Companies from the Medium-sized companies increasingly have to deal with the rules of international accounting. The main advantages of IFRS are greater transparency, especially when comparing company financial statements. The international Accounting standards should be standardised so that annual financial statements are internationally comparable.
IFRS rules mandatory?
It is true that companies operating on the capital market are only obliged to apply international accounting standards. Nevertheless, the introduction of IFRS is always global some cases worthwhile for medium-sized companies. However, the German Commercial Code (HGB) and IFRS differ considerably. IFRS primarily aims to provide investors with the information they need to make decisions. The HGB is more concerned with protecting creditors under commercial law.
Conversion HGB to IFRS
There is no doubt that the changeover from HGB to IFRS in a medium-sized company involves considerable effort, not only in the accounting associated with this. This is often impossible to achieve without the help of external consultants. It is important to carefully weigh up whether the supposed advantages, e.g. in terms of improved financing options, justify the increased expense of introducing IFRS.
Brochure on the topic International Financial Reporting Standards
Of the BDI has published a brochure on IFRS together with the German Bankers Association and Ernst&Young.
Under the title “International Financial Reporting Standards also for SMEs" becomes Pros & Cons The introduction of the rules of international financial reporting.
The differences between IFRS and HGB are of considerable importance and show decisive differences, which are analysed in more detail below.
IFRS and HGB have different objectives. While IFRS is primarily aimed at providing investors with the knowledge they need to make decisions, HGB is more focussed on protecting creditors.
Accounting also differs significantly between IFRS and HGB. IFRS is based on the fair value measurement concept, which provides for the measurement of assets and liabilities at their current market value. In contrast, the HGB is based on the principle of prudence, which aims for a more conservative valuation and often values assets at the time of acquisition or production.
There are also clear differences between the two standards with regard to depreciation and amortisation. The useful life of assets is more flexible under International Financial Reporting Standards and can be adjusted to the actual useful life. In contrast, the depreciation and amortisation methods and periods are generally subject to stricter regulations under HGB.
Another important aspect relates to consolidation. Compared to HGB, the IFRS consolidation standards are more comprehensive and far-reaching. For example, IFRS prescribes the application of the equity method for joint ventures and affiliated companies, whereas this is not the case under HGB.
In order to meet the information requirements of investors, the IFRS are more detailed in the notes and the management report. The disclosure standards of the HGB are generally less stringent. In this context, it should be mentioned that the International Financial Reporting Standards require detailed reporting on all of a company's business segments in order to provide investors with a better understanding of its business activities. Segment reporting, on the other hand, is not explicitly mentioned in the HGB.
To summarise, the International Financial Reporting Standards promote greater transparency and global comparability of company financial statements. In contrast, the German Commercial Code is based on more conservative accounting and valuation principles and places greater emphasis on the protection of creditors.
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