Converting from HGB to IFRS

Converting financial reporting from HGB to IFRS is a project with accounting, process and organisational effects. It is not merely about different journal entries but about a different mindset: away from prudence and creditor protection, towards decision-useful information for investors. The following overview shows the typical approach.

Legal framework for first-time adoption

First-time adoption is governed by IFRS 1. At the transition date (the start of the earliest comparative period presented) an IFRS opening balance sheet is prepared: all assets and liabilities are recognised and measured as if the entity had always reported under IFRS. Items IFRS does not recognise are removed; items IFRS requires (such as lease right-of-use assets) are brought on. The adjustments versus the HGB accounts are recognised directly in retained earnings, not in profit or loss.

Because the first IFRS statements must include at least one comparative period, the conversion effectively reaches back one to two years before the actual first reporting date. IFRS 1 also grants a number of exemptions (e.g. for property, plant and equipment, business combinations or cumulative translation differences) to limit the retrospective effort.

Typical conversion effects

• Leases: operating leases come onto the balance sheet as a right-of-use asset and a lease liability (IFRS 16) – total assets increase and the expense profile shifts.
• Development costs: mandatory capitalisation under IAS 38 once the criteria are met, instead of an HGB option.
• Pension provisions: measured at the current market rate (IAS 19) instead of the HGB 10-year average; actuarial effects go through OCI.
• Goodwill: no more systematic amortisation, but an annual impairment test.
• Provisions, deferred taxes, revenue recognition: different recognition and measurement rules that can touch almost every balance-sheet item.

Project approach

1. Analysis: identify the material differences – work through the balance-sheet and income-statement items systematically and produce an HGB-vs-IFRS "gap analysis".
2. Design: set the IFRS accounting policies (accounting manual), the options chosen and the account mapping.
3. Implementation: prepare the IFRS opening balance sheet and reconciliations – IFRS 1 explicitly requires reconciliations from HGB to IFRS for equity and profit or loss.
4. Embedding: adapt processes, IT/ERP systems, the chart of accounts and reporting so that ongoing IFRS bookkeeping works without manual reconciliation.

What drives the effort

The size of the project depends on business complexity: the number of lease contracts, the volume of internally generated intangibles, pension commitments, group structure and foreign-currency transactions. Often the bottleneck is not the measurement itself but data availability – many IFRS disclosures were simply never captured in the HGB accounting system.

For each of these topics, the comparison overview shows the concrete differences with a worked example.