Glossary

Short explanations of the key terms around IFRS and HGB – from the frameworks and their guiding principles, through the components of the financial statements, to individual measurement questions.

Frameworks & institutions

IFRS / IAS: International Financial Reporting Standards and the older International Accounting Standards – the IASB's international accounting standards. In the EU they apply only after so-called endorsement.
IASB: International Accounting Standards Board – the independent London-based body that develops and issues IFRS.
HGB: Handelsgesetzbuch – the German Commercial Code, the basis of German GAAP (Book Three, §§ 238 ff.).
GoB: Grundsätze ordnungsmäßiger Buchführung – the (partly unwritten) guiding principles of HGB accounting.
Capital-market orientation: The status of a company whose securities trade on an organised market (§ 264d HGB); triggers, among other things, mandatory IFRS in the consolidated accounts.

Guiding principles

Creditor protection: The guiding principle of the HGB: a prudent, capital-maintaining measure of distributable profit.
Fair presentation: The guiding principle of IFRS: a decision-useful, faithful presentation of financial position and performance.
Prudence principle: § 252 HGB: recognise risks and losses early, profits only once realised.
Realisation principle: Recognise income only when realised through a transaction.
Imparity principle: Anticipate looming losses, but not unrealised gains.
Historical cost principle: Under HGB, acquisition or production cost is the measurement ceiling; writing assets up above that is generally not permitted.
Substance over form: An economic perspective: the economic substance of a transaction takes precedence over its legal form – more pronounced in IFRS than in HGB.
Authoritative principle (Maßgeblichkeit): The rule that the HGB commercial balance sheet is the starting point for the tax accounts (§ 5(1) EStG).
Going concern: The assumption that the business will continue, on which measurement normally rests (§ 252 HGB, IAS 1).

Components of the financial statements

Notes: The explanatory part of the statements, describing accounting policies and measurement; considerably more extensive under IFRS than under HGB.
Management report: A report on the course of business, position and risks; a separate statement under HGB, only recommended under IFRS as "management commentary".
Statement of cash flows: Presentation of cash flows from operating, investing and financing activities (IAS 7); under HGB required only for consolidated or capital-market-oriented statements.
OCI (other comprehensive income): Value changes recognised in equity outside profit or loss; no equivalent under HGB.
Consolidated financial statements: The combined statements of a group; mandatory under IFRS where capital-market-oriented.

Measurement & specific topics

Fair value: A market-based measurement basis, used more widely in IFRS than in HGB.
Right-of-use asset: The lessee's capitalised right to use a leased asset (IFRS 16).
Provision: A liability of uncertain amount or timing; the recognition thresholds differ between § 249 HGB and IAS 37.
Deferred taxes: Tax effects of differences between carrying amounts and tax bases (IAS 12 / § 274 HGB).
Goodwill: The premium from acquiring a business; IFRS: impairment-only testing, HGB: systematic amortisation.
Impairment: A write-down for a loss in value; under IFRS when indicators exist, under HGB (non-current assets) only if permanent.
Materiality: The principle that only information capable of influencing users' decisions needs to be presented and disclosed.