fair value

Service Profile

We have broken down our service profile into four segments. We inform you of the main aspects of our service profile and things worth knowing about each segment in tabular form.

Things worth knowing about IFRS

Who are the users?

With the passing of the Accounting Regulation Reform Act (Bilanzrechtsreformgesetz), all companies whose shares are admitted in any member state for trading on a regulated exchange in the sense of Article 1 Paragraph 13 of the Directive 93/22/EC of the Council of 10th May 1993 concerning Securities Services at the respective balance sheet cut-off date, must prepare their consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) for financial years which commence on or after 1st January 2005. The same obligation applies to all parent companies which have applied for admission of securities for trading on an organised exchange in Germany up to the respective balance sheet cut-off date.

Those companies for which solely debt instruments are admitted for trading on a regulated exchange in a member states in the sense of Article 1 Paragraph 13 of the Directive 93/22/EC, or their securities are admitted for public trading in a non-member state and have applied internationally recognised standards for this purpose for one financial year that began before the publication of the Directive (EC) No. 1606/2002 of the European Parliament and of the Council of 19th July 2002 in the Official Journal of the European Community, must apply IFRS first for financial years that start on or after 1st  January 2007.

All other parent companies may chose to apply the IFRS for compiling their consolidated financial statements at their discretion, insofar as they make full use of the standards and regulations. Under this provison, limited use may be made in connection with the disclosure of stand-alone financial statements compiled in accordance with the IFRS instead of the annual financial statements  prepared in accordance with the German financial reporting standards.

Growing significance of the IFRS

The International Financial Reporting Standards have gained enormously in significance in recent years. In fact not only for companies affected by the legal regulations. Even companies which are not affected are increasingly coming to terms with the IFRS, not only to satisfy the requirements of the providers of equity or outside capital or business partners, but also to create and document competitiveness on the transaction market for companies. As increasing attention is also being paid to internationalisation of German financial reporting standards, it can be assumed that sooner or later the community of financial reporters not obliged by law to apply the IFRS will nevertheless not be able to avoid the IFRS. This trend also depends on the futher developments in the European Community as national accounting law has to observe European Law.

IFRS – a complex financial reporting system

Regardless of whether or not a change to International Financial Reporting Standards is initiated by law, such a conversion project represents a considerable challenge for a business. Most of the accustomed accounting and valuation standards have to be set aside and a concept adopted that, in contrast to the German financial reporting regulations, does not follow the principle of caution, but rather the concept of fair value. In consequence, this concept leads to the normally much greater scope of reporting obligations in the notes to financial statements.

The complex requirements on financial reporting, often formulated in detail, can often only be fulfilled short-term in matters of quality and quantity, and in particular during the conversion phase of companies, under strenuous efforts. In addition to this, the IFRS have undergone considerable changes in recent years. Points of criticism have been voiced in Germany not only by companies, but also in a perceptible number of cases by German university professors and, not lastly, by auditors.

In many cases, such as measurement of financial instruments in the context of the global financial crisis or measurement of equity capital on the balance sheets of private partnerships, there is a great need for clarity or new regulations. On the contrary, it must currently be assumed that further changes are on the way. The effects of these on accounting matters in the areas concerned almost represent a paradigm change, including the associated expenditure on conversion. For example, reference is made to the current debate concerning the revision of the IFRS with regard to the income realisation or reporting leasing arrangements in the financial statements.
The  International Accounting Standard Board (IASB) has responded to the calls for simplification by means of the so-called "International Financial Reporting Standards for Small and Medium-sized Entities “ (IFRS for SMEs). The final Standards were released in June 2009 and contain many significant simplifications as for example the waivin gof the impairment only approach for measurement of goodwill. Under IFRS for SME the Goodwill is amortized.The establishment of the IFRS for SME’s in the context of european and national accounting law is awaited with interest as an on-going debate has arisen concerning the corporate target groups (users) and the scope of the simplifications since a work group responsible for the development of the IFRS for SME’s was set up. In the development of the IFRS for SMEs, the Working Group Recommendations of August 2005, for instance, suggest that account is taken of enterprises not subject to public financial reporting in the size of 50 employees and an annual turnover of € 10 million.
Yet even in consideration of the aforesaid points of criticism, the IFRS are regarded in international circles – not lastly due to the efforts of convergence with the US-GAAP - as the principles of financial reporting that will eventually prevail. In the debate in Germany, the benefits compared to the principles of financial reporting currently applicable in Germany are widely seen as lying in their transparency.

We are happy to assist you

We are very happy to assist you in surmounting the challenges posed in this respect. Our many years of comprehensive experience with conversion projects and in evaluating individual accounting matters enable us to offer you a wide range of knowledge, from the project planning to the technical implementation through to tackling questions of accounting law.  


Things worth knowing IFRS for SMEs

In July 2009 the IASB issued the International Financial Reporting Standard for small and medium sized Entities (IFRS for SMEs). Currently many countries are evaluating the adoption of IFRS for SMEs or have already adopted them (e.g. Brazil, Namibia). For european countries the European Commission is currently proving compatibility with european law. The Commission decided to seek the opinion of EU stakeholders on this Standard und a consultation took place between 17 November 2009 and 12 March 2010. The results of this consultation are available the internetsite of the EU. Many respondents commented that accounts' users would benefit from widespread adoption of the Standard mainly due to an increased ability to analyse and compare financial statements prepared in different jurisdictions. However, in some Member States the linkage between taxation and capital maintenance rules could make application of IFRS for SMEs more burdensome by duplicating reporting requirements. In Germany IFRS for SME are also in competition with newly reformed Commercial Code which now claims to have partially been adjusted to Internatinal Accounting Rules but on the other hand contains a clear separation from IFRS.

Who are the users?

Possible users of IFRS for SMEs are companies whose equity or debt securities or not publicly traded. In this respect IFRS for SMEs adress a broad variety of companies who not necessarily charaterised by beeing small oder medium sized. The main criteria for using IFRS for SMEs the abdiction of listing. The IASB also considers large companies as possible users, however these companies might want to use Full-IFRS for reasons of better comparabilitiy with listed companies.

Growing significance of internationally comparable accounting principles

Non-listed, medium sized and owner-managed companies also have growing interest in internationally comparable accounting principles. This results from a growing number of medium-sized companies with international business but als from increasing iterest of iternational investors in this segment. At the same time these companies want to avoid very complex accounting principles or multiple accounting which might result from internal, tax driven or - as for german users of Full-IFRS- commercial law obligations. The actual importance if IFRS for SMEs can not be assessed yet. Therefore the adoption in the European Union und the transition into natinonal law has to be awaited. The high international acceptance of international accounting principles can be expected to put growing pressure on national standard setters and legislators. The adoption of international accounting standards in Germany would neccessarily lead to the implementation of a seperate tax accounting. With regard to the implications of BilMoG this scenario has already lost part of its horror though..


BilMoG Conversion 31.12.2010

The new accounting rules in the Accounting Law Reform Act (BilMoG) have to be applied in the annual and consolidated financial statements for fiscal years beginning after January 1st, 2010 the latest. Therefore they are for the first time relevant to all financial statements as of December 31st, 2010. But essential regulations are already effective on January 1st, 2010, so that "BilMoG" opening balance sheet values have to be determined.

With the BilMoG a variety of new accounting rules have come into force. Of most importance are:

  • the requirement to deduct plan assets from pension obligations
  • the option to disclose internally generated intangible assets
  • the elimination of certain provisions for expenses without an obligating event
  • the measurement of provisions with their settlement amount
  • the applicable interest rate for the discounting of long-term provisions, thus of provisions for pensions
  • the valuation of certain pension obligations with the fair value of related securities
  • the conditions for the implementation of impairments and the requirement to reinstate original values
  • the definition of production costs, even for internally generated intangible assets
  • specific rules for publicly traded companies
  • the dividend distribution restrictions and profit transfer restrictions
  • the recognition of deferred taxes under the "temporary" concept
  • the disclosure of equity, for example in connections with outstanding deposits or treasury shares and
  • various new reporting requirements for the notes to financial statements

The following new regulations have to be considered in the consolidated financial statements additionally:

  • the expansion of the scope of consolidated subsidiaries
  • the restriction of capital consolidation procedures on the revaluation method
  • the determination of the acquisition date
  • the recognition of deferred taxes under the "temporary" concept
  • the disclosure of investments in associated companies at cost less accumulated impairment losses and
  • various new reporting requirements for the notes to financial statements

When converting to BilMoG numerous transitional regulations must be observed, which grant companies in some cases several conversion options and so give room for accounting policy.

In addition to these substantial changes by BilMoG a significant change in the German accounting may not be unmentioned, namely the abolishment of the reversed decisiveness of tax accounting for the financial statements. This and the restriction in § 5 para 1 sentence 2 of the Income Tax Act concerning the extent of dependency of the taxable income on the profit of the financial statements lead to new considerations regarding independent strategies between financial and tax accounting.

According to our current observations, a variety of companies has not addressed the effects of BilMoG in such detail that all necessary changes have already been identified or implemented.
This may lead to unpleasant surprises and possibly unexpected time pressure in the essential phase of the preparation of financial statements that usually begins right after the end of the business year.
In particular, we observe the problem that e.g. more complex valuation issues or the determination of deferred taxes sometimes exceed the capacity of accounting. If the annual and consolidated accounts in this situation have to be audited, the auditor's independence requirements legally limit the possibilities of necessary further advice or help.

In this situation, we can help you with the BilMoG conversion, since this is an area of expertise for us. We have gained some experience with the BilMoG and we can assess the requirements of your auditor based on our own experience as auditors. Additionally, we accompany or represent you in the course of coordinating accounting issues with your auditors or create the required documentation.