Modernised accounting law adopted in Germany
Apr 30, 2009
The German Parliament has passed the Act to Modernise Accounting Law (in German: Bilanzrechtsmodernisierungsgesetz). A goal of the legislation is to reduce the financial reporting burden on German companies.
The modernised ComC accounting law is also an answer to the International Financial Reporting Standards (IFRS), published by the International Accounting Standards Board (IASB). The IFRS are geared to suit capital market oriented enterprises; in other words, they also serve information needs of financial analysts, professional investors and other participants in the capital markets.
By far the majority of those German enterprises that are required by law to keep accounts and records do not take part in the capital market at all. For this reason, there is no justification for committing all the enterprises that are required to keep accounts and records to the cost-intensive and highly complex IFRS. Also the draft recently discussed by the IASB of a standard IFRS for Small and Medium-Sized Entities is not a good alternative for drawing up an informative annual financial statement. Practitioners in Germany have strongly criticised the IASB draft because its application – compared with ComC accounting law – would still be much too complicated and costly.
- Companies will be permitted to capitalise internally generated intangible assets, while getting an immediate tax deduction for the costs.
- Financial institutions will measure financial instruments designated as 'held for trading' at fair value, with value changes recognised in a 'special reserve'. The Ministry of Justice press release states: 'This special reserve has to be built up from part of the enterprise's trading profits when times are good and can then be used to offset trading losses when times get worse. Hence this special provision has an anticyclical effect. Here the necessary steps have been taken in order to respond to the financial markets crisis.'
- Special purpose entities that are controlled must be consolidated.
- Ministry of Justice Press Release (PDF 41k).
- Information about the German Accounting Law on the MoJ website.