Germany: New accounting law takes effect for companies
The so-called Accounting Directive Implementation Act (BilRUG) took effect when it was approved by the German Bundesrat recently. It is based on a European Union (EU) Directive requiring that national law be adapted to EU law so that annual financial statements and consolidated financial statements can be made more comparable within the EU.
The intent is to relieve the burden on smaller companies, in particular, by raising the accounting thresholds and reducing or adjusting the information required in the notes. The new set of rules must be applied beginning in FY 2016.
The new law will provide tangible relief to a series of companies in the preparation and disclosure of the annual financial statements. We wish to place special emphasis on the following changes, which DHPG considers to be important:
- Reporting obligations for smaller companies are reduced:
Increase in the threshold values
The burden on “small” and “mid-size” companies, in particular, will be relieved. The thresholds for the “balance sheet total” and “turnover” size criteria for limited liability companies and Kapital & Co companies have been increased by 24% for single-entity financial statements. This converts about 7,000 “mid-sized” companies into “small” companies. As a result, the statutory obligation to audit the financial statements and certain disclosure obligations are eliminated. However, the increase in the thresholds for “balance sheet total” and “turnover” is only 4% when distinguishing between “mid-sized” and “large” companies and with respect to the obligation to prepare consolidated financial statements. The threshold provisions can be applied retroactively to fiscal years commencing after 31 December 2013. However, the new definition of “sales revenues” applies if the threshold provisions are applied retroactively.
(2) Restructuring of the income statement:
New definition of “sales revenues”
In the future, certain revenues outside of “ordinary business activities” will be considered “sales revenues” under the statute. This relates, e.g., to revenues from company canteens or intra-group allocations, which were previously recorded under “other operating income.” This makes it more difficult to examine the company’s sales activities and is not in conformity with international accounting standards (IFRS). It has already been criticized by the Bundestag.
Elimination of non-recurring items
The differentiation into a result from “ordinary business activities” and an “extraordinary result” has been eliminated. Extraordinary business transactions must now be assigned to the other income statement items. For business transactions of extraordinary size or importance, there still remains an obligation to provide an explanation in the notes.
The aforementioned information can result in a significant change in relationships on the income statement. This will influence key business indicators, which may be of importance for the company’s rating or for agreed-upon covenants.
(3) Changes in reporting in the notes to the annual financial statements:
The Accounting Directive Implementation Act expands the reporting obligations for “mid-sized” and “large” limited liability companies. There are up to 18 changes to reporting in the notes, depending on the size category. The following facts, inter alia, can be of importance:
- There is a default to a useful life of 10 years for scheduled depreciation and amortization of self-created assets, if this is difficult to estimate.
- There is a duty to explain the amortization period for goodwill acquired for valuable consideration.
- Information on the profit-participation rights of all companies must be provided in the notes.
- The recommendation for the appropriation of net profits must be integrated into the notes.
- The supplementary statement must be moved from the management report to the notes.
(4) Changes in accounting for group companies:
There is a stronger reliance on the standards of the EU Directive with respect to accounting for group companies. The following changes are of particular importance:
The exemption from the obligations to prepare financial statements, have them audited and make disclosures, which exemption has thus far been available to companies included in consolidated financial statements, is – according to the language of the statute – now dependent on a statement from the parent company agreeing to assume liability in the following fiscal year for obligations entered into by the subsidiary prior to the balance sheet date. The Bundestag is of the opinion that a statutory assumption of losses in accordance with Paragraph 302 of the German Stock Corporation Act under a Management Control and Profit and Loss Transfer Agreement is still sufficient for such an exemption, if the other statutory requirements are also met.
If you have any questions, please feel free to contact us.
Contact
WP StB Thomas Rohler
Office Bergisch Gladbach
+49 2204 76788 0
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