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IFRS Versus German GAAP (Revised) Summary of Similarities and Differences

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IFRS Versus German GAAP (Revised) Summary of Similarities and Differences Financial Accounting, Reporting and Auditing Services IFRS versus German GAAP (revised) Summary of similarities and differences pwc IFRS versus German GAAP (revised) Summary of similarities and differences Edited by PricewaterhouseCoopers All rights reserved. Reproductions, microfilming, storage and processing in electronic media are not permitted without the publisher’s approval. Typesetting Nina Irmer, Digitale Gestaltung & Medienproduktion, Frankfurt am Main Printing Kohlhammer und Wallishauser GmbH, Hechingen Printed in Germany © February 2010 PricewaterhouseCoopers refers to PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft and the other separate and legally independent member firms of PricewaterhouseCoopers International Limited. IFRS versus German GAAP (revised) Contents Summary of similarities and differences Contents Abbreviations ................................................................................................5 Introduction ...................................................................................................6 A Comparison of IFRS and German GAAP (revised) .................................7 1 Accounting framework.............................................................................7 2 Financial statements ...............................................................................8 3 Consolidated financial statements.........................................................12 4 Business combinations..........................................................................18 5 Revenue recognition .............................................................................24 6 Pensions and other long-term benefits..................................................26 6.1 General considerations ......................................................................26 6.2 Measurement of obligation .................................................................27 6.3 Plan assets.........................................................................................28 6.4 Recognition ........................................................................................28 6.5 Presentation and disclosures .............................................................29 6.6 Transition rules...................................................................................30 7 Assets – non-financial assets................................................................30 8 Financial assets ....................................................................................39 9 Liabilities ...............................................................................................46 10 Financial liabilities .................................................................................48 11 Equity instruments.................................................................................53 12 Derivatives and hedging........................................................................54 12.1 Derivatives – non-hedging..................................................................54 12.2 Hedge accounting requirements.........................................................56 13 Deferred taxes.......................................................................................62 14 Other accounting and reporting topics...................................................65 14.1 Share-based payments ......................................................................65 3 Contents IFRS versus German GAAP (revised) Summary of similarities and differences 14.2 Foreign currency translation .............................................................. 66 14.3 Related parties................................................................................... 68 15 Management report .............................................................................. 68 B Comparative overview of IFRS, IFRS for SMEs and German GAAP (revised)..................................................................................... 72 1 Summary presentation ......................................................................... 72 2 Recognition and measurement in the statement of financial position and the statement of comprehensive income.......................... 73 2.1 Assets................................................................................................ 73 2.2 Inventories ......................................................................................... 75 2.3 Equity and liabilities ........................................................................... 76 2.4 Other relevant issues......................................................................... 78 2.5 Consolidated financial statements and business combinations ......... 82 2.6 Disclosure notes ................................................................................ 84 2.7 Other issues ...................................................................................... 84 Contacts ..................................................................................................... 86 4 IFRS versus German GAAP (revised) Abbreviations Summary of similarities and differences Abbreviations AktG Aktiengesetz [Stock Corporation Act] ATZ Altersteilzeit [partial retirement] BilMoG Bilanzrechtsmodernisierungsgesetz [German Act on the Modernisation of Accounting Law] CGU Cash generating unit DB Defined benefit DBO Defined benefit obligation DC Defined contribution FIFO First in, first out HGB Handelsgesetzbuch [German Commercial Code] GAS German Accounting Standard [Deutscher Rechnungslegungs Standard] IAS International Accounting Standards ICS Internal control system IFRS International Financial Reporting Standards incl. Including InvG Investmentgesetz [German Investment Act] IPR&D In-process research and development LIFO Last in, first out MLP Minimum lease payments OCI Other comprehensive income POC Percentage of completion PPE Property, plant and equipment PublG Publizitätsgesetz [German Public Disclosure Act] PUCM Projected unit credit method R Revised RMS Risk management system RückAbzinsV Rückstellungsabzinsungsverordnung Sec. Section SMEs Small and medium-sized entities SoCIE Statement of changes in equity Subsec. Subsection 5 Introduction IFRS versus German GAAP (revised) Summary of similarities and differences Introduction The global convergence towards International Financial Reporting Standards (IFRS) continuously influences the development of German statutory accounting and reporting requirements (German GAAP). With this publication we hope to provide a broad understanding of the key similarities and differences between IFRS and German GAAP (revised). The first part of this document includes a tabular summary of the similarities and differences between IFRS and German GAAP (revised). The second part of this document includes a comparative overview of the similarities and differences between IFRS, IFRS for SMEs and German GAAP (revised). 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. The use of IFRS in separate entity financial statements is voluntary and only allowed for presentation purposes. German commercial law continues to require the application of German GAAP especially for profit distribution, tax and statutory presentation and disclosure purposes. The recent reform of German GAAP (Bilanzrechtsmodernisierungsgesetz – BilMoG) marked the most comprehensive revision of statutory accounting principles in the last 20 years. Its aim was to establish modern but less complex accounting principles as an adequate, sustainable alternative to IFRS and to improve the informational content of German GAAP financial reporting by implementing elements similar to IFRS. The revision implements numerous substantial changes in the recognition and measurement criteria, several new and changed disclosure requirements as well as disclosure of further information in the management report. The revision reduces the differences between IFRS and German GAAP (revised) in certain areas, but increases or changes them in other areas. No summary publication can do justice to the many differences of detail that exist between IFRS and German GAAP (revised). Even if the guidance is similar, there may be differences in the detailed application which could have a material impact on the financial statements. This publication focuses on the measurement similarities and differences most commonly found in practice. When applying the individual accounting frameworks, readers should consult all the relevant accounting standards and, where applicable, their national law. Listed companies should also follow relevant securities regulations – for example local stock exchange listing rules. This publication takes account of authoritative pronouncements issued under IFRS and German GAAP (revised) up to 30 June 2009, issued under IFRS for SMEs up to 9 July 2009 and is based on the most recent version of those pronouncements. We have noted certain developments within the tabular summary; however, not all recent developments or exposure drafts have been included. 6 IFRS versus German GAAP (revised) Comparison of IFRS and German GAAP (revised) Summary of similarities and differences A Comparison of IFRS and German GAAP (revised) 1 Accounting framework IFRS German GAAP (revised) Historical cost or fair value Historical cost is the primary basis of Historical
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