IFRS Vs German GAAP (PWC)

www.pwc.
de
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 Guido Fladt

Leader Capital Markets & Leader National Office
Accounting Advisory Services
Similarities and Differences: IFRS and German GAAP 5

Contents
Contents
A Accounting framework.......................................................................................7
B Financial statements...........................................................................................8
C Consolidated financial statements....................................................................15
D Business Combinations.....................................................................................26
E Revenue Recognition........................................................................................34
F Pensions and other long-term benefits..............................................................40
G Non-financial assets.........................................................................................47
H Financial assets................................................................................................73
I Liabilities..........................................................................................................82
J Financial liabilities...........................................................................................84
K Equity instruments...........................................................................................90
L Derivatives and hedging...................................................................................92
M Deferred taxes................................................................................................106
N Share-based payments.................................................................................... 111
O Foreign currency translation.......................................................................... 113
P Related parties............................................................................................... 118
Q Other issues....................................................................................................120
Contacts................................................................................................................122
6 Similarities and Differences: IFRS and German GAAP

Accounting framework
A Accounting framework
Historical cost or fair value
IFRS German GAAP

Historical cost is the primary basis of Historical cost is the main accounting
accounting for non-financial assets. convention. No revaluations are allowed.
However, IFRS permits the revaluation An exception applies to banks/financial
to fair value of some intangible assets, institutions, where all financial instruments
property, plant and equipment, investment held for trading are to be measured at fair
property and inventories in certain value (see Financial assets). A second
industries (for example commodity broker/ exemption applies to assets which are
dealer). IFRS also requires that biological deprived of all other creditors access and
assets be reported at fair value less costs exclusively relate to the coverage of pension
to sell. The measurement of financial assets obligations or comparable long-term
depends on their classification (generally liabilities. They also have to be measured
fair value). at fair value (before being offset against
such liabilities).
Fair presentation over-ride
IFRS German GAAP

Entities may depart from a standard Departure from the German
under IFRS (extremely rare in practice), Commercial Code is not allowed. If
if management of that entity concludes specific circumstances result in the
that compliance with the standard or financial statements not showing a true and
interpretation would render financials to fair view, additional disclosures are required
be misleading. The reasons for such a in the notes (extremely rare in practice).
conclusion and departure along with the
financial impact need to be disclosed.
First-time adoption of accounting frameworks
IFRS German GAAP

Full retrospective application of all IFRS A merchant has to prepare financial
effective at the reporting date for an entity’s statements for the first time according to
first IFRS financial statements, with some German GAAP when commencing business
optional exemptions and limited mandatory (opening balance sheet). A corporation
exceptions. Comparative information is (parent) with registered office in Germany
prepared and presented on the basis of has to prepare a consolidated financial
IFRS. Almost all adjustments arising from statement (either according to German
the first time application of IFRS are GAAP or, in certain circumstances
adjusted against opening retained earnings according to IFRS), if it can exercise a
for the first period presented on an IFRS controlling influence over another enterprise
basis. Some adjustments are made against (subsidiary).
goodwill or other classes of equity.

Financial statements
B Financial statements
Components of financial statements
IFRS German GAAP

A complete set of financial statements Similar to IFRS for consolidated financial
comprises: statements, as well as for single-entity
• statement of financial position as at the financial statements of publicly traded
end of the period; companies.1
• statement of profit or loss and other
comprehensive income for the period; For single-entity financial statements,
• statement of changes in equity for the statement of cash flows and statement of
period; changes in equity are not required.2
• statement of cash flows for the period;
and It is optional for companies that have to
• notes, comprising significant accounting prepare consolidated financial statements
policies and other explanatory to include segment reporting. Publicly
information; traded companies that do not have to
• comparative information in respect of the prepare consolidated financial statements
preceding period. can add segment reporting to their
individual financial statements.
An entity may present either a single
statement of profit or loss and other Additional to financial statements a
comprehensive income or two separate, management report has to be prepared
but consecutive statements of profit or (see “Management report”).
loss and of comprehensive income,
which shall begin with profit or loss.
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
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.
2
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.

Statement of financial position (balance sheet)
IFRS German GAAP

There are certain minimum line items which Items on the face of the balance sheet are
should be presented separately in the presented in increasing order of liquidity.
statement of financial position.
Entities with specific legal forms (for
The presentation of a classified balance example corporations) are required to
sheet (current/non-current distinction) is use a particular balance sheet format.
required, except when a liquidity presen Additional requirements exist for financial
tation provides information that is reliable services institutions and insurance
and more relevant. companies.
Current assets/liabilities include items due Separate presentation of fixed assets and
or expected to be realised within 12 months current assets is required. Current assets are
after the reporting period. Deferred taxes those not intended for long-term use in the
are classified as non-current in the state business.
ment of financial position with a current/
non-current break up discussed in the
notes.
Offsetting of assets and liabilities is only Offsetting assets and liabilities is only
allowed under restrictive conditions. allowed or compulsory under restrictive
conditions.
Non-controlling interests are presented Non-controlling interests are presented

separately within equity. as a part of equity.
Income statement/statement of comprehensive income
IFRS German GAAP

Expenses may be presented either by In general similar to IFRS. Under
function or by nature, whichever provides German GAAP there is no “statement
information that is reliable and more of comprehensive income”.
relevant depending on historical and
industry factors and the nature of the Income statement may be presented using
entity. Additional disclosure of expenses the total cost (nature of expense) or the
by nature, including depreciation and cost of sales (function of expense) method.
amortization expense and employee For both methods a minimum structure is
benefit expense, is required in the notes required.
to the financial statements if functional
presentation is used on the face of the For certain legal forms, especially
income statement. 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.

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 In each case, the amount and nature of
or defined. However, the separate the individual income and expenses of
disclosure is required (either on the face exceptional magnitude or of exceptional
of the comprehensive/separate income importance have to be disclosed insofar as
statement or in the notes) of items of the amounts are not of minor importance.
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.

Statement of changes in equity (SoCIE)
IFRS German GAAP

All owner changes in equity will be A statement of changes in equity is only
presented in a statement of changes in required for consolidated financial
shareholder’s equity. statements as well as for publicly traded
companies which do not have an obligation
This statement will present: to prepare consolidated financial
• total comprehensive income for the statements.
period, showing separately the total
amounts attributable to owners of the German Accounting Standard 22 (GAS 22)3
parent and to non-controlling interests; requires the group statement of changes in
• for each component of equity, the equity to include the changes in the
effects of retrospective application or following components of group equity:
retrospective restatement in accordance • subscribed capital of the parent entity
with IAS 8; (incl. ordinary shares and preference
• amounts of transactions with owners in shares)
their capacity as owners; and • treasury shares
• for each component of equity, a • uncalled unpaid capital
reconciliation between the carrying • capital reserves
amount at the beginning and the end of • revenue reserves
the period, separately disclosing changes • currency translation differences
resulting from • retained profit/accumulated losses
a) profit or loss, brought forward
b) other comprehensive income, and • consolidated net income/net loss for the
c) transactions with owners in their financial year attributable to parent entity
capacity as owners, showing separately • equity attributable to non-controlling
contributions by and distributions to interests
owners and changes in ownership • accumulated other gains and losses
interests in subsidiaries that do not recognised directly in equity and relating
result in a loss of control. 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).

Statement of cash flows – format and method
IFRS German GAAP

Standard headings, but limited flexibility of Under HGB a statement of cash flows is
contents. 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 According to GAS 21 the statement of cash
prepared using the direct method flows shall report cash flows classified by
(cash flows derived from aggregating cash operating (presented either using the direct
receipts and payments associated with or indirect method), investing and financing
operating activities) or the indirect method activities (presented using the direct
(cash flows derived from adjusting method).
net income for non-cash transactions –
for example depreciation). The indirect Special regulations apply to statements of
method is more common in practice. cash flows of financial services institutions
(GAS 21 App. 2) and insurance enterprises
Non-cash financing and investing (GAS 21 App. 3).
transactions are to be disclosed.
Statement of cash flows – definition of cash and cash equivalents
IFRS German GAAP

Cash includes cash on hand and demand Cash funds (defined as highly liquid funds)
deposits. Cash equivalents are short-term, only include cash and cash equivalents.
highly liquid investments that are readily
convertible to known amounts of cash and Investments classified as cash equivalents
are subject to an insignificant risk of must be readily convertible to cash without
changes in value. significant losses in value and may be
subject to only minor changes in value.
An investment normally qualifies as a cash
equivalent when it has a maturity of three Cash equivalents therefore generally have
months or less from acquisition date. maturities of not more than three months,
measured from the date of acquisition.
Cash and cash-equivalents may also
include bank overdrafts repayable on Liabilities to credit institutions that are
demand that form an integral part of an repayable on demand and other short-term
entity’s cash management. Short-term borrowings that are used for an entity’s
bank borrowings (these are not included cash management are required to be
in cash or cash equivalents and are included in cash funds.
considered to be financing cash flows).

Accounting polices, errors, estimates – changes in accounting policy
IFRS German GAAP

Changes in accounting policies are Changes in accounting policies are
accounted for retrospectively. generally accounted for prospectively.
Comparative information is restated and The resulting effect of a change is

the amount of adjustment relating to prior recognised in the current year income
periods is adjusted against retained statement if not determined otherwise
earnings of the earliest period presented (for example by transition provisions
(except when it is impracticable to change of specific GASs).
comparative information). The effect of
retrospective adjustments on each item of Changes in accounting policies have to
equity is presented separately in the SoCIE. be disclosed. Adjustment of the opening
balance or restatement of the previous year
Accounting policy changes resulting from is not required. To ensure comparability
the adoption of a new accounting standard with previos years figures in these cases,
are accounted for in accordance with the additional information has to be disclosed.
transition provisions of that standard.
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 The effect of errors in previous reporting
corrected by retrospective restatement periods shall be strictly included in the
(except to the extent that it is impracticable determination of net profit or loss in the
to determine either the period-specific current period.
effects or the cumulative effects of the
error). Comparatives are restated and, if Additional disclosures, for example nature
the error occurred before the earliest prior of the error, amount of the correction, are
period presented, the opening balances of to be provided in the notes if necessary to
assets, liabilities and equity for the earliest ensure comparability with comparatives.
prior period presented are restated and the Restatement is required only in exceptional
opening statement of financial position circumstances.
should be presented.

Accounting polices, errors, estimates – changes in accounting estimates
IFRS German GAAP

The effect of a change in an accounting The effect of a change in an accounting
estimate shall be recognised prospectively estimate shall be included in the income
by including it in profit or loss in the period statement for the period in which the
of change, if the change affects that period change is made (similar to IFRS).
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.

Consolidated financial statements
C Consolidated financial statements

Investments in subsidiaries – definition of subsidiary
IFRS German GAAP

Under IFRS parent-subsidiary relationships Under HGB the existence of a parent-
are determined by the “control concept”.4 subsidiary relationship is based solely on
the possibility of controlling influence by
the parent company.
Control exists if the investor (parent) has: Controlling interest exists when the parent
• power over the investee (subsidiary), (directly or indirectly through subsidiaries):
• exposure to variable returns from its • holds the majority of voting rights;
involvement with the investee, and • enjoys the right to appoint or dismiss
• has the ability to use its power over the the majority of the members of the
investee to affect its returns. administrative, management or
supervisory body governing financial and
Paragraph B3 of Appendix B to IFRS 10 operating policies, and is at the same
identifies the factors an investor should time a shareholder;
consider during its assessment of control • enjoys the right to exercise a controlling
over an investee. These are: influence on financial and operating
• the investee’s purpose and design; policies (based on a control agreement/
• what the relevant activities are; articles of association); or
• how decisions about those relevant • in substance obtains the majority of
activities are made; the risks and rewards of an entity that
• whether the rights of the investor give it has a narrow, well-defined purpose
the current ability to direct the relevant (see “Special purpose entity”).
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.

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 According to HGB the possibility of

not significantly impact an investee’s controlling influence is conclusively
returns. The investee may be on ‘auto-pilot’ presumed to exist when the parent holds
such that relevant activities are pre- the majority of voting rights (50% + 1), but
determined or directed via contractual has no de facto control. An example for
arrangements. Assessment of the purpose this case is the lack of the parent’s actual
and design of an investee may, therefore, controlling influence because another
help determine who has control. shareholder holds participating rights.
In such a case, the following should be In this case, HGB offers an inclusion
considered in assessing an entity’s purpose option for the relevant subsidiary. When
and design: all inclusion options for subsidiaries have
• Downside risks and upside potential that been duly exercised and accordingly no
the investee was designed to create. subsidiary is subject to consolidation, the
• Downside risks and upside potential that obligation to prepare consolidated financial
the investee was designed to pass on to statements is not applicable.
other parties in the transaction.
• Whether the investor is exposed to those Under HGB potential voting rights that
risks and upside potential. could be exercised at the present time are
not taken into consideration.

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 No comparable regulation with regard to
following exception. If the entity meets the investment entities.
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.

Investments in subsidiaries – Special purpose entity (SPE)

or Structured entity
IFRS German GAAP

This section deals with investees that are Regarding SPEs control is considered
considered to be structured entities. to exist if from a substance-over-form
SIC 12 used the term ‘special purpose perspective the parent entity assumes the
entities’ (SPEs) to mean those entities that majority of the risks and rewards associated
are created to accomplish a narrow and with an entity, which serves to achieve a
well-defined objective. Appendix A to strictly limited and precisely defined
IFRS 12 defines a structured entity as purpose for the parent entity.
“an entity that has been designed so that
voting or similar rights are not the dominant Differences exist with regard to the control
factor in deciding who controls the entity, concept in general. See “Definition of
such as when any voting rights relate to subsidiary”.
administrative tasks only and the relevant
activities are directed by means of By implementing this regulation the
contractual arrangements.”5 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.

Investments in subsidiaries – Non-consolidation of subsidiaries
IFRS German GAAP

All subsidiaries that are controlled by the A subsidiary may be excluded from the
parent (see “Definition of a subsidiary”) consolidated financial statement if:
are consolidated, except for subsidiaries • there are significant long-term restrictions
excluded from consolidation for materiality on parent’s rights in respect of assets or
reasons. Further an investment entity shall management of that subsidiary;
not consolidate its subsidiaries or apply • the information required cannot be
IFRS 3 when it obtains control of another obtained without disproportionate
entity.6 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 Uniform accounting policies are required.
prepared by using uniform accounting Special industry accounting principles for
policies for like transactions and events in banks and insurance companies applied by
similar circumstances for all of the entities a subsidiary shall be retained (unless the
in a group. 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.

Investments in joint arrangements – definition and types
IFRS German GAAP

A joint arrangement is an arrangement of German GAAP does not distinguish
which two or more parties have joint between different types of joint ventures.
control. The term “joint venture” under German
GAAP refers to “joint arrangements” under
A joint arrangement has the following IFRS. A joint venture is defined as an entity
characteristics: that is controlled jointly by one of the entities
a) The parties are bound by a contractual included in the consolidated financial
arrangement. statements and by one or several other
b) The contractual arrangement gives two enterprises which do not belong to the
or more of those parties joint control of group. Joint control of an enterprise exists
the arrangement. when strategic decisions relating to the
business, capital expenditures and financing
A joint arrangement is either a joint activities of the enterprise require the
operation or a joint venture. consent of all the venturers. Joint control
must be actually exercised; the sole ability
A joint operation is a joint arrangement for joint control is not sufficient. For the
whereby the parties that have joint control accounting treatment of joint ventures see
(see control concept) of the arrangement “Jointly controlled entities”.
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.

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.

Investments in joint arrangements – Accounting for contributions to a

jointly controlled entity
IFRS German GAAP

A venturer that contributes non-monetary A contribution to a jointly controlled entity
assets, such as shares, property, plant and in exchange for an equity interest is
equipment or intangible assets, to a jointly recognised in the same way as an exchange
controlled entity in exchange for an equity of assets.
interest in the jointly controlled entity
recognises in its consolidated income Cost of the acquired equity interest can be
statement the portion of the gain or either:
loss attributable to the equity interests • carrying amount of the consideration
of the other venturers, except when the given;
contribution lacks commercial substance, • fair value of the consideration given; or
as that term is described in IAS 16 Property, • the carrying amount of the consideration
Plant and Equipment. If such a contribution given plus any amount necessary to
lacks commercial substance, the gain or compensate for the income tax resulting
loss is regarded as unrealised and is not from the exchange.
recognised unless IAS 28.31 also applies.
Such unrealised gains and losses shall If the consideration comprises the exchange
be eliminated against the investment of shares issued through an increase of
accounted for using the equity method capital, in the financial statements of the
and shall not be presented as deferred joint venture, any value within the range of
gains or losses in the entity’s consolidated par value of these shares and the fair value
statement of financial position or in the of the consideration received could be the
entity’s statement of financial position in cost of the contribution.
which investments are accounted for using
the equity method. 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.

Investments in associates – Definition of associate
IFRS German GAAP

An associate is an entity over which the An associate is an entity in which the group
investor has significant influence. Significant has significant influence and which is
influence is the power to participate in the neither a subsidiary nor a joint venture of
financial and operating policy decisions of one of the group’s entities. Significant
the investee but is not control or joint influence is defined as participation in the
control of those policies. financial and operating policy decisions
of an investee without the ability to control
Significant influence is presumed if the the investee (directly or indirectly).
investor holds 20% or more of the voting
power of the investee. Significant influence Significant influence is rebuttably presumed
is usually also evidenced in one or more if an investor holds, directly or indirectly,
of the following ways: 20% or more of the voting rights of an
• representation on the board of directors investee.
or equivalent governing body of the
investee; Indicators for the existence of a significant
• participation in policy-making processes, influence are:
including participation in decisions about • representation on the management board
dividends or other distributions; or equivalent governing body of the
• material transactions between the entity investee;
and its investee; • participation in financial and operating
• interchange of managerial personnel; or policy making processes of the investee;
• provision of essential technical • interchange of managerial personnel;
information. • material business relationships with the
investee;
In assessing whether potential voting rights • provision of essential know-how by the
contribute to significant influence, the shareholder.
entity examines all facts and circumstances
(including the terms of exercise of the The qualification as “associate” requires
potential voting rights and any other the actual exercise of significant influence.
contractual arrangements whether The sole possibility of exercising significant
considered individually or in combination) that influence is not sufficient.
affect potential rights, except the intention of
management and the financial ability to
exercise or convert those potential rights.
Investments in associates – Presentation of associate results (in

separate financial statements)
IFRS German GAAP

When separate financial statements are Investments in associates are included
prepared, investments in associates shall under investments in separate financial
be accounted for either: statements and are measured at cost less
• at cost; or impairment losses. See “Financial assets –
• in accordance with IAS 39/IFRS 9; or Subsequent measurement”.
• using the equity method as described in
IAS 28.
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.

Investments in associates – Presentation of associate results (in

consolidated financial statements)
IFRS German GAAP

In consolidated financial statements, In consolidated financial statements,
an investor accounts for an investment in an investment in an associate is accounted
an associate using the equity method for using the equity method.
(see “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 On acquisition of the investment, the
investee’s (that is the associate’s or joint investor accounts for the difference
venture’s) profits and losses in the income between the acquisition costs and the
statement. This is shown at a post-tax level. investor’s share of fair value of the net
The investor recognises in equity its share of identifiable assets as goodwill or as
changes in the investee’s equity that have negative consolidation difference in an
not been recognised in the investee’s profit separate computation.
or loss.
The investor’s investment in the investee
Under the equity method, on initial is stated at cost, plus its share of post-
recognition the investor’s investment in the acquisition profits or losses, plus or less its
investee is recognised at cost, and the share of post-acquisition movements in
carrying amount is increased or decreased reserves, less dividends received. Goodwill
to recognise the investor’s share of post- shall be amortised over its estimated useful
acquisition profits or losses of the investee life in a separate computation. As a general
less dividends received. Adjustments to the principle, goodwill shall be amortised using
carrying amount may also be necessary for the straight-line method.
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).

IFRS German GAAP

If an entity’s share of losses of an associate A negative equity value for an associate
or a joint venture equals or exceeds its is not recognised in consolidated financial
interest in the associate or joint venture, statements. The negative equity value
the entity discontinues recognising its share shall be rolled forward in the separate
of further losses. The interest is the carrying computation. The investment shall be
amount of the investment in the associate recognised as an asset as soon as the
or joint venture determined using the equity accumulated negative amounts are
method together with any long-term compensated by profits or shareholder
interests that, in substance, form part of contributions.
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
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 The equity-method carrying amount has
is necessary to recognise any additional to be reviewed at each group reporting
impairment loss with respect to the investor’s date. If the equity-method carrying amount
net investment in the associate or joint exceeds the fair value of the investment in
venture and with the respect to the investor’s the associate, an impairment loss shall be
interest in the associate or joint venture that recognised.
does not constitute part of the net
investment and the amount of that Impairment losses initially reduce the
impairment loss. Because goodwill that goodwill which is being rolled forward in
forms part of the carrying amount of an the separate computation. Once goodwill
investment in an associate or joint venture has been written down in full, the remaining
is not separately recognised, it is not tested equity value is reduced. The reversal of
for impairment separately. Instead, the entire an impairment on the equity value is only
carrying amount of the investment is tested allowed as far as it is not based on goodwill.
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.
Disclosure of information is required about

the results, assets and liabilities of
significant associates and joint ventures.

Business Combinations
D Business Combinations
Types of business combinations
IFRS German GAAP

Business combinations within the scope of A business combination under German
IFRS 3 are accounted for as acquisitions. GAAP is the acquisition of an entity.
A business combination is a transaction According to GAS 19/GAS 23 entities
or other event in which an acquirer obtains pursue commercial or economic interests
control of one or more businesses. The independently of their legal form by means
acquisition method applies. IFRS 3 excludes of an organisation that is apparent to third
from its scope business combinations parties.
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 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 A subsidiary shall be included in the
the acquirer obtains control of the acquiree. consolidated financial statement as from
The date on which the acquirer obtains the date on which a parent-subsidiary
control of the acquiree is generally the relationship arose, i. e. the date the acquirer
date on which the acquirer legally transfers (parent) obtains control over the acquiree
the consideration, acquires the assets and (subsidiary). Precondition for the existence
assumes the liabilities of the acquiree – of a parent-subsidiary relationship usually
the closing date. However, the acquirer is that the acquirer is the beneficial owner
might obtain control on a date that is either of the shares. Thus, the date of initial
earlier or later than the closing date. For consolidation is generally the date on which
example, the acquisition date precedes the beneficial ownership of the shares passes
closing date if a written agreement provides to the acquirer. This can differ from the date
that the acquirer obtains control of the on which the shares are transferred in rem.
acquiree on a date before the closing date.
An acquirer shall consider all pertinent facts
and circumstances in identif ying the
acquisition date.

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 If part of the purchase consideration is
contingent on a future event, IFRS requires contingent on a future event, such as
the recognition of the contingent achieving certain profit levels (“earn-out
consideration at the acquisition-date fair clause”), future payments of the acquirer
value as part of the consideration. An shall be recognised as a provision and
obligation to pay contingent consideration as an increase in the acquisition costs to
shall be classified as a liability or as equity. the extent that the future payment can
be reliably measured and it is probable that
Financial liabilities are remeasured to fair the earn-out conditions will be met.
value at each reporting date. Any resulting
gain or loss is recognised in the income Changes in the value or probability of the
statement. Equity-classified contingent contingent consideration reflect adjust
consideration is not remeasured at each ments to the initial acquisition. Usually, (the
reporting date. Settlement is accounted for present value of) the change in contingent
within equity. consideration (present value of acquisition
date) has to be recorded against goodwill,
all other changes shall be recorded in profit
and loss.

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 Transaction costs are expenditures in
periods in which the costs are incurred, addition to the purchase price that serve
with one exception. The costs to issue to acquire the shares (sec. 255 (1) HGB).
debt or equity securities shall be recognised Only such expenditures that are directly
in accordance with other IFRSs. attributable and that arise following the
fundamental purchase decision shall be
recognised as transaction costs.

Acquired assets and liabilities – General
IFRS German GAAP

The identifiable assets acquired and Similar to IFRS. All assets, liabilities,
liabilities assumed (including contingent prepaid expenses and deferred income, and
liabilities) that existed at the acquisition date special reserve shall be recognised in full in
are recognised by the acquirer separately the revaluation balance sheet. All items
from goodwill. These assets and liabilities (with exception of provisions and deferred
are measured at their acquisition-date fair taxes) shall be measured with their fair value
values. on the acquisition date. Provisions shall
be measured with the settlement amount
An exception to the recognition and (prudent business judgement); deferred
measurement principle applies to deferred taxes for temporary differences between
taxes, employee benefits and the (fair) value and the tax base of an asset,
indemnification assets. Furthermore an liability, item of prepaid expense or deferred
exception to the measurement principle income, or a special reserve shall be
applies to reacquired rights, share-based measured at the entity-specific tax rate of
payments and assets held for sale. These the relevant subsidiary.
items are accounted for in accordance with
the requirements of particular standards or However, an asset or liability shall not be
other rules in IFRS 3. 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 for restructuring shall only be
provisions as part of the acquired liabilities recorded in the revaluation balance sheet if
only if the acquiree has at the acquisition the acquired subsidiary has already entered
date an existing liability for restructuring into an obligation to another party in this
recognised in accordance with the guidance respect at the initial consolidation date.
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.
Acquired assets and liabilities – Intangible assets

(for example in-process research and development (IPR&D))
IFRS German GAAP

An intangible asset is recognised separately All intangible assets that fulfill the general
from goodwill if it arises from contractual or recognition criteria shall be recognised.
other legal rights or is capable of being
separated or divided and sold, transferred, Also intangible assets that have not been
licensed, rented or exchanged. recognised in the single financial statement
of the subsidiary due to the exercise of the
Acquired in-process research and recognition option for intangible assets
development is recognised as a separate (sec. 248 (2) sentence 1 HGB) or for which
intangible asset if it meets the definition of there was a recognition prohibition
an intangible asset. (sec. 248 (2) sentence 2 HGB) shall be
recognised separately in the revaluation
balance sheet.

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 Contingent liabilities of an acquired entity
acquisition date if it meets the definition of a shall only be recorded when they meet the
liability and if its fair value can be measured definition of a liability according to German
reliably. GAAP.
The contingent liability is measured Generally, contingent assets are not

subsequently at the higher of the amount recognised. However, according to GAS 23
that would be recognised in accordance with (contingent) claims of the subsidiary against
IAS 37 or the amount initially recognised external third parties shall be recognised
less, if appropriate, cumulative amortisation if they are recoverable and if the expenses
recognised in accordance with IAS 18. or losses to which the compensation
obligation of the obligor relate have already
Contingent assets are not recognised. been recognised within provisions in the
revaluation balance sheet.
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 If at that date where the parent entity
basis can be adjusted against goodwill obtained control over the subsidiary a
within 12 months of the acquisition date. purchase price allocation cannot be
Subsequent adjustments are recorded in definitely determined, the values shall be
the income statement unless they are to adjusted within a period of 12 months
correct an error. subsequent to the date when control
was obtained. Adjustments to acquisition
accounting shall be recognised directly
in equity.

Minority interests/non-controlling interests
IFRS German GAAP

In cases where an acquirer acquires less Similar to IFRS, however the full goodwill
than 100% of an acquiree, there is a choice method may not be applied.8
on a transaction-by-transaction basis.
Non-controlling interests can be measured “Non-controlling interests” have to be
at either fair value (full goodwill method) or presented in a separate balance sheet item
the non-controlling interest’s proportionate within equity (sec. 307 (1) HGB).
share of the acquiree’s net identifiable
assets.
Goodwill – Initial recognition and measurement
IFRS German GAAP

Goodwill is an asset and separately Goodwill arises as the difference between
recognised. Goodwill is measured at the the cost of the acquisition and the
acquisition date as the excess of a) over b): acquirer’s share of the fair value of the
identifiable assets and liabilities acquired
a) the aggregate of: (full goodwill method shall not be applied).
• consideration transferred Goodwill may be allocated to different lines
• amount of any non-controlling interests of business of an acquired subsidiary.
in the acquiree Goodwill is recognised as an intangible
• acquisition-date fair value of the asset with a finite useful life.
acquirer’s previously held equity interest
in the acquiree For all subsidiaries where goodwill has been
charged to group equity in accordance
b) acquisition-date amount of the with the prior choice for the treatment of
identifiable net assets acquired 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.

Goodwill – Bargain purchases
IFRS German GAAP

A bargain purchase is a business Generally, if a negative consolidation
combination in which the amount of (b) difference (badwill) is caused by a bargain
above (net assets acquired) exceeds the purchase it shall be recognised as income
aggregate amounts of (a) above (aggregate on a systematic basis over the weighted
of consideration transferred, amount of average remaining useful life of the finite-
non-controlling interest and fair value of lived assets that have been acquired.
previously held interests). The acquirer
reassesses the identification and However, badwill can be have different
measurement of the assets acquired and reasons. Thus, it can have the
liabilities assumed and the measurement characteristics of equity or debt or –
the consideration transferred, the non- in exceptional cases – it can also arise
controlling interests and prior held interests solely from consolidation procedures
(if any). (so called technical negative consolidation
difference). GAS 23 provides illustrative
Any excess remaining after reassessment rules for the treatment of badwill depending
is recognised in profit or loss on the on the reason of its inaccurance.
acquisition date.
Goodwill – Assignment subsequent accounting
IFRS German GAAP

Goodwill is not amortised but tested for German GAAP requires goodwill to
impairment annually and – furthermore – be amortised over its economic life.
if there is an indication that goodwill may Amortisation shall allocate the cost of
be impaired. goodwill over the financial years in which
is expected to be used. If goodwill is
Goodwill is assigned to a cash generating allocated to several business lines of a
unit (CGU) or group of CGUs. A CGU is the subsidiary then a separate amortisation
smallest identifiable group of assets that shall be recorded for each business line.
generates cash inflows that are largely GAS 23 names factors that may be relevant
independent of the cash inflows from for estimating the expected useful life.
other assets or groups of assets. Each If it is not possible to estimate the useful life
unit or group of units which the goodwill in exceptional cases, purchased goodwill
is allocated shall not be larger than an should be amortised over a period of ten
operating segment in accordance with years.
IFRS 8.
German GAAP requires an explanation
of the economic life for each purchased
goodwill in the notes to the financial
statements.

Goodwill – Impairment testing and measurement
IFRS German GAAP

The recoverable amount of the CGU or There is no explicit requirement in German
group of CGUs (i. e. the higher of its fair GAAP to perform an annual impairment test
value less costs of disposal and its value in for goodwill. However, GAS 23 states that
use) is compared with its carrying amount. 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 Goodwill shall be written down it is
carrying amount over the recoverable expected to be impaired permanently.
amount. The impairment loss is allocated GAS 23 lists possible indications for a
first to goodwill and then on a pro rata basis permanent goodwill impairment. If one or
to the other assets of the CGU or group of more of these factors apply or if there is
CGUs to the extent that the impairment other evidence of expected permanent
loss exceeds the book value of goodwill. impairment, the recoverability of goodwill
Impairment loss recognised for goodwill shall be tested.
shall not be reversed in a subsequent
period. 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 Not specified. According to prevailing
acquiree in stages by successive share opinion, the acquiree’s identifiable assets
purchases the business combination is and liabilities are remeasured to fair value
accounted for using the acquisition method at the date when the entity finally became
at the acquisition date. The previously a subsidiary. All assets and liabilities of
held equity interests are fair valued at the acquiree should be recognised in the
the acquisition date and a gain or loss is consolidated financial statements based on
recognised in profit or loss. The fair value of their fair values at this date. The adjustment
the previously held interest then forms one to any previously held interests of the
of the components that is used to calculate acquirer is treated without an effect on
goodwill. income.
Business combinations involving entities under common control
IFRS German GAAP

IFRS does not specifically address such Not specified.
transactions. Entities elect and consistently
apply either acquisition or predecessor
accounting for all such transactions.
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).

Revenue Recognition
E Revenue Recognition
General (IFRS 15)
IFRS German GAAP

Revenue is a subset of income that arises Sales revenues comprise the revenues
from the sale of goods or rendering of from the sale of products and from services
services as part of an entity’s ongoing major rendered, no matter whether the income
or central activities (ordinary activities). is related to ordinary activities of the
Transactions that do not arise in the course enterprise or not.
of an entity’s ordinary activities do not result
in revenue.
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 Revenues may only be recognised if they
for recognizing revenue from contracts with are realised at the balance sheet date
customers: (realisation principle). Under specific
1. Identify the contract with a customer circumstances, dividends may be
2. Identify the performance obligations (PO) recognised earlier than under IFRS in
in the contract single-entity financial statements.
3. Determine the transaction price
4. Allocate the transaction price to the German GAAP requires measurement
performance obligations of revenues at the fair value of the
5. Recognise revenue when (or as) each consideration received or receivable
performance obligation is satisfied. (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.

Revenue Recognition
Step 1: Identify the contract with a customer
IFRS German GAAP

In a first step, the standard requires the No comparable explicit regulation with
entity to identify the contract with the regard to identifying a contract, but in
customer and whether it should combine, principle similar to IFRS. If several individual
for accounting purposes, two or more contracts are considered as a uniform
contracts (including contract modifications), transaction because of their close economic
to properly reflect the economics of the connection, they might be considered as a
underlying transaction. An entity will need multi element arrangement. A differentiation
to conclude that it is “probable”9 at the is to be made with regard to the realization
inception of the contract, that the entity will of its individual components.
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.
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
The term “probable” means more likely than not – that is, greater than 50 percent likelihood.
10
The stand-alone selling price is the price the good or service would be sold for if sold on a stand-alone basis.

Revenue Recognition
Step 2: Identify the performance obligations (PO) in the contract
IFRS German GAAP

An entity should assess goods or services No comparable explicit regulation with
promised in a contract with a customer and regard to identifying performance
should identify as a performance obligation obligations, but similar to IFRS, as long
each promise to transfer a good or service as principal performance obligations are
to the customer. These promises may not concerned.
be limted to those explicitly included in
written contracts. Different principal performance obligations
may arise from multi element arrangements,
An entity accounts for each promised good if several different services (amongst others
or service as a separate performance for example financing transactions) are
obligation if the good or service is capable regulated in a single contract or several
of being distinct (i. e., the customer can individual contracts are considered as a
benefit from the good or service either on uniform transaction because of their close
its own or together with other resources economic connection. Despite the uniform
readily available to the customer); and is consideration of these transactions,
distinct within the context of the contract a differentiation is to be made with regard to
(i. e., the good or service is separately the realization of the individual components.
identifiable from other promises in the
contract).
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 probability-
weighted 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.

Revenue Recognition
Step 4: Allocate the transaction price to the performance obligations
IFRS German GAAP

For contracts with multiple performance No specific guidance for multiple element
obligations, the performance obligations arrangements.
should be separately accounted for to the
extent that the pattern of transfer of goods The general revenue recognition
and services is different. Once an entity criteria apply. For this purpose, the total
identifies and determines whether to remuneration of the multi component
separately account for all the performance arrangement must be divided between the
obligations in a contract, the transaction individual components in the ratio of the fair
price is allocated to these separate values of the individual components and
performance obligations based on relative then a separate realization of each of these
standalone selling prices. 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 An entity shall recognise revenue when the
(or as) the entity satisfies a performance entity satisfies the principal performance
obligation by transferring a promised good obligation (for example transfer of beneficial
or service (i. e. an asset) to the customer. ownership of an asset, similar to IFRS) and
An asset is transferred when (or as) the (additionally) the entity has an indefeasible
customer obtains control of the asset. right to the consideration agreed.
For each performance obligation an entity
shall determine at contract inception The realisation principle applies – revenue
whether it satisfies the performance is only to be recognised when it has been
obligation over time or at a point in time. 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.

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 Service transactions are generally
over time if one of the following criteria is accounted for using the completed contract
met: method.
1. the customer simultaneously receives
and consumes the benefits provided by The completed contract method follows the
the entity’s performance as the entity general measurement principles.
performs; Accordingly revenue may only be
2. the entity’s performance creates or recognised if it has been realised at the
enhances an asset (for example, work in balance sheet date.
progress) that the customer controls as
the asset is created or enhanced; or An exception applies when the entitlement
3. the entity’s performance does not create to compensation for partial performance is
an asset with an alternative use to the certain. In such cases partial revenue may
entity and the entity has an enforceable be recognised.
right to payment for performance
completed to date. Construction contracts are generally
accounted for using the completed contract
Entities need to apply to the specific facts method. The percentage of completion
and circumstances of individual perfor method is allowed only in exceptional
mance obligations. 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.

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 The realisation principle applies – revenue
performance obligation is satisfied over is only to be recognised when it has been
time are met, the entity satisfies the realised at the balance sheet date.
performance obligation at a point in time.
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.

Pensions and other long-term benefits
F Pensions and other long-term benefits
General considerations – Classification of pension schemes
IFRS German GAAP

Post-employment benefits (e. g. pensions) The classification as DC plan or DB plans
are classified either as defined contribution does not apply to German GAAP. Instead,
plans (DC plans) or defined benefit plans depending on whether a separate external
(DB plans), depending on the economic fund is used to settle the pension
substance of the individual plans. Under DC entitlements, the plan has to be treated
plans the entity’s legal or constructive as an indirect pension plan or direct
obligation is limited to the amount that it pension plan. In case of indirect pension
agrees to contribute to the fund. Therefore plans the external fund meets the
actuarial risks and investment risks remain employees’ claims, however, the entity
with the employee. All other plans are DB remains liable for potential benefit
plans. 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 It is possible to account for obligations
are paid for each period for the rendered arising from indirect pension plans off-
employee services are recognised as balance and to account for the contributions
ongoing expenses. For DB plans a liability as an expense (underfunding then must be
is recognised in the balance sheet and disclosed in the notes). Obligations arising
an expense is recognised for the accrual from direct pension promises basically lead
of the liability in profit or loss. Actuarial to a provision which has to be recognised
assumptions are required to measure the in the balance sheet and to an expense for
obligation and the expense from DB plans the accrual of the provision which has to
so that actuarial gains or losses (recognised be recognised in profit or loss. Obligations
in OCI) may arise. Moreover, the obligation arising from “legacy” commitments may be
is measured on a discounted basis. 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.

General considerations – Other long-term employee benefits
IFRS German GAAP

Other long-term employee benefits include Other long-term employee benefits are
for example jubilee benefits, deferred long-term in nature, comprise a benefit
compensation or bonuses that are not due characteristic and are subject to biotmetric
to be settled within 12 months after the end risks (for example benefits relating to
of the period in which the employees render part-time employment prior to retirement,
the related service. Long-term employee benefits in the case of death or disability
benefits are accounted for in the same way or jubilee benefits). They are largely treated
as DB plans with the exception that in the same way as pension obligations.
actuarial gains and losses and all past The most prominent difference between the
service costs are recognised immediately accounting for pension obligations and
through profit or loss. 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 No actuarial valuation method is specified.
used to determine the present value of the Use of actuarial techniques shall result in an
entity’s defined benefit obligation (DBO). 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 The regulation to use realistic parameters
make a reliable estimate of the atmount of for the calculation of pension and
benefits that employees have earned in similar obligations is comparable to IFRS.
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.

Measurement of obligation – Discount rate
IFRS German GAAP

The rate used to discount post-employment Determination of the discount rate is based
benefit obligations is determined by on a specific law (RückAbzinsV). Every
reference to market yields at the end of the month the German Federal Bank publishes
reporting period on high quality corporate a yield curve based on the average market
bonds. The currency and term shall be yields for the past seven and ten years
consistent with the currency and estimated respectively. Pension obligations are
term of the DBO. 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 German GAAP

Plan assets comprise: In general the criteria for plan assets are
• assets held by a long-term employee similar to IFRS, in particular the assets shall
benefit fund; and be held solely for the purpose of paying or
• qualifying insurance policies (issued by funding employee benefits and cannot be
an insurer that is not a related party as used by the employer for any other purpose,
defined in IAS 24). 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.

Plan assets – Valuation units
IFRS German GAAP

Plan assets should be measured at fair Plan assets should be measured at fair value.
value. The fair value of insurance policies
should be estimated using, for example, If benefits payable under a plan are
a discounted cash flow model with a determined solely by reference to the
discount rate that reflects the associated fair value of the underlying assets, the
risk and the expected maturity date or obligation basically has to be measured at
expected disposal date of the assets. the fair value of the assets (but not below the
Qualifying insurance policies that exactly present value of guaranteed benefits).
match the amount and timing of some or all
of the benefits payable under the plan are The prevailing view is that this is also valid for
measured at the present value of the related insured benefits to the extent the insurance
obligations. 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 distribution-
barrier. There has to be made an auxiliary
calculation to determine this differential
amount which besides has to be disclosed
in the notes.

Recognition – Net defined benefit liability
IFRS German GAAP

The net defined benefit liability (asset) is the The net defined benefit liability (asset) is the
deficit or surplus, adjusted for any effect of net total of the present value of the pension
limiting a net defined benefit asset to the obligation and the fair value of plan assets.
asset ceiling. A deficit has to be recognised as “provision
for pensions” whereas a surplus has to be
The deficit or surplus is: recognised as “Excess of plan assets over
1. the present value of the defined benefit post-employment benefit liability”.
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 Each surplus (fair value of plan assets
present value of DBO, this surplus has to be exceeds present value of pension
tested for whether it can be recognised as obligation) shall be accounted for as an
an asset or not (so-called asset ceiling test). asset. Such an asset is to be recognised as
a separate line item (“Excess of plan assets
over post-employment benefit liability”).

Recognition – Net pension expense
IFRS German GAAP

An entity shall recognise the components All gains and losses are recognised
of defined benefit cost as follows: immediately in the income statement.
1. service cost in profit or loss; Thus actuarial gains and losses are
2. net interest on the net defined benefit not recognised separately in an
liability (asset) in profit or loss; and “OCI statement”.
3. remeasurements of the net defined
benefit liability (asset) in other Income and expenses from discounting
comprehensive income. 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 Income and expenses from discounting
components should be included as an pension provisions shall be offset with
operating expense or as a component of interest on plan assets. The net amount has
finance income. to be included in finance income.
The actual return on plan assets, excluding German GAAP provides a choice regarding
amounts included in net interest on the net profit or loss derived from discount rate-
defined benefit liability (asset) is recognised related fluctuations, profit or loss due to
in other comprehensive income. 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.

Presentation and disclosures – General disclosures
IFRS German GAAP

An entity shall disclose information that: In particular, the following disclosures are
1. explains the characteristics of its defined required:
benefit plans and risks associated with • actuarial method used
them; • information regarding the valuation
2. identifies and explains the amounts in parameters (e. g. discount rate, assumed
its financial statements arising from its salary trend)
defined benefit plans; and • book value and fair value of plan assets
3. describes how its defined benefit plans • present value of obligations (if offset
may affect the amount, timing and against plan assets)
uncertainty of the entity’s future cash • components of the net interest expense/
flows. income
• deficits arising from indirect pension
See IAS 19.135 ff. for the extensive schemes
disclosure requirements. • 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)
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)

Non-financial assets
G Non-financial assets
Property, plant and equipment – Initial measurement
IFRS German GAAP

An item or property, plant and equipment PPE is initially measured at its acquisition
(PPE) that qualifies for recognition shall costs or production costs.
initially be measured at its cost (i. e. cost of
acquisition (see section “Acquisition cost”) Acquisition costs comprise all expenses
or cost of conversion (see section “Costs of that arise to acquire an asset and to bring it
conversion”). 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 According to German GAAP, subsequent
the cost model (cost less accumulated measurement of PPE shall be based on the
depreciation and impairment losses) or the cost model (cost less accumulated
revaluation model (which must be adopted depreciation and impairment losses). The
for an entire revaluation model is not permitted.
class of PPE).
For assets that are designated as plan
If the revaluation model is used: assets see section “Plan assets”.
• an increase on revaluation is credited
directly to equity (“revaluation surplus”), Not applicable.
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.
Similarities and Differences IFRS and German GAAP 47

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 Separate depreciation of significant parts
in relation to the total cost of the item shall not specified under German GAAP is only
be depreciated separately (component permitted under specific conditions but not
approach). However, parts that have the the required.
same useful life and the same depreciation
method may be grouped in determining the
depreciation charge.
Consistent with the component approach, Similar to IFRS. Under German GAAP,
replacement cost is recognised as PPE if impairment can only be applied to an asset
the recognition criteria are met. The as a whole.
carrying amount of the replaced parts is
derecognised.
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 PPE comprises the cost individually
to the asset. The following costs are attributable to the asset. The following
included in the initial measurement of costs are included in the initial measure
purchased PPE under IFRS: ment of purchased PPE under German
• purchase price (incl. import duties and GAAP:
nonrefundable purchase taxes, less trade • purchase price (incl. import duties and
discounts and rebates) nonrefundable purchase taxes, less trade
• any costs directly attributable to bringing discounts and rebates)
the asset to the location and conditions • any costs directly attributable to bringing
necessary for it to be capable of the asset to the location and conditions
operating necessary for it to be capable of
• the initial estimate of the costs of operating
dismantling and removing the item and • costs of site preparation
restoring the site on which it was located • initial delivery and handling costs
Examples of directly attributable costs: • installation and assembly costs
• initial delivery and handling costs • costs of testing the asset for proper
• installation and assembly costs functionality
• costs of employee benefits arising directly • professional fees (not advisory fees paid
from the construction or acquisition of the in the context of inducing the acquisition
item of PPE decision)
• costs of testing whether the asset is
functioning properly, after deducting The cost of dismantling and removing the
the net proceeds from selling any items asset and restoring the site are not
produced while bringing the asset to that included in the initial measurement of the
location and condition (such as samples asset. In case of a legal or contractual obli
produced when testing equipment) gation, a provision has to be recognised
• professional fees over the useful life of the asset on a straight
• costs of site preparation line basis.
48 Similarities and Differences IFRS and German GAAP

Costs of conversion
IFRS German GAAP

Costs of conversion comprise the costs Costs of conversion comprise:
directly attributable to the asset: • direct material cost
• direct material costs • direct labour cost
• direct labour costs • special cost of production
• variable production overheads such as • an appropriate share of indirect
indirect materials and indirect labour material cost, indirect production costs,
costs indirect labour costs and depreciation/
• fixed production overheads such as amortisation to the extent that they are
depreciation and maintenance of factory attributable to the production process
buildings and equipment, and the cost of
factory management and administration The consideration of appropriate shares of
allocated based on the normal capacity of general and administrative costs, expenses
the production facilities for social amenities of the company and the
costs of voluntary social benefits and
Research costs, selling costs and general occupational pensions as part of the
administrative overheads are explicitly conversion costs is optional. For the
excluded from the cost of conversion. 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 Borrowing costs may only be capitalised if
attributable to the acquisition, construction they are used to finance the production of
or production of a qualifying asset (asset an asset and to the extent that they are
that necessarily takes a substantial period directly attributable to the production
of time to get ready for its intended use or period. They may not be capitalised if they
sale) are capitalised as part of the cost of relate to acquisition costs.
the asset.
The amount of borrowing costs that has
For general purpose borrowings, borrowing been capitalised in the reporting period has
costs are determined by applying the to be disclosed in the notes.
capitalisation rate (borrowing costs divided
by the weighted average outstanding
borrowing balance) to the expenditures on
the qualified asset.
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

Internally generated intangible assets – General
IFRS German GAAP

An internally generated intangible asset is Internally generated non-current intangible
recognised if it is probable that the asset may be recognised (option) if certain
expected future economic benefits that are conditions are met (for example highly
attributable to the asset will flow to the probable that planned intangible asset will
entity, and the cost of the asset can be arise, development costs can be reliably
measured reliable. 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 Similar to IFRS. If research and

phase is expensed when incurred. development phase cannot be separated
Expenditure incurred during the reliably, capitalisation of development costs
development phase is capitalised from the is not allowed.
point when the recognition criteria of an
intangible asset are met.
It is not allowed to recognise internally It is not allowed to recognise internally

generated goodwill as an asset. generated goodwill as an asset.
Internally generated intangible assets – Recognition
IFRS German GAAP

To assess whether an internally generated Non-current intangible items in the process
intangible asset meets the criteria for of creation may be recognised if (GAS 24):
recognition, an entity classifies the • the item is an asset under development
generation of the asset into a research and • the item meets the general recognition
a development phase. Expenditures arising criteria for assets
from research (or from the research phase • it is highly probable that the planned
of an intangible project) shall be recognised intangible asset will arise
as an expense when incurred. Costs in the • development costs can be reliably
development phase are capitalised if all of attributed to the intangible asset
the following six criteria are demonstrated: • no explicit prohibition on recognition
• technical feasibility of completing the exists (for example internally generated
intangible asset brands, mastheads, etc.)
• 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

IFRS German GAAP
If an entity cannot distinguish the research Distinction between research phase and
phase from the development phase of an development phase is crucial: expenditures
internal project to create an intangible from the research phase – in contrast to
asset, the entity treats all expenditure as if it expenditures from the development
were incurred in the research phase only. 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 Similar to IFRS. Development expenditures

expenses cannot be capitalised in a that already have been recognised as
subsequent period. 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).

Internally generated intangible assets – Measurement and

amortisation
IFRS German GAAP

Initial recognition at cost, which comprises Acquired intangible assets are initially
all expenditures that can be directly measured at acquistion costs. Subse
attributed or allocated to creating, quently intangible assets are accounted for
producing and preparing the asset from the using the cost model (= cost less accumu
date when the recognition criteria are met lated depreciation and impairment losses).
(see “Acquisition cost”). Use of the revaluation model is prohibited.
Subsequently intangible assets are Non-currrent intangible assets must be

accounted for using the cost model or the amortised over their expected entity-
revaluation model (provided fair value can specific useful life. If, in exceptional cases,
be determined with reference to an active the entity-specific useful life of an internally
market). generated intangible asset cannot be
estimated reliably, the asset shall be
An entity should assess whether the useful amortised over a period of ten years.
life is finite or indefinite. If finite, the useful Intangible assets that can be used
life is the expected period available for use indefinitely are not amortised. If
or the number of production or similar units maintenance measures are the reason why
expected to be obtained from the asset. these intangible assets can be used
• Intangibles with a finite useful life are indefinitly, these assets have a useful life
amortised over their useful life. The and must be amortised.
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.

Inventories
IFRS German GAAP

Carried at lower of cost and net realisableInventories are initially measured at
value. Reversal is required for subsequent acquisition/production cost. Subsequently,
increase in value of previous write-downs. inventories are measured at (strict) lower of
Materials and other supplies held for use in
cost or market value (replacement costs or
the production of inventories are not written
net realisable value depending on circum
down below cost if the finished products instances). When the reasons for an
which they will be incorporated are impairment/write-down no longer apply, a
expected to be sold at or above cost. 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/ No specific guidance for investment
or buildings) held in order to earn rentals property under German GAAP (similar to
and/or for capital appreciation including treatment of PPE):
property being constructed or developed • initial measurement at acquisition/
for future use as investment property. The production cost
definition does not include owner • cost model (revaluation model is
occupied property or property held for sale prohibited)
in the ordinary course of business. • 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.

Impairment of long-lived assets held for use
IFRS German GAAP

An entity should assess at each reporting Fixed assets must be written down to the
date whether there are any indications that lower of cost or market value if it is
an asset may be impaired. Irrespective of permanently lower than the carrying
indication, an annual impairment test is also amount. Impairment is permanent if it lasts
required for intangible assets with indefinite longer than half of the remaining useful life
useful lives and not yet ready for use (as of the asset (maximum of 3–5 years).
well as for goodwill).
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 When the reasons for an impairment/
flows discounted to present value by using write-down no longer apply, a lower carrying
a pre-tax, market-determined rate that value resulting from a previous impairment/
reflects the current assessment of the time write-down may not be retained – the
value of money and the risks specific to the impairment has to be reversed. The reversal
asset for which the cash flow estimates of goodwill impairment is prohibited.
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.

Lease arrangements – Leases – classification – IAS 17
IFRS German GAAP

The guidance focuses on the overall According to German GAAP the attribution
substance of the transaction. Leases are of rental assets depends on the beneficial
classified as an operating lease or a finance ownership. Beneficial owner of the leased
lease. Classification in finance and operating assets is who bears the majority of the
lease depends on whether the lease chances and risks born by the leased
transfers substantially all of the risks and assets. However, lease accounting follows
rewards of ownership to the lessee. Examples the treatment for tax-purposes which is
of situations that would normally lead to a treaten in certain decrees of the Federal
lease being classified as a finance lease: Ministry of Finance. According to these the
• transfer of ownership at the end of the lessee is regarded as the beneficial owner
lease term of the leased asset (= finance lease) if:
• bargain purchase option • under a full-payout lease of moveable
• lease term is for the major part of the property and buildings:
economic life of the leased asset –– the lease term is less than 40% or more
• present value of the minimum lease than 90% of the economic life of the
payments amounts to at least substantially asset;
all of the fair value of the leased asset –– the lease term is between 40% and
• leased assets are of a specialised nature 90% of the expected useful life of the
• if the lessee can cancel the lease, the asset and
lessor´s losses associated with the –– the lessee has a bargain purchase
cancellation are borne by the lessee option and the carrying amount or
• gains or losses from the fluctuation in the the lower market value exceeds the
fair value of the residual accrue to the purchase price or
lessee –– the lessee has the ability to continue
• the lessee has the ability to continue the the lease beyond the original lease term
lease for a secondary period at a rent that for a rent which is lower than market
is substantially lower than market rent. rent (for buildings: 75% or lower than
market rent) or
Minimum lease payments are the payments –– the leased asset is of a specialised
over the lease term that the lessee is or can nature that only the lessee can use it
be required to make, excluding contingent without major modification.
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.

IFRS German GAAP

The interest rate implicit in the lease would, • under a full-payout lease of property:
under IFRS, generally be used to calculate –– only if there is a purchase option and
the present value of minimum lease the lessee is beneficial owner of the
payments. If not practicable, the lessor’s related building (see above).
incremental borrowing rate can be used. In
a lease of land and building, the land and • under a partial-payout lease of
building elements must be considered moveable property:
separately for lease classification, unless –– the lease term is more than 90% of the
the land element is not material. 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
property or
–– if the lessee takes over certain risks (in
that case, the lessor is precluded from
being the beneficial owner).

Lease arrangements – Lessor accounting – finance leases – IAS 17
IFRS German GAAP

Amounts due under finance leases are German GAAP requires the amount due
recorded as a receivable. 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 German GAAP requires an asset leased
operating lease to be recognised by a lessor under an operating lease to be recognised
and depreciated/amortised over its useful by a lessor as PPE and depreciated over its
life. Rental income is generally recognised useful life. Rental income is generally
on a straight-line basis over the lease term. 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 When attributed to the lessee, finance
under a finance lease with a corresponding leases are recorded as an asset with a
obligation for future rentals, at an amount corresponding obligation for future rentals
equal to the lower of the fair value of the (present value). The asset is depreciated
asset and the present value of the future over its useful life. Rental payments are
minimum lease payments (MLPs) at the apportioned into principle and interest
inception of the lease. The asset is depre payments.
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.

Lease arrangements – Lessee accounting – operating leases – IAS 17
IFRS German GAAP

Under IAS 17 the rental expense under an Rental expense is recognised on a straight-
operating lease must generally be line basis over the lease term.
recognised on a straight-line 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 In a sale and leaseback transaction, the
leaseback transaction depends on whether seller-lessee sells an asset to the buyer-
the leaseback is a finance or an operating lessor and leases the asset back. There are
lease and whether the sale is at or below/ certain differences in the rules on dealing
above fair value. 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 If the beneficial ownership remains by the
amortised over the term of the leaseback seller-lessee, a realisation of profits from the
agreement. 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, Immediate recognition of any profit or loss,
unless the loss is compensated by future unless the loss is compensated by lower
rentals. In such cases, the loss is deferred future rentals. In such cases, the difference
over the period over which the asset is is deferred over the period over which the
expected to be used. asset is expected to be used.

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 Excess of the sale price over the fair value is
of the asset sold is deferred over the period deemed to be a borrowing and must there
for which the asset is expected to be used. 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 According to German GAAP the attribution
accounting model and requires a lessee to of rental assets depends on the beneficial
recognise assets and liabilities for all leases ownership. Beneficial owner of the leased
with a term of more than 12 months, unless assets is who bears the majority of the
the underlying asset is of low value. chances and risks born by the leased
assets. However, lease accounting follows
IFRS 16 substantially carries forward the the treatment for tax-purposes which is
lessor accounting requirements in IAS 17. treaten in certain decrees of the Federal
Accordingly, a lessor continues to classify Ministry of Finance. According to these the
its leases as operating leases or finance lessee is regarded as the beneficial owner
leases, and to account for those two types of the leased asset (= finance lease) if:
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).

IFRS German GAAP

moveable property:
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).

buildings and property (the attribution
of property depends on the attribution of
the building):
expected useful life of the asset;
–– the lease contract includes a
bargain purchase option or the ability to
property or
–– the lessee takes over certain typical
risks of an owner (in that case, the
lessor is precluded from being the
beneficial owner).

Lease arrangements – Identifying a lease – IFRS 16
IFRS German GAAP

A lease is a contract, or part of a contract, According to German GAAP the attribution
that conveys the right to control the use of of rental assets depends on the beneficial
an identified asset (the underlying asset) for ownership.
a period of time in exchange for consi
deration. (All leases are in the scope of See prior chapter.
IFRS 16, except for certain issues in
IFRS 16.3.)
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.

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.

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 According to German GAAP the attribution
accounting model and requires a lessee to of rental assets depends on the beneficial
recognise assets and liabilities for all leases. ownership.
Therefore, at the commencement date, a
lessee shall recognise a right-of-use asset When attributed to the lessee, finance
and a lease liability. 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.

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.

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 in-
substance fixed lease payments.

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.

Lease arrangements – Lessor – classification – IFRS 16
IFRS German GAAP

A lessor shall classify each of its leases as According to German GAAP the attribution
either an operating lease or a finance lease. of rental assets depends on the beneficial
ownership.
A lease is classified as a finance lease if it
transfers substantially all the risks and See chapter “Leases – General – IFRS 16”.
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.
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.

Lease arrangements – Lessor – operating leases – IFRS 16
IFRS German GAAP

A lessor shall recognise lease payments German GAAP requires an asset leased
from operating leases as income on either a under an operating lease to be recognised
straight-line basis or another systematic by a lessor as PPE and depreciated over its
basis. The lessor shall apply another useful life. Rental income is generally
systematic basis if that basis is more recognised on a straight-line basis over the
representative of the pattern in which lease term.
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.
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 German GAAP requires the amount due
recognise assets held under a finance lease from a lessee to be recognised as a
in its statement of financial position and receivable at the amount of the net invest
present them as a receivable at an amount ment in the lease. The receivable to be
equal to the net investment in the lease. 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.

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.

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.

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 right-
of-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).

Lease arrangements – Sale and leaseback transactions – IFRS 16
IFRS German GAAP

A sale and leaseback transaction occurs if In a sale and leaseback transaction, the
an entity (the seller-lessee) transfers an seller-lessee sells an asset to the buyer-
asset to another entity (the buyer-lessor) lessor and leases the asset back. There are
and leases that asset back from the certain differences in the rules on dealing
buyer-lessor. with profit and losses arising on sale and
leaseback transaction which are related to
If the transfer of an asset by the seller- the beneficial ownership as decisive factor.
lessee satisfies the requirements of IFRS 15
to be accounted for as a sale of the asset: Finance-Leaseback:
a) the seller-lessee shall measure the If the beneficial ownership remains by the
right-of-use asset arising from the seller-lessee, a realisation of profits from the
leaseback at the proportion of the sale is not allowed. The lease object stays
previous carrying amount of the asset capitalised in the seller-lessee’s financial
that relates to the right of use retained statement.
by the seller-lessee. Accordingly, the
seller-lessee shall recognise only the For the amount received from the buyer-
amount of any gain or loss that relates lessor a corresponding liability has to be
to the rights transferred to the buyer- recognised and amortised over the
lessor. contractual lease term.
b) the buyer-lessor shall account for
the purchase of the asset applying Operating-Leaseback:
applicable Standards, and for the Sale at fair value: Any profit or loss on sale
lease applying the lessor accounting is recognised immediately. Sale lower than
requirements in IFRS 16. 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 seller-
lessee.
If the transfer of an asset by the seller-

lessee 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.

Financial assets
H Financial assets
Definition
IFRS German GAAP

Financial assets include: Financial assets include non-current
• cash financial assets:
• a contractual right to receive cash or • shares in affiliated enterprises
another financial asset from another entity • loans to affiliated enterprises
or to exchange financial instruments with • enterprises in which investments are held
another entity under conditions that are • loans to enterprises in which investments
potentially favourable are held
• an equity instrument of another entity • securities kept as non-current assets
• a contract that will or may be settled in • other loans and current financial assets:
the entity’s own equity instruments and is • trade receivables
a) a non-derivative for which the entity is • receivables from affiliated enterprises
or may be obliged to receive a variable • receivables from enterprises in which
number of the entity’s own equity investments are held
instruments or • other assets (for example derivatives)
b) a derivative (see “Derivatives and • shares in affiliated enterprises
hedging”) that will or may be settled • other securities
other than by the exchange of a fixed • cash on hand and cash deposited with
amount of cash or another financial the German central bank, bank deposits
asset for a fixed number of the entity’s and cheques.
own equity instruments.
See “Derivatives and hedging” for the
accounting of derivatives.
Recognition
IFRS German GAAP

IFRS requires an entity to recognise a In principle, all legal claims arising from
financial asset when, and only when, the financial assets that still exist are to be
entity becomes party to the contractual recognised as long as the recognition does
provisions of the financial instrument. not infringe the prudence principle.
Categories
IFRS German GAAP

An entity shall classify financial assets as Accounting treatment of financial assets
subsequently measured at depends on whether the asset is current or
• amortised cost non-current. Distinction between current
• fair value through other comprehensive and non-current is determined by the
income or intention to serve the business operation in
• fair value through profit or loss the long term.

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-by-
instrument 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.

Financial assets
Financial assets at fair value through profit or loss (incl. held-for-

trading financial assets)
IFRS German GAAP

A financial asset shall be measured at fair Only assets which other creditors can not
value through profit or loss unless it is access and which are used solely for the
measured at amortised cost or at fair value purpose of fulfilling debt arising from
through other comprehensive income in retirement obligations or comparable obli
accordance. However an entity may make gations with a long-term maturity are to be
an irrevocable election at initial recognition measured at fair value through profit or loss.
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.
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 Under German GAAP the general
recognition, an entity shall measure a recognition and measurement criteria for
financial asset at its fair value plus, in the assets apply. The initial measurement of
case of a financial asset not at fair value financial assets is at cost including
through profit or loss, transaction costs that incidental acquisition expenses.
are directly attributable to the acquisition of
the financial asset. One exemption applies to assets which are
deprived of all other creditors’ access and
An entity shall measure trade receivables are used exclusively to cover pension
that do not have a significant financing obligations or comparable long-term lia
component (determined in accordance with bilities. They have to be measured at fair
IFRS 15) at their transaction price (as value.
defined in IFRS 15).

Financial assets
Subsequent measurement
IFRS German GAAP

Depends on the category. After initial Current financial assets:
recognition, an entity shall measure For current investments the lower of cost or
a financial asset at: quoted/market price applies. They must be
1. amortised cost; impaired if the fair value is less than
2. fair value through other comprehensive their carrying amount. An impairment shall
income; or be reversed if the reasons for the write-
3. fair value through profit or loss. down no longer apply.
Amortised costs: Non-current financial assets:

Interest revenue shall be calculated by using Non-current assets are carried at amortised
the effective interest method. This shall be cost. One exemption applies to assets
calculated by applying the effective interest which are deprived of all other creditors’
rate to the gross carrying amount of a access and are used exclusively to cover
financial asset except for purchased or pension obligations or comparable long-
originated credit-impaired financial assets term liabilities. They have to be reported at
or financial assets that are not purchased or fair value. An impairment loss must be
originated credit-impaired financial assets recorded if the decrease in value is not
but subsequently have become credit- temporary; if the decrease in value is
impaired financial assets. 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 No comparable explicit impairment model.
expected credit loss impairment model that
replaces the former incurred loss model. For non-current financial assets an
The “expected credit losses” model, has the impairment loss must be recorded if the
following key elements. 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: The (lower) fair value of equity investments
Under the general model, an entity will shall be determined by an income approach
recognize an impairment loss at an amount or DCF-model. The stock market price
equal to the 12-month expected credit loss should be included as the case may be for
(stage 1). If the credit risk on the financial assessing plausibility (IDW S. 1 i.d.F. 2008).
instrument has increased significantly since
initial recognition (even without objective The (lower) fair value of loans shall be
evidence of impairment), it should recognize determined by the market price. An
an impairment loss at an amount equal to impairment shall be reversed where the
the lifetime expected credit loss (stage 2). reasons for the write-down no longer apply.
Interest income is calculated using the
effective interest method on the gross Trade receivables will be impaired by a
carrying amount of the asset. When there is specific valuation allowance if there are
objective evidence of impairment (for indicators that the cash inflow may be
example significant financial difficulty of the doubtful. Furthermore a general valuation
issuer/borrower, a breach of contract; ref. allowance with regard to the general credit
IFRS 9.A credit-impaired financial asset for risk is recognised for all other trade
further criteria, lifetime expected credit receivables which are not individually
losses are recognized and interest is impaired.
calculated on the net carrying amount after
impairment (stage 3).
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.

Financial assets
IFRS German GAAP
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 (“credit-
adjusted 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.

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 German GAAP adopts a risk-oriented
requirements in IFRS 9 are applied at a approach to determine whether dere
consolidated level. Hence, an entity first cognition of a financial asset is appropriate.
consolidates all subsidiaries in accordance It is focused on whether substantially all
with IFRS 10 and then applies those risks and rewards of an asset are
paragraphs to the resulting group. 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).

Financial assets
IFRS German GAAP

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.

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.

Liabilities
I Liabilities
Contingent liabilities
IFRS German GAAP

A contingent liability is defined as a Guidance for contingent liabilities pursuant
possible obligation whose outcome will to German GAAP is similar to IFRS;
be confirmed only by the occurrence or contingent liabilities may result from issuing
non-occurrence of one or more uncertain and transferring bills of exchange, from
future events outside the entity’s control. guarantees, including bills and cheque
A contingent liability can also be a present guarantees, from warranties and from
obligation that is not recognised because it granting security for third party liabilities.
is not probable that there will be an outflow
of economic benefits, or the amount of the Due to the importance of the prudence
outflow cannot be reliably measured. principle more items are recognised as
Contingent liabilities are disclosed unless provisions rather than being only disclosed
the probability of outflows is remote. as contingencies.
General provisions – Recognition
IFRS German GAAP

A provision is recorded when three criteria Recognition criteria for provisions are
are met: similar to IFRS. Provisions must be recog
• that a present obligation from a past nised for uncertain liabilities, expected
event exists; losses from executory contracts, deferred
• that it is probable that an outflow of repair and maintenance expenses incurred
resources will be required to settle the within the first three months from the end of
obligation; and the preceding financial year, expenses for
• that a reliable estimate can be made. 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.

Liabilities
General provisions – Measurement
IFRS German GAAP

The amount recognised should be the best Similar, but not the same as IFRS.
estimate of the expenditure required (the Provisions must be measured at the amount
amount an entity would rationally pay to required to settle the obligation based on
settle the obligation at the balance sheet sound business judgement in accordance
date). The entity must discount the with the prudence principle. Provisions
anticipated cash flows using a pre-tax dis (other than provisions for pension
count rate (or rates) that reflect(s) current obligations) with a residual term of more
market assessments of the time value of than one year are discounted using the
money and those risks specific to the appropriate (based on the residual term)
liability (for which the cash flow estimates seven year average market rate provided by
have not been adjusted) if the effect is the German Federal Bank. Long-term
material. 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.

Financial liabilities
J Financial liabilities
Definition
IFRS German GAAP

IFRS defines a financial liability as a German GAAP does not define or contain
contractual obligation: specific accounting guidance for financial
• to deliver cash or a financial asset to liabilities.
another entity;
• to exchange financial instruments with Under German GAAP a financial instrument
another entity under conditions that are is a contract that gives rise to receive or
potentially unfavourable; deliver cash or other financial instruments.
• as a contract that will or may be settled
in the entity’s own equity instrument Derivatives are also financial instruments.
and is a nonderivative for which the See “Derivatives and hedging” for the
entity is or may be obliged to deliver a accounting of derivatives.“
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.
Classification
IFRS German GAAP

The issuer of a financial instrument shall Financial instruments with a contractual
classify the instrument, or its component obligation to deliver cash or other financial
parts, on initial recognition as a financial instruments are classified as financial
liability, a financial asset or an equity liabilities or equity instruments. The
instrument in accordance with the sub following three criteria should not be fulfilled
stance of the contractual arrangement and simultaneously for a financial instrument to
the definitions of financial instruments. 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.

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 Similar to IFRS.
when the entity becomes party to the con
tractual provisions of the instrument.
Categories
IFRS German GAAP

Guidance under IFRS requires that financial German GAAP does not define individual
liabilities be classified in one of the two categories of financial liabilities for pur
categories: poses of recognition or measurement.
• financial liabilities at fair value through
profit or loss (incl. held-for-trading A distinction is made between short-term
financial liabilities) and long-term liabilities for the disclosures
• financial liabilities at amortised cost 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).

Financial liabilities at fair value through profit or loss (incl. held-for-

trading 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:

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
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 Not applicable.
liabilities at amortised cost using the
effective interest method.


Initial measurement
IFRS German GAAP

A financial liability is recognised initially at Financial liabilities must initially be
its fair value minus, in the case of a measured at their settlement amount. If the
financial liability that is not recognised as at settlement amount is higher than its value
fair value through profit or loss, transaction on issuance, then the financial liability may
costs that are directly attributable to the either be measured at its settlement amount
acquisition or issue of that liability. 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 Financial liabilities shall continuously be
measure all financial liabilities at amortised measured at their settlement amount.
cost using the effective interest method,
except for financial liabilities at fair value If the settlement amount is higher than its
through profit or loss. For financial liabilities value on issuance and the financial liability
at fair value through profit or loss, the is initially measured at its settlement
following applies: amount, the difference to its value on
• Subsequent measurement at fair value. issuance may be included in prepaid
• Distribution of discount/premium is expenses on the assets side of the balance
implied in the fair value. sheet and shall be amortised by systematic
• Changes in fair value have to be annual charges that may be allocated over
recognised in the income statement. the full term of the liability. Alternatively
such a difference may be recognised as an
For financial liabilities designated at fair expense immediately.
value through profit or loss due to an
accounting mismatch, the management of If such a financial liability is initially
that instrument within a group of financial measured at its value on issuance, interest
instruments evaluated on fair value basis or accrues subsequently using the effective
due to embedded derivative(s) (see section interest method and increasing the book
Financial Liabilities-Categories above), value of the financial liability respectively.
credit risk of the issuer is to be reflected in
other comprehensive income.


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 Split accounting is applied to convertible
conversion feature characterised by debt where appropriate. For the debt
exchanging a fixed amount of cash for a component a liability has to be recognised
fixed number of shares, IFRS requires that may either be measured at its
bifurcation and split accounting between settlement amount or at its value on
the substantive liability and equity issuance.
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.
Equity conversion features within liability

host instruments that fail the fixed-for-
fixed 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.

Equity instruments
K Equity instruments
Recognition and classification
IFRS German GAAP

An equity instrument is defined as any For the classification of financial
contract that evidences a residual interest instruments as equity, the following three
in an entity’s assets after deducting all of criteria must be fulfilled simultaneously:
its liabilities. An instrument is classified • subordination
as equity when it does not contain an • profit-related compensation and loss
obligation to transfer economic resources participation up to the principal amount
to another entity. Preference shares that • long-term lending (only applicable
are not redeemable, or that are redeemable for corporations, not for commercial
solely at the option of the issuer, and partnerships)
for which distributions are at the issuer’s Shareholder’s equity is classified as:
discretion, are classified as equity. • 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.

Equity instruments
IFRS German GAAP

Such instruments are classified as equity For the classification of financial
if all of the following criteria are met: instruments as equity, the following three
• It entitles the holder to a pro rata share criteria must be fulfilled simultaneously:
of the entity’s net assets in the event of • subordination
the entity’s liquidation. • profit-related compensation and loss
• The instrument is in the class of participation up to the principal amount
instruments that is subordinate to all • long-term lending (only applicable
other classes of instruments. for corporations, not for commercial
• All financial instruments in that class have partnerships)
identical features.
• Apart from the contractual obligation Shareholder’s equity is classified as:
for the issuer, the instrument does not • subscribed capital, which is the capital
include any contractual obligation to in respect of which the liability of the
deliver cash or another financial asset. shareholders for the liabilities of the
• The total expected cash flows attributable company to creditors is limited;
to the instrument are based substantially • capital reserves, which contain, for
on the profit or loss, the change in the example, the amount (premium) received
recognised net assets or the change on the issuance of shares;
in the fair value of the recognised and • revenue reserves (including the legal
unrecognised net assets of the entity. reserve (for stock corporations), the
• The issuer must have no other financial reserves provided for under the articles of
instrument or contract that has: association and other revenue reserves);
–– total cash flows based substantially • retained profits/accumulated losses
on the profit or loss, the change in the brought forward; and
recognised net assets or in the fair • net income/net loss for the year.
value of the recognised/unrecognised
net assets of the entity; and Transaction costs related to the issuance of
–– the effect of substantially restricting or equity instruments must be recognised in
fixing the residual return to the puttable profit or loss and cannot be deducted from
instrument holders. 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 own shares are to be
repurchased, they are shown as a deducted from subscribed capital at par
deduction from shareholders’ equity value. Any difference between purchase
at cost. 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.

Derivatives and hedging
L Derivatives and hedging
Derivatives non-hedging – Definition
IFRS German GAAP

A derivative is a financial instrument that Same definition as under IFRS. Forward
creates rights and obligations having the transactions to purchase or sell goods
effect of transferring between the parties to (non-financial items, especially
the instrument one or more of the financial commodities) are also considered as
risks inherent in an underlying primary derivatives for hedge accounting.
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.
Derivatives non-hedging – Recognition
IFRS German GAAP

All derivatives are recognised on the German GAAP requires an entity to
balance sheet as either financial assets recognise a derivative when and only
or liabilities when the legal transaction when the criteria of a (financial) asset
is concluded. See “Financial assets” or a (financial) liability is fulfilled.
for recognition of financial assets and
“Financial liabilities” for recognition of
financial liabilities.

Derivatives non-hedging – Initial measurement
IFRS German GAAP

Derivatives are initially measured at fair Usually at initial recognition all derivatives
value on the date of initial recognition. deriving from contracts in line with current
Transaction costs are recognised in profit market conditions have no fair value.
or loss. The consideration paid or received
for an option (option premium) represents There are two exceptions:
the fair value at initial recognition. On the • purchased and written options; and
balance sheet the option premium is • derivatives with upfront payments.
recognised as a financial asset for the buyer
of the option and as a financial liability Upfront payments are recognised on the
for the writer of the option. Contracts of balance sheet as other assets or liabilities.
derivatives which are not in line with market Those derivatives which have no fair value
require upfront payments. An upfront at initial recognition are not recognised on
payment is a single payment which is paid the balance sheet.
at conclusion of the legal transaction.
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 Derivatives (except options):
measurement is at fair value. Changes in a • For unrealised losses of derivatives a
derivative’s value are recognised in profit provision is recognised.
or loss as they arise, unless they satisfy the • Unrealised gains must not be recognised.
criteria for hedge accounting outlined
below. 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.

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-for-
sale 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 Hedge accounting is permitted provided

information if hedge accounting is applied. that an entity meets qualifying criteria in
In a hedge relationship hedge accounting is relation to:
applied to the hedged item and the hedging • qualifying hedged item;
instrument. • qualifying hedging instrument;
• offsetting changes in value or cash flows
Hedge accounting is permitted provided form the occurrence of comparable risks;
that an entity meets stringent qualifying • prospective hedge effectiveness;
criteria: • intention (and ability) to hedge; and
• The hedging relationship consists only of • formal documentation and designation
eligible hedging instruments and eligible (similar to IFRS).
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.

Hedge accounting requirements – Hedged item
IFRS German GAAP

Hedged items can be recognised assets, Hedged items may be assets, liabilities, firm
recognised liabilities, firm commitments, commitments or highly probable forecast
forecast transactions that involve an transactions that involve an external party.
external party (and that should be highly
probable to qualify as hedged item), or net Derivatives qualify as hedged items
investments in a foreign operation. The irrespective of whether the derivative is
hedged item can be a single item or a group embedded or not.
of items as well as a component of such an
item or group of items. The hedged item Portfolio hedges (i. e. hedging the risk of a
must be reliably measurable. group of similar items) and macro hedges
(i. e. hedging the net risk of a group of
Groups of items that constitute a net opposing items) are permitted, provided
position can also be designated as that an efficient risk management system
a hedged item as well as aggregated related to these hedges exists.
exposures (combination of an exposure that
is an eligible hedged item and a derivative). Designation of the following is admitted:
As an exception to the principle that only • a proportion of nominal amount of the
transactions with an external party are hedged item;
eligible hedged items, the foreign currency • a portion of a risk; and
risk of an intragroup monetary item may • a portion of its term, provided the
qualify as a hedged item if it results in an effectiveness can be measured.
exposure to foreign exchange rate gains
or losses that are not fully eliminated on There is no distinction between financial
consolidation. 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.

IFRS German GAAP
Items that do not qualify as hedged item All assets, liabilities and derivatives (i. e. firm
comprise: commitments) may qualify as hedged items,
• own equity instruments provided that the risk to be hedged can be
• entity method investment, such as an specifically identified and measured.
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.
Hedge accounting requirements – Hedging instrument
IFRS German GAAP

The main qualifying hedging instruments Only financial instruments can qualify as
are: hedging instruments. Forward transactions
• derivative financial instrument to purchase or sell goods (non-financial
(incl. separate embedded derivatives items, especially commodities) are also
in financial liabilities or non-financial classified as financial instruments for hedge
contracts); accounting.
• non-derivative financial instruments
measured at fair value through P&L Embedded derivatives may only qualify
(except for financial liabilities designated as hedging instruments when they are
at FVTPL where changes in fair value as a separately accounted for.
result of credit risk are presented in OCI);
• the foreign currency component of non-
derivative financial instruments (except
for equity instruments for which changes
in fair value are presented in OCI).
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 Similar to IFRS.

external to the reporting entity can be
designated as hedging instruments. 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 Similar to IFRS. A financial instrument may

be designated in its entirety as a hedging also be designated as a hedging instrument
instrument. for a portion of time of its term

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 Similar to IFRS.

more than one risk in two or more hedged
items under certain circumstances. No specific regulations/restrictions for
portfolio or macro hedges except for the
In a fair value hedge of the interest rate necessity of an efficient risk management
exposure of a portfolio of financial assets system related to these hedges.
or financial liabilities, the portion hedged
may be designated in terms of an amount of
a currency rather than as individual assets
(or liabilities).
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.

Hedge accounting requirements – Hedge effectiveness
IFRS German GAAP

A hedge qualifies for hedge accounting Under German GAAP prospective and
under IFRS if an entity’s designation retrospective testing of hedge effectiveness
of the hedging relationship is based on is required.
the economic relationship between the
hedged item and the hedging instrument, There are no explicit limits for the
which meets the hedge effectiveness determination whether a hedge is
requirements. Hedge effectiveness is the sufficiently effective.
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.
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.

Hedge accounting requirements – Hedge relationships
IFRS German GAAP

Fair value hedge: The risk of a change in the Under German GAAP there is no distinction
fair value of a recognised asset or liability in the accounting treatment between fair
or an unrecognised firm commitment or value hedges, cash flow hedges or hedges
portions thereof is hedged. 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 Similar to IFRS.
if the requirements are fulfilled.
Under German GAAP there is no distinction
Fair value hedges: Hedging instruments in the accounting treatment between fair
are measured at fair value. Gains and value hedges, cash flow hedges or hedges
losses on the hedging instrument shall be of net investments in foreign operations.
recognised in profit or loss (P&L) except The valuation unit/hedge is regarded as a
for hedging instruments hedging an equity new measurement object. To the extent and
instrument accounted for at fair value in for the period the opposing changes of the
other comprehensive income (FVOCI). fair values or cash flows of the hedged item
Gains and losses of equity instruments and the hedging instrument are offsetting
are not recycled to P&L; changes in the (effective part) the measurement principles
fair value of the hedging instrument are of realisation, imparity and item-by-item
recorded in other comprehensive income valuation are not applied. Generally, this can
without recycling to P&L. The hedged item be implemented in two ways:
is adjusted for changes in its fair value but • “Freeze in method”:
only due to the risks being hedged. Gains The offsetting changes in the fair
and losses on the hedged item attributable values/cash flows of the hedged item
to the hedged risk are recognised in the and hedging instrument due to the risk
income statement (P&L), except for those hedged is recognised neither in balance
attributable to equity instruments sheet nor in the income statement
accounted for at FVOCI, in which case (effective part).
they are recognised in OCI.

IFRS German GAAP
Cash flow hedges: Hedging instruments • “Through posting method”:

are measured at fair value, with gains and The offsetting changes in the fair values/
losses on the hedging instrument to the cash flows of the hedged item and
extent they are effective being initially the hedging instrument due to the risk
deferred in equity (OCI) and subsequently hedged will be recognised in the financial
released to the income statement statement (effective part).
concurrent with the earnings recognition
pattern of the hedged item. Gains and For changes in the fair values/cash flows
losses on financial instruments used to of hedged item and hedging instrument
hedge forecast assets and liability due to the risk hedged that are not offset
acquisitions must be included in the cost the principles of realisation, imparity and
of the non-financial asset or liability – item-by-item valuation have to apply
a “basis adjustment”. This is not permitted (ineffective part).
for financial assets or liabilities.
Hedges of net investments in foreign For changes in the fair values/cash flows
operations: Similar treatment to cash of hedged item and hedging instrument due
flow hedges. The hedging instrument is to risks not being hedged the principles of
measured at fair value with gains/losses realisation, imparity and item-by-item
deferred in equity, to the extent that the valuation have to apply (part/risk not being
hedge is effective, together with exchange hedged).
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.
Hedge accounting requirements – Disclosure requirements
IFRS German GAAP

Extensive disclosure requirements exist Concerning valuation units/hedges German
under IFRS 7. 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.

IFRS German GAAP

• how the entity determines the The disclosure requirements concern the
economic relationship between notes, except if they have been disclosed in
the hedged item and the hedging the management report.
instrument for the purpose of
assessing hedge effectiveness; and
• how the entity establishes the hedge
ratio and what the sources of hedge
ineffectiveness are.
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.

IFRS German GAAP

• 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.

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
comprehensive income that includes
the recognised hedge ineffectiveness.

IFRS German GAAP

• 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 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 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

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
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
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.

Deferred taxes
M Deferred 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 Temporary differences – i. e. the difference
between carrying amount and tax base of between carrying amount and tax base of
assets and liabilities assets and liabilities
Quasi-permanent differences (for example temporary differences

within measurement of property)
IFRS German GAAP

Recognition of deferred taxes due to the Recognition of deferred taxes due to the
temporary concept. temporary concept.

Deferred taxes
Recognition of deferred tax assets
IFRS German GAAP

A deferred tax asset shall be recognised Deferred tax assets may be recognised
for all deductible temporary differences for deductible temporary differences,
to the extent that it is probable that taxable tax loss carryforwards, interest carried
profit will be available against which the forward and tax credits. Deferred tax assets
deductible temporary difference can shall be recognised in compliance with
be utilised, unless the initial recognition the prudence principle.
exception applies, see details under
“initial recognition differences”. 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 Deferred taxes shall be measured with the
the period when the asset is realised or tax rate that is expected to apply at the time
the liability is settled, based on tax rates the temporary differences are expected to
(and tax laws) that have been enacted or reverse. However, changes in tax law
substantively enacted by the balance sheet (including tax rates) shall only be applied
date. 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 Deferred taxes have to be disclosed as
as non-current assets (liabilities). Additional separate balance sheet items: “Deferred
statements for different components of tax assets” (sec. 266 subsec. 2 D HGB)
deferred taxes must be made (expected and “Deferred tax liabilities” (sec. 266
realisation of deferred taxes within subsec. 3 E HGB).
12 months after the balance sheet date
and beyond 12 months after the balance Presentation does not incorporate the
sheet date). maturity of deferred taxes. Disclosure on
maturity is not required.

Deferred taxes
Set off
IFRS German GAAP

Setting off if the entity has a legally Deferred tax assets and liabilities may be
enforceable right to set off current tax presented net. There are no specific
assets against liabilities and the deferred requirements for setting off deferred tax
tax assets and the deferred tax liabilities assets and deferred tax liabilities.
relate to income taxes levied by the same
tax authority.
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 The differences or tax loss carryforwards
12.79–12.88), for example major on which deferred taxes are based have
components of tax expense (income), the to be disclosed as well as the tax rates at
aggregate current and deferred tax relating which deferred taxes have been measured.
to items that are charged or credited to This disclosure shall also be made for
equity, an explanation of the relationship deferred taxes that have been netted; it is
between tax expense (income) and not necessary for a net amount of deferred
accounting profit. 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.

Deferred taxes
Tax rate reconciliation
IFRS German GAAP

Explanation of the relation between tax No statutory obligation for the disclosure
expenses and accounting profit (or loss) of a tax rate reconciliation.
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.
Tax groups
IFRS German GAAP

For the recognition of deferred taxes on In tax groups, deferred taxes are accounted
tax groups no rules exist. In practice there by the “formal approach”: deferred taxes
are two different approaches. The “formal for temporary differences of the subsidiary
approach” states that deferred taxes are company are considered on the level of
shown in the financial statements of the the controlling company; the subsidiary
controlling company. The “stand-alone company does not recognise any deferred
approach” states that deferred taxes are taxes (exception: existing of a contract for
recognised on the level of the subsidiary the distribution of the tax burden).
company.
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
temporary differences resulting from initial exception for the recognition of deferred
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.

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 Similar to IFRS.
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.
Risks resulting from audits by the fiscal authorities
IFRS German GAAP

No specific rules exist. However effects Effects resulting from audits of the fiscal
depending on audits of the fiscal authorities authorities have to be recognised for
have to be recognised for deferred tax deferred tax purposes to the extent that
purposes if probable. they lead to temporary differences.

Share-based payments
N Share-based payments
Classification
IFRS German GAAP

IFRS 2 encompasses all arrangements No specific guidance. The general
where an entity purchases goods or recognition and measurement criteria apply.
services in exchange for the issue of equity
instruments (including shares or share There is no specific guidance in the
options), or cash payments based on the accounting legislation. Several accounting
price (or value) of the equity instruments treatments may be acceptable.
of the entity or another group entity. Goods
or services received in a share-based Share-based payment transactions are
payment transaction are recognised when classified as:
they are received. Share-based payment • equity-settled share-based payment
transactions include: transactions;
• equity-settled share-based payment • cash-settled share-based payment
transactions (entity receives goods or transactions; or
services, either as consideration for its • share-based payment transactions with a
own equity instruments or the entity has choice of settlement.
no obligation to settle the transaction);
• cash-settled share-based payment Allocation to the individual classes may
transactions (entity acquires goods or differ for individual transactions between
services by incurring a liability, but the IFRS and German GAAP.
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.

Share-based payments
Recognition and measurement
IFRS German GAAP

Equity-settled share-based payment For equity-settled transactions an
transactions are measured at the fair value accounting treatment similar to IFRS is
of the goods or services received, with a recommended. Alternatively, in some cases
corresponding increase in equity. If the entity an equity-settled transaction may not be
cannot estimate reliably the fair value, recognised in the financial statements.
which is deemed always to be the case
for transactions with employees, the goods For cash-settled transactions an accounting
or services are measured at the fair value treatment similar to IFRS is recommended.
of the equity instruments granted, ignoring Alternatively, in some cases an entity may
any service or non-market vesting conditions recognise the intrinsic value (and not the fair
or reload features. value) of the plan at the balance sheet date.
Off-balance treatment of a cash settled
In cash-settled share-based payment transaction is not possible, as the entity has
transactions, goods or services received incurred an obligation.
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 Transactions with choice of settlement
choice of settlement in equity instruments (either counterparty or entity) should be
or settlement in cash should be bifurcated measured either as equity-settled or as
and treated as a compound instrument. cash-settled, whatever is more probable.
If the entity has the choice to settle in cash Before settlement the amount should
or by the issue of equity instruments, the always be shown as a liability and not as
entity has a present obligation (legal or an increase in equity.
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 share-
based payment transaction.
If the entity pays any taxes due on share-

based payment transactions on behalf of its
employees, these shall be accounted for as
cash-settled share-based payments.

Foreign currency translation
O Foreign currency translation
Functional currency
IFRS German GAAP

Functional currency is defined as the According to Germen GAAP there is no
currency of the primary economic concept of a functional currency and the
environment in which an entity operates. determination thereof. Consolidated
financial statements have to be prepared in
IFRS provides a list of primary and Euro (sec. 2998 subsec. 1 in conjunction
secondary indicators to consider when with sec. 244 HGB).
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.

Separate financial statements
IFRS German GAAP

A foreign currency transaction is a Separate financial statements have to be
transaction that is denominated or requires prepared in Euro (sec. 244 HGB).
settlement in a foreign currency. A foreign
currency transaction should be recorded, For initial recognition of foreign currency
on initial recognition in the functional transactions no special rules are enacted.
currency, by applying to the foreign Thus, general principles on recognition
currency amount the spot exchange rate and valuation have to be applied. At initial
between the functional currency and the recognition, for translation of the foreign
foreign currency at the date of the currency transaction the exchange rate at
transaction. 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).

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.
IFRS German GAAP

The results and financial position of an In consolidated financial statements, the
entity whose functional currency is “modified closing rate method” is used
not the currency of a hyperinflationary for the translation of financial statements
economy shall be translated into a different in foreign currencies (sec. 308a HGB).
presentation currency using the following The following translation requirements are
procedures: prescribed by German GAAP:
a) assets and liabilities for each statement • Balance sheet items are translated using
of financial position presented shall be the mean spot rate on the balance sheet
translated at the closing rate at the date date. Exception: shareholder’s equity
of that statement of financial position; shall be translated at historical rates.
b) income and expenses for each • Items of profit and loss shall be translated
statement presenting profit or loss using average exchange rates.
and other comprehensive income
shall be translated at exchange rates Translation differences arising from the
at the dates of the transactions; and modified spot rate method shall be
c) all resulting exchange differences shall recognized directly in equity in a separate
be recognised in other comprehensive balance sheet item “equity difference due
income and accumulated in a separate to currency translation” which has to be
component of equity. shown after reserves. On partly or whole
withdrawal of a foreign subsidiary from
For practical reasons, a rate that the basis of consolidation (for example:
approximates the exchange rates at the disposal, liquidation), the translation
dates of the transactions, for example an difference is released into profit or loss,
average rate for the period, is often used partly or in full, respectively.
to translate income and expense items.
However, if exchange rates fluctuate
significantly, the use of the average rate
for a period is inappropriate.

IFRS German GAAP
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 long-
term 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.

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.

Related parties
P Related parties
Definition of a related party
IFRS German GAAP

A related party is a person or entity that is Determination of “related party
related to the entity that is preparing its relationships” in German GAAP is based on
financial statements. the definition according to IFRS (reference
a) A person or a close member of that to IAS 24).
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.
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.

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 German GAAP requires, as a minimum
with all related parties and the nature of the
requirement, the disclosure of all material
relationship is disclosed, together with thetransactions with related parties which are
amounts involved. 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.

Other issues
Q Other 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 German GAAP

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).

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 According to the German Securities Trading
should be required to publish interim Act (WpHG) interim financial statements and
financial reports. The standard applies if an interim management reports are required
entity is required (for example according to for certain issuers of shares and debt
national securities regulators rules) or elects securities.
to publish an interim report in accordance
with IFRS. 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.

Contacts
Contacts
WP StB CPA Prof. Dr. Rüdiger Loitz WP StB Guido Fladt

Leader Capital Markets & Leader National Office
Accounting Advisory Services Tel: +49 69 9585-1455
Tel: +49 211 981-2839 g.fladt@pwc.com
ruediger.loitz@pwc.com
WP StB Björn Seidel Thorsten Seidel

Partner Capital Markets & Senior Manager Capital Markets &
Accounting Advisory Services Accounting Advisory Services
Tel: +49 40 6378-8163 Tel: +49 30 2636-4440
bjoern.seidel@pwc.com thorsten.seidel@pwc.com
About us
Our clients face diverse challenges, strive to put new ideas into practice and seek
expert advice. They turn to us for comprehensive support and practical solutions
that deliver maximum value. Whether for a global player, a family business or a
public institution, we leverage all of our assets: experience, industry knowledge,
high standards of quality, commitment to innovation and the resources of our
expert network in 158 countries. Building a trusting and cooperative relationship
with our clients is particularly important to us – the better we know and understand
our clients’ needs, the more effectively we can support them.
PwC. More than 10,600 dedicated people at 21 locations. €2.09 billion in turnover.
The leading auditing and consulting firm in Germany.

www.pwc.de

IFRS Vs German GAAP (PWC)

Uploaded by

Copyright:

Available Formats

IFRS Vs German GAAP (PWC)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IFRS Vs German GAAP (PWC)

Uploaded by

Copyright:

Available Formats

www.pwc.

Published by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft

May 2018, 124 Pages, Soft cover

© May 2018 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.

In this document, “PwC” refers to PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft,

The application of IFRS is required for consolidated financial statements of public

The use of IFRS in separate entity financial statements in Germany is voluntary

The publication takes account of authoritative pronouncements issued under

This publication is not all-encompassing. It focuses on those differences that we

Prof. Dr. Rüdiger Loitz Guido Fladt

Similarities and Differences: IFRS and German GAAP 5

C Consolidated financial statements....................................................................15

F Pensions and other long-term benefits..............................................................40

L Derivatives and hedging...................................................................................92

N Share-based payments.................................................................................... 111

O Foreign currency translation.......................................................................... 113

P Related parties............................................................................................... 118

6 Similarities and Differences: IFRS and German GAAP

Historical cost or fair value

IFRS German GAAP

Fair presentation over-ride

IFRS German GAAP

First-time adoption of accounting frameworks

IFRS German GAAP

Similarities and Differences: IFRS and German GAAP 7

Components of financial statements

IFRS German GAAP

An entity may use titles for the statements

For the requirement to present a segment

8 Similarities and Differences: IFRS and German GAAP

Statement of financial position (balance sheet)

IFRS German GAAP

Non-controlling interests are presented Non-controlling interests are presented

Income statement/statement of comprehensive income

IFRS German GAAP

Entities that disclose an operating result

Similarities and Differences: IFRS and German GAAP 9

IFRS German GAAP

Entities should not mix functional and

“Extraordinary items” are prohibited.

Entities are permitted to present items of

Items included in other comprehensive

10 Similarities and Differences: IFRS and German GAAP

Statement of changes in equity (SoCIE)

IFRS German GAAP

The statement of changes in equity must be

Similarities and Differences: IFRS and German GAAP 11

Statement of cash flows – format and method

IFRS German GAAP

Statement of cash flows – definition of cash and cash equivalents

IFRS German GAAP

12 Similarities and Differences: IFRS and German GAAP

Accounting polices, errors, estimates – changes in accounting policy

IFRS German GAAP

Comparative information is restated and The resulting effect of a change is

A third statement of financial position as

Accounting polices, errors, estimates – correction of errors

IFRS German GAAP

Similarities and Differences: IFRS and German GAAP 13

C Consolidated financial statements....................................................................15

F Pensions and other long-term benefits..............................................................40

L Derivatives and hedging...................................................................................92

N Share-based payments.................................................................................... 111

O Foreign currency translation.......................................................................... 113

P Related parties............................................................................................... 118

C Consolidated financial statements

An entity may own instruments that, if

If an equity method investment meets the