Basics: German GAAP (HGB) vs. IFRS

German GAAP (HGB) and IFRS pursue different fundamental goals. Once you understand this difference, almost every individual divergence falls into place.

HGB – protecting creditors

German commercial law emphasises creditor protection and capital maintenance. The financial statements are meant to show a conservatively measured, distributable profit. The guiding principles are:

• Prudence principle (§ 252 (1) No. 4 HGB): risks and losses are recognised early, profits only once realised.
• Realisation principle: profit is recognised only when realised through a transaction.
• Imparity principle: anticipated losses are recognised, unrealised gains are not.
• Historical cost principle: acquisition or production cost is the measurement ceiling – writing assets up above cost is generally not permitted.

IFRS – information for owners and investors

IFRS address owners and investors in the capital markets. The aim is a decision-useful, faithful presentation of the economic position (fair presentation). This leads, among other things, to:

• Greater use of fair values, including above historical cost.
• An economic perspective (substance over form).
• Extensive note disclosures for assessing future cash flows.
• Recognition of certain value changes in other comprehensive income (OCI).

Why this matters in practice

The same transaction can produce markedly different balance-sheet and income figures under HGB and IFRS – for example for leases, internally generated intangibles, pension provisions or goodwill. The overview on the home page ranks the key standards with a traffic-light system according to the magnitude of the divergence.