HGB vs UK GAAP

German GAAP vs UK GAAP (FRS 102): a comparison for UK groups with a German entity

For a UK group with a German subsidiary, HGB feels closer to home than IFRS. HGB and UK GAAP (principally FRS 102) share Continental prudence roots and both are lighter than full IFRS. This page compares them on the points that actually differ.

Closer cousins than IFRS

A UK finance professional will find HGB more familiar than IFRS. Both HGB and FRS 102 use historical cost as the default, both offer size-based reliefs, and both require a management report only for larger entities. The instinct in each is prudent measurement, not fair-value optimism.

But the detail diverges, and the German statement must ultimately be filed in German and euros (§ 244). Re-mapping a UK set to HGB is a good start, not the finish.

Point by point

Where FRS 102 and HGB part company.

Development costs

FRS 102 gives an accounting-policy choice to capitalise or expense development costs, and HGB likewise offers an option to capitalise (§ 248 Abs. 2). Broadly aligned, but HGB ties any capitalised amount to a distribution block (Ausschüttungssperre, § 268 Abs. 8).

Fair value and investment property

FRS 102 measures investment property at fair value through profit or loss and permits fair value for certain assets. HGB holds nearly everything at historical cost (§ 253 Abs. 1), with no fair-value model for property. This is the single biggest divergence.

Leases

FRS 102 has historically kept operating leases off balance sheet, matching HGB's treatment. The FRC's periodic review is aligning FRS 102 with the IFRS 16 model, so check the effective date; HGB continues to expense operating lease rentals.

Deferred tax

FRS 102 requires deferred tax on most timing differences. HGB recognises deferred tax under § 274 but exempts small entities (§ 274a) and lets you leave a net asset overhang unrecognised, so many German small-company accounts show none.

Format and terminology

Both frameworks prescribe balance sheet and P&L formats. HGB fixes the Bilanz (§ 266) and GuV (§ 275) layouts by statute; FRS 102 uses the Companies Act formats. The names map roughly: Bilanz is the balance sheet, GuV the profit and loss account, Anhang the notes, Lagebericht the directors' or strategic report.

A UK group can broadly re-map its lines, but the German layout is more rigid, the GuV must follow either the nature-of-expense (Gesamtkostenverfahren) or cost-of-sales (Umsatzkostenverfahren) format, and the filing is in German.

Audit and filing differ too

UK and German size tests are similar in spirit but not identical. German audit is mandatory for medium and large corporations (§ 316); small and micro entities are exempt. Notably, German audit exemption follows size, not a UK-style parent guarantee, so a medium or large German entity is audited regardless of the group's arrangements.

Filing goes to the Unternehmensregister within 12 months of the balance sheet date (§ 325), and a micro entity may deposit (hinterlegen) a shortened balance sheet (§ 326 Abs. 2) rather than publish.

Quick reference

  • Roots: both HGB and FRS 102 are prudence-based and lighter than IFRS.
  • Fair value: FRS 102 uses it for investment property; HGB stays at historical cost.
  • Development costs: both may capitalise, but HGB adds a § 268 Abs. 8 distribution block.
  • Deferred tax: required under FRS 102; small German entities are exempt (§ 274a).
  • Audit: German exemption is by size (§ 316), not a parent guarantee.
  • Filing: Unternehmensregister within 12 months (§ 325); micro may deposit (§ 326 Abs. 2).

Frequently asked questions

Is HGB closer to UK GAAP or IFRS?

To UK GAAP. HGB and FRS 102 share prudence, historical cost and size-based reliefs, whereas IFRS is more fair-value oriented and disclosure-heavy.

Can I just re-map my FRS 102 accounts to HGB?

The formats re-map roughly, but you still need to adjust for divergences such as investment-property fair value, deferred-tax scope and distribution-blocked development costs, and then produce the statutory German-language filing.

Does HGB require deferred tax like FRS 102?

Under § 274, yes for larger entities, but small companies are exempt (§ 274a) and a net asset overhang need not be recognised, so many German small-company accounts show no deferred tax.

Do UK and German operating leases get the same treatment?

Historically yes; both kept them off balance sheet. Watch the FRS 102 periodic-review changes moving towards the IFRS 16 model. HGB continues to expense operating lease rentals.

Is a German subsidiary audited if the UK parent guarantees it?

German audit exemption follows size (§ 316), not a parent guarantee, so a medium or large German entity is audited regardless of the group's UK arrangements.