German GAAP

German GAAP (HGB): the accounting framework every German company follows

German GAAP is not a separate rulebook with that name — it is the accounting law contained in the German Commercial Code (Handelsgesetzbuch, HGB). This page explains what German GAAP is, who writes it, the creditor-protection thinking behind it, and how the pieces fit together. It is the starting point for founders, foreign parents and accountants meeting the HGB for the first time.

What people mean by 'German GAAP'

Germany has no privately run standard-setting board the way the United States has the FASB or the international world has the IASB. When English speakers say 'German GAAP', they almost always mean the accounting provisions of the Handelsgesetzbuch (HGB), specifically its Third Book (Drittes Buch, §§ 238–342e), which governs commercial bookkeeping and annual financial statements. So 'German GAAP' and 'HGB accounting' mean the same thing in practice.

These rules are statute. They are enacted by the federal legislator and amended by named laws — the BilMoG modernisation act of 2009, BilRUG in 2015, and most recently the Wachstumschancengesetz, which raised the size thresholds for fiscal years beginning after 31 December 2023. Because the rules are law rather than guidance, compliance is not optional and the exact wording of the paragraph (§) is what counts.

Who sets and interprets the rules

The primary source is always the statute itself. Beyond the black-letter law sit the Grundsätze ordnungsmäßiger Buchführung (GoB), the generally accepted principles of proper accounting, which the HGB repeatedly references and which fill the gaps the statute leaves open. Courts, the tax authorities and professional bodies interpret these principles, but there is no board issuing binding standards for the single-entity accounts.

For consolidated group accounts, a national standard-setter issues the DRS series (for example DRS 20 on the management report), which is presumed to reflect the GoB. For the individual company statements this product covers, though, the HGB paragraphs and the GoB are the whole framework.

Creditor protection: the idea behind every figure

The single most useful thing to understand about German GAAP is its purpose. Where IFRS is built to inform investors about the future value of a business, the HGB is built to protect creditors and to determine a prudent, distributable profit. That goal shapes almost every measurement rule.

In concrete terms it means the prudence principle (Vorsichtsprinzip, § 252 Abs. 1 Nr. 4) dominates: unrealised losses must be recognised while unrealised gains must not, assets are generally capped at historical cost with no fair-value step-ups, and the balance sheet leans conservative on purpose. A German balance sheet is meant to understate rather than overstate what a company is worth, so that the equity shown is genuinely there to cover creditors.

The documents German GAAP produces

Bilanz (balance sheet)

The Bilanz follows a fixed layout set by § 266 HGB: assets (Aktiva) split into fixed and current, financed by equity, provisions and liabilities on the Passiva side. The level of detail scales with company size.

Gewinn- und Verlustrechnung (GuV)

The income statement under § 275 HGB can be prepared by nature of expense (Gesamtkostenverfahren) or by cost of sales (Umsatzkostenverfahren). Small entities may condense the top lines into a single Rohergebnis (gross result).

Anhang (notes)

The notes (Anhang, §§ 284–288) explain the figures and disclose what the face of the statements cannot. Micro entities can omit the Anhang entirely if they show a few figures beneath the balance sheet.

Lagebericht (management report)

The management report (Lagebericht, § 289) is a narrative on the business, its risks and its outlook. Only medium and large corporations must prepare one; small and micro entities are exempt.

German GAAP scales with your size

Smaller companies disclose, audit and file far less.

  • Micro (Kleinstkapitalgesellschaft, § 267a): up to €450,000 total assets, €900,000 revenue and 10 employees.
  • Small (kleine, § 267 Abs. 1): up to €7.5m total assets, €15m revenue and 50 employees.
  • Medium (mittelgroße, § 267 Abs. 2): up to €25m total assets, €50m revenue and 250 employees.
  • Large (große): exceeds two of the medium thresholds, or is capital-market-oriented and therefore always large.

The HGB is deliberately proportionate. A company is classified as micro, small, medium or large (§§ 267, 267a) by staying under two of three thresholds — balance sheet total, revenue and average employees — on two consecutive balance sheet dates. The smaller the class, the less you must disclose, audit and file.

German GAAP and IFRS are not interchangeable

Germany does not let a single company swap the HGB for IFRS to determine its taxable or distributable profit. Listed groups prepare their consolidated accounts under IFRS because EU law requires it, but each individual company still keeps HGB statutory statements. If your parent reports under IFRS or US GAAP, the German subsidiary produces HGB numbers and those are reconciled upward into the group figures.

Frequently asked questions

Is 'German GAAP' an official term?

Not really. There is no document called German GAAP; it is an English shorthand for the accounting rules in the Handelsgesetzbuch (HGB), mainly its Third Book (§§ 238–342e). German professionals simply say HGB.

Who sets German accounting standards?

The federal legislator, through the HGB and amending laws such as BilMoG, BilRUG and the Wachstumschancengesetz. There is no private standard-setting board for single-entity accounts; the statute plus the Grundsätze ordnungsmäßiger Buchführung (GoB) govern.

Why is German GAAP considered conservative?

Because its purpose is creditor protection, not investor information. The prudence principle forces recognition of unrealised losses but not unrealised gains, and assets are generally held at historical cost, so equity is stated cautiously.

Do all German companies use German GAAP?

Every company keeps its individual statutory accounts under HGB. Listed groups additionally prepare IFRS consolidated accounts, but the single-entity HGB statement still determines distributable profit and the tax base.

Is German GAAP the same as the HGB?

For financial-statement purposes, yes. When people say German GAAP they mean the accounting provisions of the HGB and the GoB that support them.