Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
Accounting by Small and Medium-sized
Entities (SMEs)
- German Case Study Kati Beiersdorf
Accounting Standards Committee of Germany
Vienna, 15 March 2006
-1-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
Agenda
A. Development and Characteristics of
National GAAP
B. Accounting by SMEs in Germany
C. Future Developments
-2-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
A.1 German Accounting Legislation
1861
First Uniform Accounting Regulation independent of legal form or size of
entities (AGHGB)
1870 1892
• Accounting Laws differentiating between legal forms, e.g. corporations,
partnerships (e.g. AktG, GmbHG)
• Link between financial and tax accounting regulated by law
1897
For all companies: „German Accepted Accounting Principles“,
obligation to publish financial accounts depending on legal form (HGB)
19311965
Continuing differentiation: accounting regulations for corporations; in
addition: differentiation between sizes (Aktienrechts(not)verordnung, AktG)
Focus of accounting regulation: corporations = differentiation by legal form
1969
New level: Accounting regulations mandatory for all legal forms, but
dependent on size (PublG) = differentiation by legal form and size
-3-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
A.1 German Accounting Legislation
1985
• Implementation of 4th, 7th and 8th European Directives (BiRiLiG) and
• Restructuring of German Accounting Legislation  from
fragmentation by laws specific to legal forms to generally accepted
principles for all entities
• First time: broad accounting regulations for all companies within the
German Commercial Code (Third Book of HGB)
First Level:
Differentiation by Legal Form
Part one: all merchants
Part two: supplementary rules for corporations
Part three: cooperatives
Second Level:
Differentiation by Size
• Corporations and commercial partnerships (part two):
small, medium-sized, large
• Other companies must comply with PublG when certain
size criteria are met
-4-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
A.1 German Accounting Legislation
1998
Option for capital market oriented companies to prepare their consolidated
financial statements in accordance with internationally accepted
accounting standards (US GAAP, IFRS) (KapAEG)
= additional differentiation by capital market orientation and form of financial
statement (single or consolidated)
2004
Implementation of EU-Directive, IFRS-Regulation (BilReG)
current
•
•
•
•
Modernisation of German Accounting Legislation
Globalisation and Internationalisation drive further Developments
Importance of Information
Several Criteria for Differentiation between different GAAP
-5-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
Group Accounts
Individual Accounts
LISTED
Companies
IFRS
MANDATORY
since 2005
Member State
Option
NON-LISTED
Companies
A.2 IFRS Regulation – Member State Options
Member State
Option
Member State
Option
-6-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
A.3 Member State Options – Germany
NON-LISTED
Companies
LISTED
Companies
Group Accounts
Individual Accounts
IFRS: Prohibited
IFRS
MANDATORY
since 2005
Obligation Effective from 2007
for Listed debt instruments and users of
US GAAP
German GAAP
Accounts
Still Mandatory
Large Companies may file IFRS
financial statements with the Federal
Gazette
IFRS: Prohibited
IFRS: Option
German GAAP
Accounts
Still Mandatory
-7-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
A.4 Characteristics of German Accounting Legislation
Objective /
Purpose
Single Financial Statements:
• determine distributable profits
• tax purposes
• information, stewardship
Consolidated Financial Statements:
• provide Information
Investor oriented
Creditor oriented
Focus
German
Accepted
Accounting
Principles
Prudence:
Imparity Principle
Realisation Principle
• historical cost convention
• no recognition of unrealised gains
Anticipation of Losses
• recognition of expected or unrealised losses
required
• principle of lower of cost or market value (writedowns)
-8-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
Agenda
A. Development and Characteristics of National
GAAP
B. Accounting by SMEs in Germany
C. Future Developments
-9-
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
B.1 „Mittelstand“ – Relevance of SMEs in Germany
2003: 3.38 mil SMEs with about 20 mil employees
SMEs in % of all enterprises
subject to VAT
turnover of SMEs in % of all
turnovers subject to VAT
99,7
41,2
SME-Definition by IfM:
• number of employees
< 500
• annual turnover
< 50 mil €
• 70 % sole proprietorships
• 15,4 % private limited
companies
• 12,6 % partnerships
• 2 % other legal forms
Source: IfM Bonn (2004), SMEs in Germany Facts and Figures 2004, page 5 - 12.
- 10 -
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
B.2 Accounting Options for SMEs
Accounting for SMEs
National GAAP
IFRS
Remarks:
• integration in international market
majority of SMEs
(e.g. 1/6 of profits in SMEs with
applies National GAAP
annual turnover of 25 – 50 mil €
from international transactions)
Advantages
• well known standards • education for companies,
auditors, tax and accounting
with long tradition
advisors in two systems
• prudence principle
necessary
Disadvantages
• demand for SMEs to apply IFRS
because of consolidation by
• no acceptance
parent companies, demand by
internationally
banks, international creditors or
• lack of information
international capital markets
- 11 -
larger, international and
capital market-oriented
companies exercise
option
Advantages
• internationally accepted
• informative presentation
of financial position
Disadvantages
• at present two financial
statements required
• debt/equity problem
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
B.3 Differential Financial Reporting under German GAAP
Criteria for Differentiation
all merchants
corporations and commercial partnerships
other…
(1) Legal Form
(2) Size
Total Assets
Annual Turnover
Employees
Small
< 4.015 mil €
< 8.03 mil €
< 50
Medium-sized
< 16.06 mil €
< 32.12 mil €
< 250
Levels of Differentiation
(1) Accounting
(2) Auditing
(3) Publication
- 12 -
(4) Enforcement
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
B.4 Differential Financial Reporting under German GAAP
(1) Accounting: Examples
Legal Form
components of
financial
statements
All Merchants
Supplementary Regulation for Corporations
PLUS notes, management report
balance sheet,
income statements
supplementary regulation for consolidated financial statements
PLUS statement of changes in shareholders‘ equity, cash flow
statement and (optional) segment reporting
write-downs based on
prudent business
no such write-downs
recognition and
judgement
measurement
less options: e.g. if write-downs no longer apply lower carrying
measurement options
amount cannot be retained
(2) Auditing
Size of Entity
Large
Medium-sized
Small
audit of annual report
required
required
exempted
- 13 -
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
B.4 Differential Financial Reporting under German GAAP
(3) Publication Requirements
Size of Entity
Large
Medium-sized
Small
preparing f/s within
3 months
3 months
6 months
file f/s with commercial
register within
12 months
12 months
12 months
balance sheet
yes
yes, shorter version
yes, shorter version
profit/loss
yes
yes
no
notes
full
simplified
significant simplifications
management report
yes
yes
no
publication in federal
gazette
yes
no
no
Listed Securities
No Listed Securities
yes
no
(4) Enforcement
examined by financial reporting enforcement panel
- 14 -
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
Agenda
A. Development and Characteristics of National
GAAP
B. Accounting by SMEs in Germany
C. Future Developments
- 15 -
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
C. Future Developments
Accounting for SMEs
Decisive
Factors in
Germany
• German
GAAP is
creditor
oriented
• Tax link
• IASB-Project:
IFRS for
SMEs
Current Developments:
• Modernisation of German Accounting
Legislation
• Discussion of alternative systems of determining the distributable profit
• Discussion to separate tax and accounting
legislation
• Increasing demand for accounting
according to IFRS in SMEs
• High costs of different accounting systems
SME-Project:
• Consideration of SME-specific aspect
• Accounting simplifications
- 16 -
Future
?
Uniform
accounting
regulation in
accordance
with IFRS
(IFRS and
IFRS for
SMEs)
© Kati Beiersdorf, ASC of Germany / 15 March 2006
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
® ®
Deutsches Rechnungslegungs Standards Committee e. V.
Accounting Standards Committee of Germany
®
Zimmerstraße 30
10969 Berlin
Tel. +49 (0)30 20 64 12 0
Fax
+49 (0)30 20 64 12 15
www.drsc.de
beiersdorf@drsc.de
info@drsc.de
- 17 -
© Kati Beiersdorf, ASC of Germany / 15 March 2006