Reconciliation

IFRS-to-HGB reconciliation: the line-by-line adjustments that bridge the two

When you convert an IFRS balance to HGB, the difference is not random; it is a defined set of reconciling items. This page lists the adjustments that most often move equity and profit between IFRS and HGB for a German entity, with the statute behind each.

How the bridge works

A reconciliation walks from IFRS equity or result to the HGB equivalent by adding or removing each divergence. Because HGB is more prudent, most adjustments reduce equity relative to IFRS.

Keep a schedule for each item. Many of them reverse in later years, so the opening reconciliation feeds directly into the next period rather than being re-derived from scratch.

The concrete reconciling items

Each with the HGB anchor.

Operating leases (IFRS 16 → § 246)

Remove the right-of-use asset and the lease liability. The net effect on equity is usually small, but the balance sheet shrinks and the expense pattern shifts from depreciation plus interest back to straight rent.

Development costs (IAS 38 → § 248 Abs. 2)

If HGB expenses what IFRS capitalised, reduce assets and equity. If you take the HGB capitalisation option instead, keep the asset but add a § 268 Abs. 8 distribution block on the amount.

Fair-value reversals (§ 253 Abs. 1)

Reverse IFRS fair-value gains on investment property and financial instruments back to historical cost. This is a common equity reduction; impairments already taken generally stay in place.

Provisions and pensions (IAS 37 → § 249 / § 253 Abs. 2)

Re-measure to the prudent settlement amount and the Bundesbank average discount rate. HGB often shows higher provisions, reducing equity, and pensions use a 10-year averaging rate rather than an IFRS spot rate.

Deferred tax and revenue timing

Two further items complete most bridges. Deferred tax (§ 274 / § 274a) has to be recomputed on the new HGB temporary differences, and because small entities may recognise none, an IFRS deferred-tax asset can disappear entirely.

Revenue timing is the other. Reverse IFRS percentage-of-completion profit on long-term contracts, which the HGB realisation principle defers to completion, and unwind any IFRS 15 contract-asset or contract-liability presentation that HGB does not use.

A worked order of operations

  • Start from IFRS equity and net result.
  • Reverse fair-value step-ups back to historical cost.
  • Remove IFRS 16 lease assets and liabilities.
  • Adjust development-cost capitalisation to the HGB option chosen.
  • Re-measure provisions and pensions to HGB amounts and rates.
  • Defer premature long-term-contract revenue to completion.
  • Re-run deferred tax on the resulting differences.
  • The balance is HGB equity and result.

Document it for next year

Each reconciling item has a life. Leases unwind over the term, development costs amortise, and fair-value reversals crystallise on disposal.

Hold a rolling schedule so the following year starts from a clean HGB carrying amount. This is also where the trail for the tax balance sheet and deferred tax begins.

Frequently asked questions

Which IFRS-to-HGB adjustment is usually the biggest?

Fair-value reversals and lease de-recognition tend to move the numbers most, followed by provision and pension re-measurement.

Does removing IFRS 16 leases hurt equity?

Only slightly on net, because you remove both the asset and the liability. It mainly shrinks the balance sheet and changes the expense mix from depreciation and interest back to straight rental.

How are pensions reconciled?

HGB discounts pension provisions using a 10-year Bundesbank average rate (§ 253 Abs. 2), which differs from the IFRS spot rate, so the provision, and therefore equity, is re-measured.

Do I reverse all IFRS revenue?

No, only the divergences. Chiefly that means percentage-of-completion profit on long-term contracts, which HGB defers to completion under the realisation principle.

Is this reconciliation the same as the tax reconciliation?

No. This bridges IFRS to the HGB commercial accounts. The tax balance sheet (Steuerbilanz) then derives from HGB via the Maßgeblichkeitsprinzip (§ 5 EStG), which is a separate step.