­valent amounts
from the original asset. Short-term
advances by the entity with the right
of full recovery of the amount lent plus
accrued interest at market rates do not
violate this condition.
b) The entity is prohibited by the terms
of the trans­fer contract from selling or
pledging the original asset other than
as securi­ty to the eventual recipients for
the obli­gation to pay them cash flows.
c) The entity has an obli­gation to remit
any cash flows it collects on behalf
of the eventual recipients without
material delay. In addition, the entity
is not entitled to reinvest such cash
flows, except for investments in
cash or cash equivalents (as defined
in IAS 7 Statement of Cash Flows)
during the short settlement period
from the collection date to the date
of required remittance to the even­tual
recipients, and interest earned on such
investments is passed to the eventual
recipients.
80 Similarities and Differences IFRS and German GAAP
German GAAP
Financial assets
IFRS
German GAAP
When there is a transfer as described
above, the entity has to evaluate the extent
to which it retains the risks and rewards of
ownership of the financial asset. In this
case:
1. if the entity transfers substantially all
the risks and rewards of ownership
of the financial asset, the entity shall
derecognise the financial asset and
recognise separately as assets or
liabilities any rights and obligations
created or retained in the transfer.
2. if the entity retains substan­tially all the
risks and re­wards of ownership of the
financial asset, the entity shall continue to
recognise the financial asset.
3. if the entity neither transfers nor retains
substantially all the risks and rewards of
ownership of the financial asset, the entity
shall deter­mine whether it has retained
control of the financial asset
a) if the entity has not retained control, it
shall derecognise the financial asset
and recognise separately as assets
or liabilities any rights and obligations
created or retained in the transfer.
b) if the entity has retained control, it shall
continue to recognise the financial
asset to the extent of its continuing
involvement in the financial asset.
Similarities and Differences IFRS and German GAAP 81
Liabilities
ILiabilities
Contingent liabilities
IFRS
German GAAP
A contingent liability is de­fined as a
possible obli­gation whose outcome will
be con­firmed only by the occur­rence or
non-occur­rence of one or more un­certain
future events outside the entity’s control.
A contin­gent liability can also be a present
obligation that is not recognised because it
is not probable that there will be an outflow
of economic bene­fits, or the amount of the
outflow cannot be reliably measured.
Contingent lia­bilities are disclosed unless
the probability of outflows is remote.
Guidance for contingent liabilities pursuant
to German GAAP is similar to IFRS;
contingent liabilities may result from issuing
and transferring bills of exchange, from
guarantees, including bills and cheque
guarantees, from warranties and from
granting security for third party liabilities.
Due to the importance of the prudence
principle more items are recognised as
provisions rather than being only disclosed
as contin­gencies.
General provisions – Recognition
IFRS
A provision is recorded when three criteria
are met:
• that a present obligation from a past
event exists;
• that it is probable that an outflow of
resources will be required to settle the
obligation; and
• that a reliable estimate can be made.
German GAAP
Recognition criteria for pro­visions are
similar to IFRS. Provisions must be recog­
nised for uncertain liabilities, expected
losses from exe­cutory contracts, deferred
repair and maintenance expen­ses incurred
within the first three months from the end of
the preceding financial year, expenses for
deferred removal of earth and demo­lished
buildings incurred within the following year
The term “probable” is used for describing a and guarantee expenses incurred without
situation in which the outcome is more likely any legal or con­trac­tual obligation. For other
than not to occur. Generally, the phrase
purposes than the afore­mentioned the
more likely than not denotes any chance
recognition of a provision is prohibited. The
greater than 50%.
required probability of an outflow of
resources to recognise a provision is
generally lower than according to IFRS.
82 Similarities and Differences IFRS and German GAAP
Liabilities
General provisions – Measurement
IFRS
German GAAP
The amount recognised should be the best
estimate of the expenditure required (the
amount an entity would rationally pay to
settle the obligation at the balance sheet
date). The entity must discount the
anticipated cash flows using a pre-tax dis­
count rate (or rates) that re­flect(s) current
market assess­ments of the time value of
money and those risks spe­cific to the
liability (for which the cash flow estimates
have not been adjusted) if the effect is
material.
Similar, but not the same as IFRS.
Provisions must be measured at the amount
required to settle the obligation based on
sound business judgement in accordance
with the pru­dence principle. Provisions
(other than provisions for pension
obligations) with a residual term of more
than one year are discounted using the
appropriate (based on the residual term)
seven year aver­age market rate provided by
the German Federal Bank. Long-term
provisions for pension obligations are dis­
counted using the res­pective ten year
average market rate.
Restructuring provisions
IFRS
German GAAP
A provision for restructuring costs is
The general recognition and measurement
recognised when, among other things, an
rules apply. No specific guidance under
entity has a present obligation. A present
German GAAP.
obligation exists when, among other
condi­tions, the company is “de­mon­strably
committed” to the restructuring. A company
is usually demonstrably com­mitted when
there is legal obligation or when the entity
has a detailed formal plan for the
restructuring.
To record a liability, the com­pany must be
unable to with­draw the plan, because either
it has started to imple­ment the plan or it has
announced the plan’s main features to
those affec­ted (constructive obligation). A
current provision is unlikely to be justified if
there will be a delay before the restructuring
begins or if the restructuring will take an
unreasonably long time to complete.
Liabilities related to offers for voluntary
terminations are measured based on the
number of employees expected to accept
the offer.
Similarities and Differences IFRS and German GAAP 83
Financial liabilities
JFinancial liabilities
Definition
IFRS
German GAAP
IFRS defines a financial liability as a
contractual obligation:
• to deliver cash or a financial asset to
another entity;
• to exchange financial instru­ments with
another entity under conditions that are
potentially un­favour­able;
• as a contract that will or may be settled
in the entity’s own equity instrument
and is a non­derivative for which the
entity is or may be obliged to deliver a
variable number of the entity’s own equity
instruments; or
• a derivative that will or may be settled
other than by the exchange of a fixed
amount of cash or another financial asset
for a fixed number of the entity’s own
equity instruments.
German GAAP does not define or contain
specific accounting guidance for financial
liabilities.
Under German GAAP a financial instrument
is a contract that gives rise to receive or
deliver cash or other financial instruments.
Derivatives are also financial instruments.
See “Derivatives and hedging” for the
accoun­ting of derivatives.“
Classification
IFRS
The issuer of a financial instru­ment shall
classify the instrument, or its component
parts, on initial recognition as a financial
liability, a financial asset or an equity
instrument in accordance with the sub­
stance of the contractual arrangement and
the defini­tions of financial instru­ments.
German GAAP
Financial instruments with a contractual
obligation to de­li­ver cash or other financial
instruments are classified as financial
liabilities or equity instruments. The
following three criteria should not be fulfilled
simultaneously for a financial instrument to
be classified as a financial liability:
• subordination
When there is a contractual obligation
• profit-related compensation and loss
(either explicit or indirectly through its terms
participation up to the principal amount
and conditions) on the issuer of an
• long-term lending
instrument to deliver either cash or
another finan­cial asset to the holder; or to
exchange financial assets or financial
liabilities with an­other entity under condi­
tions that are potentially unfavour­able to the
issuer, that instru­ment meets the defini­tion
of a financial liability regardless of the
manner in which the con­trac­tual obli­gation
may be settled.
84 Similarities and Differences IFRS and German GAAP
Financial liabilities
IFRS
German GAAP
To classify a financial instru­ment on initial
recog­nition as a financial liability/asset or an
equity instrument, see details in IAS
32.15–32.26.
A financial instrument that gives the holder
the right to put it back to the issuer for cash
or another financial asset (a ‘puttable
instrument’, for example partnerships with a
right to redeem their interests in the issuer
at any time for cash) is a financial liability,
except for those instruments classified as
equity instru­ments in accordance with
paragraphs 16A and 16B or paragraphs 16C
and 16D. Please also refer to ‘Equity
instruments – Recognition and
classification’.
Recognition
IFRS
German GAAP
The financial liability shall be recognised
when the entity becomes party to the con­
trac­tual provisions of the instrument.
Similar to IFRS.
Categories
IFRS
German GAAP
Guidance under IFRS requires that financial
liabilities be classified in one of the two
categories:
• financial liabilities at fair value through
profit or loss (incl. held-for-trading
financial liabilities)
• financial liabilities at amortised cost
German GAAP does not define individual
categories of financial liabilities for pur­
poses of recognition or measurement.
A distinction is made between short-term
and long-term liabilities for the disclosures
in the notes (for example in the ageing
analysis for liabilities).
Financial liabilities relating to financial
guarantee contracts or commitments to
provide a loan at a below-market interest
rate are subject to specific measurement
guidelines (IFRS 9.4.2.1).
Similarities and Differences IFRS and German GAAP 85
Financial liabilities
Financial liabilities at fair value through profit or loss (incl. held-fortrading financial liabilities)
IFRS
German GAAP
A financial liability at fair value through profit Not applicable.
or loss is a financial liability that meets
either of the following conditions:
• It is classified as held for trading. A
financial liability is classified as held for
trading if it is:
–– acquired or incurred principally for
the pur­pose of selling or repur­chasing it
in the near term;
–– part of a portfolio of identified financial
instruments that are managed together
and for which there is evidence of a
recent actual pattern of short-term
profit-taking; or
–– a derivative (except for a derivative
that is a financial guarantee contract
or a designated and effective hedging
instrument).
• Upon initial recognition it is designated by
the entity as at fair value through profit or
loss. An entity may use this designation
only when doing so results in more
relevant information, because either:
–– it eliminates or signifi­cantly reduces
a measure­ment or recog­nition
inconsistency (sometimes referred to as
“an accounting mismatch”) that would
otherwise arise from measuring assets
or liabilities or recognising the gains
and losses on them on different bases;
–– it eliminates or signifi­cantly reduces
a mea­sure­ment or recog­nition
inconsistency (some­times referred to as
“an accounting mismatch”) that would
otherwise arise from measuring assets
or liabilities or recognising the gains
and losses on them on different bases;
–– a group of financial lia­bilities is
managed and its performance is
evaluated on a fair value basis, in
accordance with a documented risk
management or invest­ment strategy,
and information about the group is
provided internally on that basis to the
entity’s key mana­ge­ment personnel for
example the entity’s board of directors
and chief executive officer; or
–– if a contract contains one or more
embedded derivatives, an entity may
designate the entire hybrid (combined)
contract as a financial lia­bility at fair
value through profit or loss unless:
86 Similarities and Differences IFRS and German GAAP
Financial liabilities
IFRS
German GAAP
–– the embedded deri­va­tive(s) does not
signifi­cantly modify the cash flows that
otherwise would be required by the
contract; or
–– it is clear with little or no analysis
when a simi­lar hybrid (com­bined)
instrument is first consi­dered that
separa­tion of the em­bedded deriva­
tive(s) is prohibited, such as a
prepayment option em­bedded in a
loan that permits the holder to pre­pay
the loan for approxi­mately its amortised
cost.
• all or part of the financial instrument is
designated either upon initial recog­nition
or subsequently as at fair value through
profit or loss because
–– the entity uses a credit derivative that is
mea­sured at fair value through profit or
loss to manage the credit risk of all, or a
part of, a financial instrument (credit ex­
posure). The entity may designate that
financial instrument to the extent that
it is so managed (ie all or a proportion
of it) as measured at fair value through
profit or loss if:
–– the name of the credit exposure (for
example, the borrower, or the holder of
a loan commit­ment) matches the re­
fer­ence entity of the cre­dit derivative
(‘name matching’); and
–– the seniority of the finan­cial instrument
matches that of the instru­ments that
can be delivered in accordance with the
credit derivative.
Other liabilities
IFRS
German GAAP
An entity shall measure all other financial
liabilities at amortised cost using the
effective interest method.
Not applicable.
Financial liabilities relating to financial
guarantee contracts or commitments to
provide a loan at a below-market inter­est
rate are subject to specific measurement
guide­lines (IFRS 9.4.2.1).
Similarities and Differences IFRS and German GAAP 87
Financial liabilities
Initial measurement
IFRS
German GAAP
A financial liability is recog­nised initially at
its fair value minus, in the case of a
finan­cial liability that is not recog­nised as at
fair value through profit or loss, trans­action
costs that are directly attri­butable to the
acquisition or issue of that liability.
Financial liabilities must initially be
measured at their settlement amount. If the
settlement amount is higher than its value
on issuance, then the financial liability may
either be measured at its settlement amount
or at its value on issuance.
Trans­action costs must be recog­nized in
profit or loss unless the criteria for prepaid
expenses are met.
Subsequent measurement
IFRS
German GAAP
After initial recognition, an entity shall
measure all finan­cial liabilities at amor­tised
cost using the effective interest method,
except for financial liabilities at fair value
through profit or loss. For financial liabilities
at fair value through profit or loss, the
following applies:
• Subsequent measurement at fair value.
• Distribution of discount/premium is
implied in the fair value.
• Changes in fair value have to be
recognised in the income statement.
Financial liabilities shall continuously be
measured at their settlement amount.
For financial liabilities desig­nated at fair
value through profit or loss due to an
accoun­ting mismatch, the management of
that instru­ment within a group of finan­cial
instruments eva­lu­ated on fair value basis or
due to embedded derivative(s) (see section
Financial Liabilities-Categories above),
credit risk of the issuer is to be reflected in
other com­pre­hensive income.
Financial liabilities relating to financial
guarantee contracts or commitments to
provide a loan at a below-market inter­est
rate are subject to specific measurement
guide­lines (IFRS 9.4.2.1).
88 Similarities and Differences IFRS and German GAAP
If the settlement amount is higher than its
value on issuance and the financial liability
is initially measured at its settlement
amount, the difference to its value on
issuance may be included in prepaid
expenses on the assets side of the balance
sheet and shall be amortised by systematic
annual charges that may be allocated over
the full term of the liability. Alternatively
such a difference may be recognised as an
expense immediately.
If such a financial liability is initially
measured at its value on issu­ance, interest
accrues subsequently using the effec­tive
interest method and increa­sing the book
value of the financial liability respec­tively.
Financial liabilities
Derecognition of financial liabilities
IFRS
German GAAP
A financial liability is dere­cog­nised when the Derecognition principles under German
obligation speci­fied in the contract is
GAAP are similar to IFRS.
discharged, cancelled or ex­pires, or when
the debtor is legally released from the
primary responsi­bility for the liability
A liability is also considered extinguished if
there is a substantial modification in the
terms of the instrument.
The difference between the carry­ing
amount of a liability (or a portion thereof)
extingu­ished or transferred and the amount
paid for it should be recognised in profit or
loss for the period.
Convertible debt
IFRS
German GAAP
For convertible instruments with a
conversion feature characterised by
exchanging a fixed amount of cash for a
fixed number of shares, IFRS requires
bifurcation and split accounting between
the subs­tantive liability and equity
components of the instrument in question.
The liability component is recognised at fair
value calculated by discounting the cash
flows associated with the liability
component – at a market rate for
nonconvertible debt – and the equity
conversion rights are measured as the
residual amount and recognised in equity
with no subsequent measurement.
Split accounting is applied to convertible
debt where appro­priate. For the debt
component a liability has to be recognised
that may either be measured at its
settlement amount or at its value on
issuance.
Equity con­version features within liability
host instruments that fail the fixed-forfixed re­quire­ment are considered to be
embed­ded derivatives. Such embed­ded
derivatives are bifurcated from the host
debt contract and measured at fair value,
with changes in fair value recognised in
profit or loss.
Similarities and Differences IFRS and German GAAP 89
Equity instruments
K Equity instruments
Recognition and classification
IFRS
An equity instrument is defined as any
contract that evidences a residual interest
in an entity’s assets after deducting all of
its liabilities. An instrument is classified
as equity when it does not con­tain an
obligation to trans­fer economic resources
to another entity. Preference shares that
are not redeem­able, or that are redeemable
solely at the option of the issuer, and
for which distri­butions are at the issuer’s
discretion, are classified as equity.
German GAAP
For the classification of finan­cial
instruments as equity, the following three
criteria must be fulfilled simultaneously:
• subordination
• profit-related compensation and loss
participation up to the principal amount
• long-term lending (only applicable
for corporations, not for commercial
partner­ships)
Shareholder’s equity is classified as:
• subscribed capital, which is the capital
in respect of which the liability of the
Only derivative con­tracts that result in
shareholders for the liabilities of the
the delivery of a fixed amount of cash,
company to creditors is limited;
or other financial asset for a fixed number
• capital reserves, which contain, for
of an entity’s own equity instru­ments, are
example, the amount (premium) received
classified as equity instru­ments. For this
on the issuance of shares;
purpose the entity’s own equity instruments • revenue reserves (including the legal
do not include puttable financial
reserve (for stock corporations), the
instruments that are classified as equity
reserves provided for under the articles of
instruments.
association and other revenue reserves);
• retained profits/accu­mulated losses
All other derivatives on the entity’s own
brought forward; and
equity are trea­ted as derivatives. Special
• net income/net loss for the year
guidance was introduced regar­ding
the classification of puttable financial
instruments and instruments that impose an
obligation to deliver a pro rata share of the
net assets to another party upon liquidation.
90 Similarities and Differences IFRS and German GAAP
Equity instruments
IFRS
German GAAP
Such instruments are classi­fied as equity
if all of the follow­ing criteria are met:
• It entitles the holder to a pro rata share
of the entity’s net assets in the event of
the entity’s liquidation.
• The instrument is in the class of
instruments that is subordinate to all
other classes of instruments.
• All financial instruments in that class have
identical features.
• Apart from the contractual obligation
for the issuer, the instrument does not
include any contractual obligation to
deliver cash or another financial asset.
• The total expected cash flows attributable
to the instrument are based substantially
on the profit or loss, the change in the
recognised net assets or the change
in the fair value of the recognised and
unrecog­nised net assets of the entity.
• The issuer must have no other financial
instrument or contract that has:
–– total cash flows based substantially
on the profit or loss, the change in the
recognised net assets or in the fair
value of the recog­nised/unrecognised
net assets of the entity; and
–– the effect of substantially restricting or
fixing the residual return to the put­table
instrument holders.
For the classification of financial
instruments as equity, the following three
criteria must be fulfilled simultaneously:
• subordination
• profit-related compensation and loss
participation up to the principal amount
• long-term lending (only appli­cable
for corporations, not for commercial
partner­ships)
Shareholder’s equity is classi­fied as:
• subscribed capital, which is the capital
in respect of which the liability of the
shareholders for the liabilities of the
company to creditors is limited;
• capital reserves, which con­tain, for
example, the amount (premium) received
on the issuance of shares;
• revenue reserves (including the legal
reserve (for stock corporations), the
reserves provided for under the artic­les of
association and other revenue reserves);
• retained profits/accu­mu­lated losses
brought forward; and
• net income/net loss for the year.
Transaction costs related to the issuance of
equity instru­ments must be recog­nised in
profit or loss and cannot be deducted from
equity.
Uncalled outstanding contributions to
subscribed capital are to be deducted from
subscribed capital on the liabilities side of
the balance sheet.
Purchase of own shares
IFRS
German GAAP
When an entity’s own shares are
repurchased, they are shown as a
deduction from shareholders’ equity
at cost.
Repurchased own shares are to be
deducted from sub­scrib­ed capital at par
value. Any difference between pur­chase
cost and par value is to be offset with
reserves available for distribution. Incidental
expenses of the acquisition are to be
recog­nised in profit or loss for the period.
Similarities and Differences IFRS and German GAAP 91
Derivatives and hedging
LDerivatives and hedging
Derivatives non-hedging – Definition
IFRS
German GAAP
A derivative is a financial instru­ment that
creates rights and obligations having the
effect of transferring between the parties to
the instrument one or more of the financial
risks inherent in an underlying primary
instrument. It gives one party a contractual
right to exchange financial assets or
financial liabilities with another party under
condi­tions that are potentially favourable, or
a contractual obligation to exchange
finan­cial assets or financial liabilities with
another party under conditions that are
potentially unfavourable. A derivative is a
financial instrument:
• whose value changes in response to
the change in a specified interest rate,
financial instrument price, commodity
price, foreign exchange rate, index of
prices or rates, credit rating or credit
index, or other variable, provided in the
case of a non-financial variable that
the variable is not specific to a party
to the contract (sometimes called the
“underlying”);
• that requires initially no or little net
investment; and
• that is settled at a future date.
Same definition as under IFRS. Forward
transactions to purchase or sell goods
(non-financial items, especi­ally
commodities) are also considered as
derivatives for hedge accounting.
Derivatives non-hedging – Recognition
IFRS
German GAAP
All derivatives are recognised on the
balance sheet as either financial assets
or liabilities when the legal transaction
is concluded. See “Financial assets”
for recognition of financial assets and
“Financial liabilities” for recognition of
financial liabilities.
German GAAP requires an entity to
recognise a deri­va­tive when and only
when the criteria of a (financial) asset
or a (financial) liability is fulfilled.
92 Similarities and Differences IFRS and German GAAP
Derivatives and hedging
Derivatives non-hedging – Initial measurement
IFRS
German GAAP
Derivatives are initially measured at fair
value on the date of initial recognition.
Transaction costs are recog­nised in profit
or loss. The consideration paid or re­cei­ved
for an option (option pre­mium) represents
the fair value at initial recognition. On the
balance sheet the option premium is
recognised as a financial asset for the buyer
of the option and as a financial liability
for the writer of the option. Contracts of
deri­va­tives which are not in line with market
require upfront pay­ments. An upfront
pay­ment is a single payment which is paid
at conclusion of the legal transaction.
Usually at initial recognition all derivatives
deriving from contracts in line with current
market conditions have no fair value.
There are two exceptions:
• purchased and written options; and
• derivatives with upfront payments.
Upfront payments are recog­nised on the
balance sheet as other assets or lia­bilities.
Those derivatives which have no fair value
at initial recognition are not recognised on
the balance sheet.
The initial margin paid for a future is
recognised on the balance sheet as other
assets.
The consideration paid or received for
an option (option premium) is recog­nised
on the balance sheet as other assets or
liabilities.
Derivatives non-hedging – Subsequent measurement
IFRS
German GAAP
For derivatives the subse­quent
measurement is at fair value. Changes in a
deriva­tive’s value are recognised in profit
or loss as they arise, unless they satisfy the
criteria for hedge accounting outlined
below.
Derivatives (except options):
• For unrealised losses of derivatives a
provision is recognised.
• Unrealised gains must not be recognised.
Options:
• For the buyer of an option unrealised
losses are recognised as an impair­ment
of the option premium.
• For the writer/seller of an option, a
provision for unrealised losses is
recognised to the extent that it exceeds
the option premium recognised as a
liability.
Similarities and Differences IFRS and German GAAP 93
Derivatives and hedging
Hedge accounting requirements – Overview
IFRS
German GAAP
Hedge accounting is a technique that
German GAAP defines the combination of
modifies the normal basis for recognising
an underlying transaction (hedged item) and
gains and losses on associated hedging
the hedging instrument as a “valuation unit”.
instruments and hedged items so that both
are recognised in profit or loss in the same
accounting period. An accounting mismatch
occurs when:
• a hedged item and the corresponding
hedging instrument are measured
on different measurement bases
(for example hedged item at amortised
cost, hedging instrument at fair value
through profit or loss);
• gains and losses on the hedged item
and the hedging instrument are not
recognised consistently (for example
hedged item is an available-forsale financial asset and the hedging
instrument is a derivative); or
• the hedged item is an unrecognised
firm commitment or forecast transaction,
whereas the hedging instrument is
already recognised.
Financial statements provide more relevant
information if hedge accounting is applied.
In a hedge relationship hedge accounting is
applied to the hedged item and the hedging
instrument.
Hedge accoun­ting is per­mitted provided
that an entity meets stringent qualifying
criteria:
• The hedging relationship consists only of
eligible hedging instruments and eligible
hedged items;
• There is formal designation and
documentation of the hedging
relationship and risk management
objective and strategy at inception
of the hedge;
• The hedge relationship meets the hedge
effective­ness requirements.
Formal documentation and designation
must be in place at inception of the hedge
relationship. Documentation should identify:
• the risk management objective and
strategy;
• the hedged item;
• the hedging instrument;
• the nature of risk being hedged; and
• how management will assess hedge
effective­ness, incl. giving a des­cription of
sources of ex­pected ineffectiveness and
how the hedge ratio was determined.
94 Similarities and Differences IFRS and German GAAP
Hedge accounting is per­mitted provided
that an entity meets qualifying criteria in
relation to:
• qualifying hedged item;
• qualifying hedging instrument;
• offsetting changes in value or cash flows
form the occurrence of comparable risks;
• prospective hedge effectiveness;
• intention (and ability) to hedge; and
• formal documentation and designation
(similar to IFRS).
Derivatives and hedging
Hedge accounting requirements – Hedged item
IFRS
German GAAP
Hedged items can be recog­nised assets,
recognised liabilities, firm commitments,
forecast transactions that involve an
external party (and that should be highly
probable to qualify as hedged item), or net
investments in a foreign operation. The
hedged item can be a single item or a group
of items as well as a component of such an
item or group of items. The hedged item
must be reliably measurable.
Hedged items may be assets, liabilities, firm
commitments or highly probable forecast
transactions that involve an external party.
Groups of items that consti­tute a net
position can also be designated as
a hedged item as well as aggregated
exposures (combination of an exposure that
is an eligible hedged item and a derivative).
As an exception to the princi­ple that only
trans­actions with an external party are
eligible hedged items, the foreign currency
risk of an intragroup monetary item may
qualify as a hedged item if it results in an
exposure to foreign exchange rate gains
or losses that are not fully eliminated on
consolidation.
Derivatives qualify as hedged items
irrespective of whether the derivative is
embedded or not.
Portfolio hedges (i. e. hedging the risk of a
group of similar items) and macro hedges
(i. e. hedging the net risk of a group of
opposing items) are permitted, provided
that an efficient risk management system
related to these hedges exists.
Designation of the following is admitted:
• a proportion of nominal amount of the
hedged item;
• a portion of a risk; and
• a portion of its term, pro­vided the
effectiveness can be measured.
There is no distinction between financial
and non-financial assets or liabilities as
hedged item.
As stated above, an entity can either
designate an item in its entirety or a
component of such item as a hedged item.
According to IFRS 9 risk components of
financial as well as non-financial items can
be designated as hedged item as long as
they are separately identifiable and reliably
measurable.
An entire item comprises all changes in
Similar to IFRS.
the cash flows or fair value of an item.
A component comprises less than the entire
fair value change or cash flow variability
of an item. In that case, an entity may
designate only the following types of
compo­nents (including combi­nations) as
hedged items:
• only changes in the cash flows or fair
value of an item attributable to a specific
risk or risks (risk component);
• one or more selected contractual cash
flows;
• components of a nominal amount, i.e. a
specified part of the amount of an item.
Similarities and Differences IFRS and German GAAP 95
Derivatives and hedging
IFRS
German GAAP
Items that do not qualify as hedged item
comprise:
• own equity instruments
• entity method investment, such as an
associate or joint arrangement
• A derivative instrument can only
be designated as a hedged item as
part of an aggregate exposure with
an non-derivative item.
• A firm commitment to acquire a business
cannot be a hedged item, except for
foreign exchange risk, because the
other risks that are hedged cannot be
specifically identified and measured.
All assets, liabilities and deri­vatives (i. e. firm
commitments) may qualify as hedged items,
provided that the risk to be hedged can be
speci­fically identified and mea­sured.
Hedge accounting requirements – Hedging instrument
IFRS
German GAAP
The main qualifying hedging instruments
are:
• derivative financial instrument
(incl. separate embedded derivatives
in financial liabilities or non-financial
contracts);
• non-derivative financial instruments
measured at fair value through P&L
(except for financial liabilities designated
at FVTPL where changes in fair value as a
result of credit risk are presented in OCI);
• the foreign currency component of nonderivative financial instruments (except
for equity instruments for which changes
in fair value are presented in OCI).
Only financial instruments can qualify as
hedging instruments. Forward transactions
to purchase or sell goods (non-financial
items, especially commodities) are also
classified as financial instruments for hedge
accounting.
Embedded derivatives may only qualify
as hedging instruments when they are
separately accounted for.
Any combination of derivatives and
non-derivatives can be jointly designated as
a hedging instrument. Derivatives do not
have to be similar to be combined either
together or with non-derivative instruments.
Only instruments that involve a party
external to the reporting entity can be
designated as hedging instruments.
Similar to IFRS.
A written option can generally not be
designated as a hedging instrument.
A written option cannot be designated as
a hedging instrument unless it is combined
with a purchase option and a net premium
is paid or a purchased option is hedged.
The purchased option may be embedded
in another instrument.
Normally a qualifying instrument must
be designated in its entirety as a hedging
instrument.
96 Similarities and Differences IFRS and German GAAP
Similar to IFRS. A financial instrument may
also be designated as a hedging instrument
for a portion of time of its term
Derivatives and hedging
IFRS
German GAAP
Three exceptions exist:
• Designating as the hedging instrument
only the change in intrinsic value of an
option and excluding change in its time
value.
• Separating the forward element of a
forward contract and designating only
the change in the value of the spot
element of a forward contract and not
the forward element. Similarly, the foreign
currency basis spread may be separated
and excluded from the designation of a
financial instrument;
• Designation of a proportion of the
notional amount of the hedging
instrument (for example 50% of the
notional amount). However, a hedging
instrument may not be designated for a
part of its change in fair value that results
from only a portion of the time period
during which the hedging instrument
remains outstanding.
A single hedging instrument can hedge
more than one risk in two or more hedged
items under certain circumstances.
In a fair value hedge of the interest rate
exposure of a portfolio of financial assets
or financial liabilities, the portion hedged
may be designated in terms of an amount of
a currency rather than as indi­vidual assets
(or liabilities).
Similar to IFRS.
No specific regulations/restrictions for
portfolio or macro hedges except for the
necessity of an efficient risk management
system related to these hedges.
Although the portfolio may, for risk
management pur­poses, include assets and
liabilities, the amount desig­nated is an
amount of assets or an amount of liabilities.
The overall net position cannot be hedged.
The entity may hedge a portion of the
interest rate risk associated with this
designated amount.13
13
Only for fair value hedge of the interest rate exposure of a portfolio of financial assets or liabilities IFRS 9, IFRS 9 permits entities to apply
the hedge accounting requirements in IAS 39 instead of IFRS 9. In that case the entity must also apply the specific requirments for the fair
value hedge accounting for a portfolio hedge of interest rate risk and designate as the hedged item a portion that is a currency amount.
Similarities and Differences IFRS and German GAAP 97
Derivatives and hedging
Hedge accounting requirements – Hedge effectiveness
IFRS
German GAAP
A hedge qualifies for hedge accounting
under IFRS if an entity’s designation
of the hedging relationship is based on
the economic relationship between the
hedged item and the hedging instrument,
which meets the hedge effectiveness
requirements. Hedge effectiveness is the
extent to which changes in the fair value or
cash flows of the hedging instrument offset
changes in the fair value or cash flows of
the hedged item. IFRS 9 comprises three
requirements:
• existence of an economic relationship
between the hedged item and hedging
instrument;
• no domination of the effect of credit risk
of the value changes that result from the
economic relationship; and
• the hedge ratio is the same as that
resulting from the quantity of the heged
item that the entity actually hedges and
the quantity of the hedging instrument
that the entity actually uses to hedge that
quantity of hedged item.
Under German GAAP pros­pective and
retrospective testing of hedge effectiveness
is required.
There are no explicit limits for the
determination whether a hedge is
sufficiently effective.
IFRS requires that hedges are assessed for Similar to IFRS.
effectiveness on an ongoing basis and that
effectiveness is measured, at a minimum,
Under German GAAP every economically
at the time an entity prepares its annual
reasonable method is accepted.
or interim financial reports and on any
significant change in circumstances
affecting the hedge. Hedge ineffectiveness
is required to be measured and accounted
for in earn­ings. Therefore, if an entity is
required to produce only annual financial
statements, IFRS requires that effective­ness
is tested only once a year.
An entity may, of course, choose to test
effectiveness more frequently.
IFRS does not specify a single method for
assessing hedge effectiveness.
98 Similarities and Differences IFRS and German GAAP
Derivatives and hedging
Hedge accounting requirements – Hedge relationships
IFRS
German GAAP
Fair value hedge: The risk of a change in the
fair value of a recognised asset or liability
or an unrecognised firm commit­ment or
portions thereof is hedged.
Under German GAAP there is no distinction
in the ac­coun­ting treatment between fair
value hedges, cash flow hedges or hedges
of net investments in foreign operations.
Cash flow hedge: The risk of potential
volatility in future cash flows is hedged.
Hedge of a net investment in a foreign
operation: A hed­ging instrument is used to
hedge the currency risk (trans­lation risk) of
a net investment in a foreign entity.
Hedge accounting requirements – Hedge accounting – accounting
treatment
IFRS
German GAAP
Application of hedge accoun­ting is optional
if the require­ments are fulfilled.
Similar to IFRS.
Fair value hedges: Hedging instruments
are measured at fair value. Gains and
losses on the hedging instrument shall be
recognised in profit or loss (P&L) except
for hed­ging instruments hedging an equity
instrument accoun­ted for at fair value in
other comprehensive income (FVOCI).
Gains and losses of equity instruments
are not recycled to P&L; changes in the
fair value of the hedging instrument are
recorded in other comprehensive income
without recycling to P&L. The hedged item
is adjusted for changes in its fair value but
only due to the risks being hedged. Gains
and losses on the hedged item attributable
to the hedged risk are recog­nised in the
income statement (P&L), except for those
attributable to equity instru­ments
accounted for at FVOCI, in which case
they are recog­nised in OCI.
Under German GAAP there is no distinction
in the accoun­ting treatment between fair
value hedges, cash flow hedges or hedges
of net investments in foreign opera­tions.
The valuation unit/hedge is regarded as a
new measurement object. To the extent and
for the period the opposing changes of the
fair values or cash flows of the hedged item
and the hedging instrument are offsetting
(effective part) the measurement principles
of realisation, imparity and item-by-item
valuation are not applied. Generally, this can
be implemented in two ways:
• “Freeze in method”:
The offsetting changes in the fair
values/cash flows of the hedged item
and hedging instrument due to the risk
hedged is recognised neither in balance
sheet nor in the income statement
(effective part).
Similarities and Differences IFRS and German GAAP 99
Derivatives and hedging
IFRS
German GAAP
Cash flow hedges: Hedging instruments
are measured at fair value, with gains and
losses on the hedging instru­ment to the
extent they are effective being initially
defer­red in equity (OCI) and subsequently
released to the income statement
concurrent with the earnings recognition
pattern of the hedged item. Gains and
losses on financial instru­ments used to
hedge forecast assets and liability
acquisitions must be included in the cost
of the non-financial asset or liability –
a “basis adjustment”. This is not permitted
for financial assets or liabilities.
• “Through posting method”:
The offsetting changes in the fair values/
cash flows of the hedged item and
the hedging instrument due to the risk
hedged will be recognised in the financial
statement (effective part).
Hedges of net investments in foreign
operations: Similar treat­ment to cash
flow hed­ges. The hedging instru­ment is
measured at fair value with gains/losses
deferred in equity, to the extent that the
hedge is effective, together with exchange
differences arising from the entity’s
investment in the foreign operation. These
gains/losses are transferred to the income
statement on disposal or partial disposal
of the foreign operation.
For changes in the fair values/cash flows
of hedged item and hedging instrument due
to risks not being hedged the principles of
realisation, imparity and item-by-item
valuation have to apply (part/risk not being
hedged).
For changes in the fair values/cash flows
of hedged item and hedging instrument
due to the risk hedged that are not offset
the principles of realisation, imparity and
item-by-item valuation have to apply
(ineffective part).
Hedge accounting requirements – Disclosure requirements
IFRS
Extensive disclosure require­ments exist
under IFRS 7.
German GAAP
Concerning valuation units/hedges German
GAAP requires disclosure about:
• the amount at which each of assets,
An entity shall explain its risk management
liabilities, firm commitments and highly
strategy for each risk category of risk
probable forecast transactions are
exposures that it decides to hedge and
included in the valuation unit/hedge;
for which hedge accounting is applied.
• type of hedged risks;
This enables to evaluate:
• type/nature of recognised valuation unit
• how each risk arises.
(micro-, port­folio- or macro-hedge);
• how the entity manages each risk; this
• amount of hedged risks;
includes whether the entity hedges an
• for each of the risks hed­ged: why, to
item in its entirety for all risks or hedges
which extent and the period for which
a risk component (or com­po­nents) of an
the offsetting changes in the fair values
item and why.
or cash flows of the hedged item and
• the extent of risk exposures that the entity
the hedging instrument are expected to
manages.
be compen­sated in the future;
• method used to determine the hedge
This information should in­clu­de (but is not
effectiveness; and
limited to) a description of:
• for forecast transactions a description
• the hedging instruments that are used
of the trans­action and the reason why
(and how they are used) to hedge risk
the occurrence of the transaction will be
exposures;
highly probable.
100 Similarities and Differences IFRS and German GAAP
Derivatives and hedging
IFRS
German GAAP
• how the entity determines the
economic relationship between
the hedged item and the hedging
instrument for the purpose of
assessing hedge effective­ness; and
• how the entity establishes the hedge
ratio and what the sources of hedge
ineffectiveness are.
The disclosure requirements concern the
notes, except if they have been disclosed in
the management report.
When an entity designates a specific
risk component as a hedged item it shall
provide qualitative or quantitative
information about:
• how the entity determined the risk
component that is designated as the
hedged item (including a des­crip­tion
of the nature of the relationship between
the risk component and the item as a
whole); and
• how the risk component relates to the
item in its entirety (for example, the
designated risk component historically
covered on average 80 per cent of the
changes in fair value of the item as a
whole).
An entity shall disclose by risk category
quantitative infor­mation to allow users of its
financial statements to evaluate the terms
and condi­tions of hedging instru­ments and
how they affect the amount, timing and
uncertainty of future cash flows of the
entity.
To meet these requirement, an entity shall
provide a break­down that discloses:
• a profile of the timing of the nominal
amount of the hedging instrument; and
• if applicable, the average price or rate of
the hedging instrument.
In situations in which an entity frequently
resets (dis­con­tin­ues and restarts) hedging
relationships because both the hedging
instrument and the hedged item frequently
change the entity:
• is exempt from providing the disclosures
required by paragraphs 23A and 23B.
Similarities and Differences IFRS and German GAAP 101
Derivatives and hedging
IFRS
• shall disclose:
–– information about what the ultimate risk
management strategy is in relation to
those hedging relationships;
–– a description of how it reflects its
risk manage­ment strategy by using
hedge accounting and designating
those parti­cular hedging relation­ships;
and
–– an indication of how fre­quently the
hedging relationships are dis­con­tinued
and restarted as part of the entity’s
process in relation to those hedging
relationships.
An entity shall disclose by risk category
a description of the sources of hedge
ineffective­ness that are expected to affect
the hedging relation­ship during its term.
If other sources of hedge ineffectiveness
emerge in a hedging relationship, an entity
shall disclose those sources by risk
category and explain the resulting hedge
ineffec­tive­ness.
For cash flow hedges, an entity shall
disclose a des­crip­tion of any forecast
trans­action for which hedge accounting
had been used in the previous period,
but which is no longer expected to occur.
An entity shall disclose, in a tabular format:
a)the following amounts related to items
designated as hedging instruments
separately by risk category for each type
of hedge (fair value hedge, cash flow
hedge or hedge of a net investment in
a foreign operation):
• the carrying amount of the hedging
instruments;
• the line item in the state­ment of financial
position that includes the hedging
instrument;
• the change in fair value of the hedging
instrument used as the basis for
recognising hedge in­effec­tive­ness for
the period; and
• the nominal amounts (in­cluding quantities
such as tons or cubic metres) of the
hedging instruments.
102 Similarities and Differences IFRS and German GAAP
German GAAP
Derivatives and hedging
IFRS
German GAAP
b)the following amounts related to hedged
items separately by risk category for the
types of hedges as follows:
• for fair value hedges:
–– the carrying amount of the hedged item
recog­nised in the statement of financial
position;
–– the accumulated amount of fair value
hedge adjustments on the hedged
item included in the carrying amount
of the hedged item recognised in the
statement of financial position;
–– the line item in the state­ment of
financial position that includes the
hedged item;
–– the change in value of the hedged item
used as the basis for recognising hedge
ineffectiveness for the period; and
–– the accumulated amount of fair value
hedge ad­just­ments remaining in the
statement of financial position for any
hedged items that have ceased to be
adjusted for hedging gains and losses.
• for cash flow hedges and hedges of a net
investment in a foreign operation:
–– the change in value of the hedged
item used as the basis for recognising
hedge ineffectiveness for the period;
–– the balances in the cash flow hedge
reserve and the foreign currency
translation reserve for continuing
hedges; and
–– the balances remaining in the cash
flow hedge reserve and the foreign
currency translation re­ser­ve from any
hedging relationships for which hedge
accounting is no longer applied.
c)the following amounts se­para­tely by risk
category for the types of hedges as
follows:
• for fair value hedges:
–– hedge ineffectiveness recognised
in profit or loss (or other com­pre­
hensive income for hedges of an equity
instrument for which an entity has
elected to present changes in fair value
in other com­pre­hensive income; and
–– the line item in the statement of
compre­hen­sive income that includes
the recognised hedge ineffectiveness.
Similarities and Differences IFRS and German GAAP 103
Derivatives and hedging
IFRS
• for cash flow hedges and hedges of a net
investment in a foreign operation:
–– hedging gains or losses of the reporting
period that were recognised in other
comprehensive income;
–– hedge ineffectiveness recognised in
profit or loss;
–– the line item in the state­ment of
comprehensive income that includes
the recognised hedge ineffectiveness;
–– the amount reclassified from the cash
flow hedge reserve or the foreign
currency translation reserve into profit
or loss as a reclassification adjustment;
–– the line item in the state­ment of
comprehensive income that includes
the re­classification adjust­ment; and
–– for hedges of net posi­tions, the
hedging gains or losses recognised in
a separate line item in the statement of
comprehensive income.
When the volume of hedging relationships
that the entity frequently resets is
unrepresentative of normal volumes
during the period an entity shall disclose
that fact and the reason it believes the
volumes are unrepresentative.
An entity shall provide a reconciliation of
each com­ponent of equity and an analy­sis
of other com­pre­hensive income in
accordance with IAS 1 that, taken together:
• differentiates, at a mini­mum, between the
amounts that relate to the disclosures in
paragraph 24C(b)(i) and (b)(iv) of IFRS 7
as well as the amounts accounted for in
accordance with paragraph 6.5.11(d)(i)
and (d)(iii) of IFRS 9;
• differentiates between the amounts
associated with the time value of options
that hedge transaction related hedged
items and the amounts associated with
the time value of options that hedge
time-period related hedged items when
an entity accounts for the time value of
an option in accordance with paragraph
6.5.15 of IFRS 9; and
104 Similarities and Differences IFRS and German GAAP
German GAAP
Derivatives and hedging
IFRS
German GAAP
• differentiates between the amounts
associated with forward elements
of forward contracts and the foreign
currency basis spreads of financial
instruments that hedge transaction
related hedged items, and the amounts
associated with forward elements
of forward contracts and the foreign
currency basis spreads of financial
instruments that hedge time-period
related hedged items when an
entity accounts for those amounts in
accordance with paragraph 6.5.16 of
IFRS 9.
An entity shall disclose this information
separately by risk category. This
disaggregation by risk may be provided
in the notes to the financial state­ments.
Option to designate a credit exposure as
measured at fair value through profit or loss.
If an entity designated a finan­cial
instrument, or a proportion of it, as
measured at fair value through profit or
loss because it uses a credit derivative
to manage the credit risk of that financial
instrument it shall disclose:
• for credit derivatives that have been used
to man­age the credit risk of finan­cial
instruments designated as measured
at fair value through profit or loss in
accordance with paragraph 6.7.1 of IFRS
9, a reconciliation of each of the nominal
amount and the fair value at the beginning
and at the end of the period;
• the gain or loss recognised in profit
or loss on de­sig­na­tion of a financial
instrument, or a proportion of it, as
measured at fair value through profit or
loss in accordance with paragraph 6.7.1
of IFRS 9; and
• on discontinuation of measuring a
financial instrument, or a proportion of
it, at fair value through profit or loss,
that financial instrument’s fair value that
has become the new carrying amount
in accordance with paragraph 6.7.4(b)
of IFRS 9 and the related nominal or
principal amount.
The disclosures are presented in the notes.
Similarities and Differences IFRS and German GAAP 105
Deferred taxes
MDeferred taxes
Concept of deferred taxes
IFRS
German GAAP
Temporary concept
Temporary concept
Please note: Certain com­pa­nies (small
companies, non-limited liability companies)
are not obliged to apply the tem­porary
concept. For these companies, accounting
for deferred taxes is to a great extent based
on the timing concept.
Basis for deferred tax assets and liabilities
IFRS
German GAAP
Temporary differences – i. e. the difference
between carrying amount and tax base of
assets and liabilities
Temporary differences – i. e. the difference
between carrying amount and tax base of
assets and liabilities
Quasi-permanent differences (for example temporary differences
within measurement of property)
IFRS
German GAAP
Recognition of deferred taxes due to the
temporary concept.
Recognition of deferred taxes due to the
temporary concept.
106 Similarities and Differences IFRS and German GAAP
Deferred taxes
Recognition of deferred tax assets
IFRS
German GAAP
A deferred tax asset shall be recognised
for all deductible temporary differences
to the extent that it is probable that taxable
profit will be available against which the
deductible temporary difference can
be utilised, unless the initial recognition
exception applies, see details under
“initial recognition differences”.
Deferred tax assets may be recognised
for deductible temporary differences,
tax loss carryforwards, interest carried
forward and tax cre­dits. Deferred tax assets
shall be recognised in com­pliance with
the prudence principle.
Under German GAAP a re­cog­nition option
for the excess of deferred tax assets over
deferred tax liabilities (expected aggregate
tax bene­fit) is enacted. However, partial
recognition of the expected aggregate tax
benefit is prohibited. Deducti­ble temporary
differences resulting from consolidation
adjustments shall be recog­nised in all
cases.
Tax loss carryforwards shall only be
considered if the tax benefit can be realized
within the next five years. Further tax loss
carryforwards may be considered in case of
an excess of taxable temporary differences.
Tax rate
IFRS
German GAAP
Tax rates that are expected to apply to
the period when the asset is realised or
the liability is settled, based on tax rates
(and tax laws) that have been enacted or
substantively enac­ted by the balance sheet
date.
Deferred taxes shall be measured with the
tax rate that is expected to apply at the time
the temporary differences are expected to
reverse. However, changes in tax law
(including tax rates) shall only be applied
when they have been substantively enacted,
i.e. the Federal Council (Bundesrat) has
approved the change in law before or on the
balance sheet date.
Presentation and maturity
IFRS
German GAAP
Deferred tax assets (liabilities) are treated
as non-current assets (liabilities). Additional
statements for different components of
deferred taxes must be made (ex­pec­ted
realisation of deferred taxes within
12 months after the balance sheet date
and beyond 12 months after the balance
sheet date).
Deferred taxes have to be disclosed as
separate balance sheet items: “Deferred
tax assets” (sec. 266 subsec. 2 D HGB)
and “Deferred tax liabilities” (sec. 266
subsec. 3 E HGB).
Presentation does not in­cor­porate the
maturity of de­ferred taxes. Disclosure on
maturity is not required.
Similarities and Differences IFRS and German GAAP 107
Deferred taxes
Set off
IFRS
German GAAP
Setting off if the entity has a legally
enforceable right to set off current tax
assets against liabilities and the deferred
tax assets and the deferred tax liabilities
relate to income taxes levied by the same
tax authority.
Deferred tax assets and liabilities may be
presented net. There are no specific
requirements for setting off deferred tax
assets and deferred tax liabilities.
Distribution restrictions
IFRS
German GAAP
No distribution measurement function.
Only the excess of deferred tax assets
over deferred tax liabilities is restricted for
distribution. Deferred tax liabilities that
have been recognised in connection with
intangible assets or plan assets at fair value,
shall not be considered for this cal­cu­lation,
because these de­fer­red tax liabilities have
to be considered for distribution restrictions
connected with intangible assets or plan
assets at fair value.
Discounting
IFRS
German GAAP
Prohibited
Prohibited
Disclosures
IFRS
German GAAP
Various disclosures are re­quired (IAS
12.79–12.88), for example major
components of tax expense (income), the
aggre­gate current and de­ferred tax relating
to items that are charged or credited to
equity, an explanation of the relationship
between tax expense (income) and
accounting profit.
The differences or tax loss carryforwards
on which deferred taxes are based have
to be disclosed as well as the tax rates at
which deferred taxes have been measured.
This disclosure shall also be made for
deferred taxes that have been netted; it is
not necessary for a net amount of deferred
tax assets that has not been recognized in
accordance with the recognition option.
If deferred tax liabilities have been
recognized and are presented on the
balance sheet, the amount of deferred tax
assets and liabilities and their changes
during the fiscal year shall be disclosed.
108 Similarities and Differences IFRS and German GAAP
Deferred taxes
Tax rate reconciliation
IFRS
German GAAP
Explanation of the relation between tax
expenses and accounting profit (or loss)
by reconciling the tax expenses recognised
and the expected tax expenses or the
effective tax rate and the applicable tax
rate. The basis on which the applicable tax
rate is computed should be dis­closed.
No statutory obligation for the disclosure
of a tax rate re­con­ciliation.
Tax groups
IFRS
German GAAP
For the recognition of de­fer­red taxes on
tax groups no rules exist. In practice there
are two different approaches. The “formal
approach” states that de­ferred taxes are
shown in the financial statements of the
controlling company. The “stand-alone
approach” states that deferred taxes are
recognised on the level of the subsidiary
company.
In tax groups, deferred taxes are accounted
by the “formal approach”: deferred taxes
for temporary differences of the subsidiary
company are con­sidered on the level of
the controlling company; the subsidiary
company does not recognise any deferred
taxes (exception: existing of a contract for
the distribution of the tax burden).
In case of an (expected) ter­mi­nation of a tax
group, the deferred taxes for temporary
differences that reverse after the termination
of the tax group shall be recognized at the
level of the subsidiary company.
Initial recognition differences
IFRS
German GAAP
Deferred taxes which are based on
According to German GAAP there is no
exception for the recognition of deferred
temporary differen­ces resulting from initial
recog­nition of goodwill (only in cases of
taxes on initial differences.
taxable temporary differences) or of an
asset or liability in a transaction that is not a
business combination and at the time of
the trans­action neither affects accoun­ting
profit nor taxable profit (tax loss) shall not
be recog­nised.
Tax non-deductible goodwill
IFRS
German GAAP
No recognition of deferred taxes.
No recognition of deferred taxes.
Similarities and Differences IFRS and German GAAP 109
Deferred taxes
Outside basis differences
IFRS
German GAAP
Deferred tax liabilities for outside basis
Deferred taxes for outside basis differences
differences should be recognised, except
shall not be recognised.
to the extent that the parent, investor or
venture is able to control the timing of the
rever­sal of the temporary differences and it
is probable that the temporary difference
will not reverse in the fore­seeable future.
Deferred tax assets for outside basis
differences should be recog­nised to the
extent that the temporary difference will
reverse in the foreseeable future and
taxable profit will be available against which
the temporary difference can be utilised.
Consolidation of intermediate results
IFRS
German GAAP
Deferred taxes arising from temporary
differences from the consolidation of
inter­medi­ate results should be recognised
at the level of the recipient of the
intercompany transaction. In this case
the tax rate of the recipient is applicable.
Similar to IFRS.
Risks resulting from audits by the fiscal authorities
IFRS
German GAAP
No specific rules exist. How­ever effects
depending on audits of the fiscal authori­ties
have to be recog­nised for de­ferred tax
pur­poses if pro­bable.
Effects resulting from audits of the fiscal
authorities have to be recognised for
deferred tax purposes to the extent that
they lead to temporary differences.
110 Similarities and Differences IFRS and German GAAP
Share-based payments
NShare-based payments
Classification
IFRS
German GAAP
IFRS 2 encompasses all arrange­ments
where an entity purchases goods or
services in exchange for the issue of equity
instruments (including shares or share
options), or cash payments based on the
price (or value) of the equity instruments
of the entity or another group entity. Goods
or services received in a share-based
payment trans­action are recognised when
they are received. Share-based payment
transactions include:
• equity-settled share-based payment
transactions (entity receives goods or
services, either as consi­deration for its
own equity instruments or the entity has
no obligation to settle the transaction);
• cash-settled share-based payment
transactions (entity acquires goods or
services by incurring a liability, but the
amount is based on the price (or value)
of the equity instruments of the entity or
another group entity); and
• transactions with a choice of settlement,
where arrange­ments provide either the
entity or the counterparty with a choice of
settlement in cash or equity.
No specific guidance. The general
recognition and measurement criteria apply.
There is no specific guidance in the
accounting legislation. Several accounting
treat­ments may be acceptable.
Share-based payment transactions are
classified as:
• equity-settled share-based payment
transactions;
• cash-settled share-based payment
transactions; or
• share-based payment transactions with a
choice of settlement.
Allocation to the individual classes may
differ for indi­vidual transactions between
IFRS and German GAAP.
Similarities and Differences IFRS and German GAAP 111
Share-based payments
Recognition and measurement
IFRS
German GAAP
Equity-settled share-based payment
transactions are measured at the fair value
of the goods or services re­cei­ved, with a
corres­ponding increase in equity. If the entity
cannot estimate reliably the fair value,
which is deemed always to be the case
for transactions with employees, the goods
or services are measured at the fair value
of the equity instruments gran­ted, ignoring
any service or non-market vesting condi­tions
or reload features.
For equity-settled trans­actions an
accounting treatment similar to IFRS is
recommended. Alternatively, in some cases
an equity-settled transaction may not be
recognised in the financial statements.
In cash-settled share-based payment
transactions, goods or services received
aremea­sured at their fair value, with a
corresponding liabilityincur­red at fair value.
Until the liability is settled, the fair value of
the liability is remea­sured at each reporting
date and at the date of final settle­ment, with
any changes in fair value recognised in profit
or loss.
Awards that offer the counter­party the
choice of settlement in equity instruments
or settle­ment in cash should be bifurcated
and treated as a compound instrument.
If the entity has the choice to settle in cash
or by the issue of equity instruments, the
entity has a present obligation (legal or
constructive) to settle in cash. The entity
has a present obligation if the choice of
settlement has no commercial substance
or if the entity has a past practice or stated
policy of settling in cash. If no such
obligation exists, the entity shall account
the trans­action as equity-settled sharebased payment transaction.
If the entity pays any taxes due on sharebased payment transactions on behalf of its
employees, these shall be accounted for as
cash-settled share-based payments.
112 Similarities and Differences IFRS and German GAAP
For cash-settled transactions an accounting
treatment similar to IFRS is recom­mended.
Alternatively, in some cases an entity may
recognise the intrinsic value (and not the fair
value) of the plan at the balance sheet date.
Off-balance treatment of a cash settled
transaction is not possible, as the entity has
incurred an obligation.
Transactions with choice of settlement
(either counter­party or entity) should be
measured either as equity-settled or as
cash-settled, whatever is more probable.
Before settlement the amount should
always be shown as a liability and not as
an increase in equity.
Foreign currency translation
OForeign currency translation
Functional currency
IFRS
German GAAP
Functional currency is defined as the
currency of the primary economic
environment in which an entity operates.
According to Germen GAAP there is no
concept of a functional currency and the
determination thereof. Consolidated
financial statements have to be prepared in
Euro (sec. 2998 subsec. 1 in conjunction
with sec. 244 HGB).
IFRS provides a list of primary and
secondary indicators to consider when
determining functional currency. If the
indicators are mixed and the functional
currency is not obvious, management
should use its judgement to deter­mine
the functional currency that most faithfully
represents the economic results of the
entity’s operations by focusing on the
currency of the economy that determines
the pricing of transactions (which may not
be the currency in which trans­actions are
denominated) and the currency that mainly
influences labour, material and other costs
of providing goods and services.
Additional evidence (secon­dary in priority)
may be provi­ded from the currency in
which funds from financing activities are
generated, or receipts from operating
activities are usually retained, as well as
the nature of activities and extent of
transactions between the foreign operation
and the reporting entity.
Similarities and Differences IFRS and German GAAP 113
Foreign currency translation
Separate financial statements
IFRS
German GAAP
A foreign currency transaction is a
transaction that is de­no­minated or requires
settle­ment in a foreign cur­rency. A foreign
currency transaction should be recorded,
on initial recognition in the functional
currency, by applying to the foreign
currency amount the spot exchange rate
between the functional currency and the
foreign currency at the date of the
transaction.
Separate financial statements have to be
prepared in Euro (sec. 244 HGB).
For initial recognition of foreign currency
transactions no special rules are enacted.
Thus, general principles on recognition
and valuation have to be applied. At initial
recognition, for translation of the foreign
currency trans­action the exchange rate at
date of transaction has to be applied.
For subsequent measure­ment, the
mean spot rate has to be applied
(sec. 256a sentence. 1 HGB). For assets
and liabilities with a remaining term of
one year or less, the realisation principle
(sec. 252 subsec. 1 No. 4 HGB) and the
cost method (historical cost principle;
sec. 253 subsec. 1 HGB ) shall not be
applied (sec. 256a sentence 2 HGB).
Gains or losses from trans­lation of foreign
currency are recognised in profit or loss
and are presented separately as a part of
“other operating income”/“other operating
expenses” (sec. 277 subsec. 5 HGB).
At the end of each reporting period, the
following trans­lation requirements should be
followed:
• Monetary assets/liabilities denominated
in a foreign currency – translate at the
closing (year-end) rate.
• Non-monetary foreign currency assets/
liabilities – translate at the appropriate
historical rate (exchange rate at the date
of the trans­action).
• Non-monetary items deno­minated in
a foreign currency and carried at fair
value – reported using the exchange
rate that existed when the fair value was
determined.
• The date of a transaction is the date
on which the transaction first qualifies
for recognition. For practical reasons,
an average rate for a week or a month
may be used for all transactions in each
foreign currency during that period
(provided that exchange rates do not
fluctuate significantly).
114 Similarities and Differences IFRS and German GAAP
Foreign currency translation
IFRS
German GAAP
Exchange differences arising on the
settlement of monetary items or on
translating mone­tary items at rates different
from those at which they were translated
of initial recognition during the period
or in pre­vious financial statements shall
be recognised in profit or loss in the period
in which they arise.
When a gain or loss on a non-monetary item
is re­cog­nised in other compre­hensive
income (OCI), any exchange component of
that gain or loss should be recog­nised in
OCI. Con­vers­ely, when a gain or loss on a
non-monetary item is recog­nised in profit or
loss, any exchange com­po­nent of that gain
or loss should be recognised in profit or
loss.
Consolidated financial statements
IFRS
German GAAP
The results and financial position of an
entity whose functional currency is
not the currency of a hyperinfla­tion­ary
economy shall be trans­lated into a different
presentation currency using the following
procedures:
a) assets and liabilities for each statement
of financial position presented shall be
trans­lated at the closing rate at the date
of that statement of financial position;
b) income and expenses for each
statement pre­senting profit or loss
and other comprehensive income
shall be trans­lated at exchange rates
at the dates of the trans­actions; and
c) all resulting exchange differences shall
be recog­nised in other comprehensive
income and accumulated in a separate
component of equity.
In consolidated financial statements, the
“modified closing rate method” is used
for the translation of financial statements
in foreign curren­cies (sec. 308a HGB).
The following translation require­ments are
prescribed by German GAAP:
• Balance sheet items are translated using
the mean spot rate on the balance sheet
date. Exception: shareholder’s equity
shall be translated at historical rates.
• Items of profit and loss shall be translated
using average exchange rates.
For practical reasons, a rate that
approximates the ex­change rates at the
dates of the transactions, for example an
average rate for the period, is often used
to translate income and expense items.
However, if exchange rates fluctuate
significantly, the use of the average rate
for a period is inappropriate.
Translation differences arising from the
modified spot rate method shall be
recognized directly in equity in a separate
balance sheet item “equity difference due
to currency translation” which has to be
shown after reserves. On partly or whole
withdrawal of a foreign subsidiary from
the basis of consolidation (for example:
disposal, liquidation), the translation
difference is released into profit or loss,
partly or in full, respectively.
Similarities and Differences IFRS and German GAAP 115
Foreign currency translation
IFRS
IFRS does not specify how to translate
equity items. Mana­ge­ment has a policy
choice to use either the historical rate or the
closing rate. The chosen policy should be
applied consistently.
Exchange differences arising on a monetary
item that forms part of a reporting entity’s
net investment in a foreign operation
(i. e. a receivable from or payable to a
foreign operation (for example longterm receivables or loans but no trade
receivables or loans) for which settlement
is neither planned nor likely to occur in
the foreseeable future) shall be recognised
in profit or loss in the separate financial
state­ments of the reporting entity or the
individual financial state­ments of the foreign
operation, as appropriate. A foreign
operation is a subsidiary, associate, joint
arrangement or branch of the reporting
entity, the activities of which are based
or con­ducted in a country or currency
other than those of the reporting entity.
In consolidated financial statements that
include the foreign operation and the
reporting entity, such exchange differen­ces
shall be recog­nised in other comprehensive
income and reclassified from equity to profit
or loss on disposal of the net invest­ment.
Any goodwill arising on the acquisition
of a foreign operation and any fair value
adjustments to the carrying amounts
of assets and liabilities arising on the
acquisition of that foreign operation shall
be treated as assets and liabilities of the
foreign operation and trans­lated at the
closing rate.
116 Similarities and Differences IFRS and German GAAP
German GAAP
Foreign currency translation
IFRS
German GAAP
The cumulative amount of exchange
differences recognised in other
comprehensive income is carried forward
as a separate com­ponent of equity until
there is a disposal of the foreign operation.
On the foreign operation’s disposal, the
full cumulative amount of the exchange
differences are recognised in profit or loss
(reclassification), when the gain or loss on
disposal is recognised. This principle of full
reclassification of accu­mulated exchange
differences also applies to the loss of joint
control or significant influence over a
jointy con­trolled entity or an associate.
In case of only a partial disposal of a
subsidary that includes a foreign operation
(i. e. a disposal that does not involve loss
of control of the subsidary ), the entity
reattributes the pro­por­tio­nate share of the
accu­mu­la­ted exchange differences to the
non-controlling interests in that foreign
operation. On a partial disposal of an
interest in a jointly controlled entity or an
associate, where joint control or significant
influence are not lost, a proportionate
amount of the accumulated exchange
differences is reclassified to profit or loss.
Similarities and Differences IFRS and German GAAP 117
Related parties
PRelated parties
Definition of a related party
IFRS
German GAAP
A related party is a person or entity that is
related to the entity that is preparing its
financial statements.
a) A person or a close member of that
person’s family is related to a reporting
entity if that person:
(i)has control or joint con­trol of the
reporting entity;
(ii)has significant influence over the
reporting entity; or
(iii)is a member of the key management
personnel of the reporting entity or of
a parent of the reporting entity.
Determination of “related party
relationships” in German GAAP is based on
the definition according to IFRS (reference
to IAS 24).
b) An entity is related to a reporting
entity if any of the following conditions
applies:
(i)The entity and the re­por­ting entity are
members of the same group (which
means that each parent, subsidiary
and fellow subsidiary is related to the
others).
(ii)One entity is an associate or joint
venture of the other entity (or an
asso­ciate or joint venture of a
member of a group of which the other
entity is a member).
(iii)
Both entities are joint ventures of the
same third party.
(iv)
One entity is a joint venture of a
third entity and the other entity is an
associate of the third entity.
(v)
The entity is a post-employment
benefit plan for the benefit of
employees of either the reporting
entity or an entity related to the
reporting entity. If the reporting entity
is itself such a plan, the sponsoring
employers are also related to the
reporting entity.
118 Similarities and Differences IFRS and German GAAP
Related parties
IFRS
German GAAP
(vi)
The entity is controlled or jointly
controlled by a person identified in a).
(vii)
A person identified in a) (1) has
significant influence over the entity or
is a member of the key management
personnel of the entity (or of a parent
of the entity).
(viii)The entity, or any member of a group
of which it is a part, provides key
manage­ment personnel services to
the reporting entity or to the parent of
the reporting entity.
Disclosures and exemptions
IFRS
German GAAP
The nature and extent of any transactions
with all related parties and the nature of the
relationship is disclosed, together with the
amounts involved.
German GAAP requires, as a minimum
requirement, the disclosure of all material
transactions with related parties which are
not at arm’s length. German GAAP offers a
policy choice whether to include all material
There is a requirement to dis­close the
trans­actions with related parties or just
amounts involved in a transaction, the
those that are not at arm’s length.
amount, terms and nature of the out­
Disclosures that have to be made for
standing balances, any doubtful amounts
these transactions include:
related to those outstanding balances and
• the nature of the related party
balances for each major category of related
relationship;
parties.
• the nature of the trans­action;
• the value of the transaction; and
The compensation of key management
• any additional information necessary for
personnel is disclosed in total and by
an under­standing of the financial position.
category of compensation.
Transactions with and be­tween indirectly
(Amendments of IAS 24 include a revision of and directly wholly owned com­panies
the definition of related parties and the
included in a set of consolidated financial
exclusion of state controlled entities from
state­ments are excluded from the
related parties.)
disclosure requirements.
Transactions may be grouped into types
of transactions, provided a separate
disclosure is not necessary in order to
understand the financial position of the
reporting entity.
Similarities and Differences IFRS and German GAAP 119
Other issues
QOther issues
Segment reporting
IFRS
German GAAP
Compulsory for publicly traded entities.
Voluntary in consolidated financial
statements.
Earnings per share
IFRS
German GAAP
Entities whose ordinary shares or potential No requirement to report EPS.
ordinary shares are traded in a public
market (a domestic or foreign stock
exchange or an over-the-counter- market,
including local and regional market) or
entities that file, or are in the process of
filing, financial statements with a securities
commission or other regulatory organisation
for the purpose of issuing ordinary shares
in the public market shall calculate and
disclose basic and diluted earnings per
share. When an entity presents both
con­soli­dated financial state­ments and
se­parate financial statements, respec­tively,
the disclosures required need be presented
only on the basis of the consoli­dated
information.
IFRS
Basic and diluted EPS for profit or loss from
continuing operations attributable to the
ordi­nary equity holders of the parent entity
and for profit or loss attri­butable to the
ordinary equity holders of the parent entity
for the period for each class of ordinary
shares that has a different right to share in
profit for the period shall be presented in
the state­ment of com­pre­hensive income. An
entity that reports a discontinued operation
shall disclose the basis and diluted amounts
per share for the dis­continued operation
either in the statement of comprehensive
in­come or the notes. If an entity presents
items of profit or loss in a separate
statement, it presents basic and diluted
EPS in that separate statement (or for
discontinued opera­tions optionally in the
notes).
120 Similarities and Differences IFRS and German GAAP
German GAAP
Other issues
Discontinued operations
IFRS
German GAAP
In the statement of comprehensive income No specific regulations.
the profit/loss after tax of the discontinued
operation shall be presented separately with
a further break­down in the statement of
comprehensive income or in the disclosure
notes.
Interim financial reporting
IFRS
German GAAP
IAS 34 does not man­date which entities
should be required to publish interim
financial reports. The standard applies if an
entity is required (for example accor­ding to
national securi­ties regulators rules) or elects
to publish an interim report in accordance
with IFRS.
According to the German Securities Trading
Act (WpHG) interim financial state­ments and
interim management reports are required
for certain issuers of shares and debt
securities.
Condensed financial statements
and condensed manage­ment report.
Interim financial report means a financial
report containing either a complete set of
financial statements or a set of condensed
financial statements for an interim period.
Interim financial state­ments are pre­pared
vie the discrete-period approach, wherein
the interim period is viewed as a separate
and dis­tinct accounting period, rather than
as part of an annual cycle. Therefore, the
sprea­ding of costs that affect the full year is
not appropriate.
The interim tax pro­vision is determined
by applying an estimated average
annual effective tax rate to interim period
pretax income. To the extent practi­cable,
a separate estimated average annual
effective tax rate is determined for each
material tax jurisdiction and applied to
individually to the interim period pretax
income of each jurisdiction.
Recognition of exchange differences
IFRS
German GAAP
Under full IFRS, ex­change differences that
Similar to IFRS.
form part of an entity’s net investment in a
foreign entity (subject to strict criteria of what
qualifies as net invest­ment) are recog­nized
initially in other com­prehensive income and
are re­cycled from equi­ty to profit or loss on
dis­posal of the foreign operation.
Similarities and Differences IFRS and German GAAP 121
Contacts
Contacts
WP StB CPA Prof. Dr. Rüdiger Loitz
Leader Capital Markets &
Accounting Advisory Services
Tel: +49 211 981-2839
ruediger.loitz@pwc.com
WP StB Guido Fladt
Leader National Office
Tel: +49 69 9585-1455
g.fladt@pwc.com
WP StB Björn Seidel
Partner Capital Markets &
Accounting Advisory Services
Tel: +49 40 6378-8163
bjoern.seidel@pwc.com
Thorsten Seidel
Senior Manager Capital Markets &
Accounting Advisory Services
Tel: +49 30 2636-4440
thorsten.seidel@pwc.com
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122 Similarities and Differences IFRS and German GAAP
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