What are the differences between a profit and loss statement according to the German Commercial Code (HGB) and according to International Financial Reporting Standards (IFRS)?
August 23, 2022 | 40,00 EUR | answered by Fanni Ehrig
Dear Mrs. Germer,
I am currently facing the challenge of creating the profit and loss statement for my company and I am somewhat unsure about the differences between a profit and loss statement according to German Commercial Code (HGB) and International Financial Reporting Standards (IFRS). I have always worked according to the regulations of the German Commercial Code (HGB), but now I am wondering if it would make sense to switch to the International Financial Reporting Standards (IFRS).
Currently, I prepare my profit and loss statement according to the HGB regulations, which means that I follow the German accounting standards. For example, depreciation is carried out according to the rules of the HGB and there are certain accounting standards that I must adhere to. However, I have heard that IFRS represent an international standard and could potentially offer advantages.
My concerns are that I do not know exactly what specific differences exist between a profit and loss statement according to HGB and IFRS. Furthermore, I am wondering if transitioning to IFRS would be beneficial for my company and what impact this could have on my accounting and financial reporting.
Therefore, my question to you would be: What specific differences exist between a profit and loss statement according to HGB and IFRS? What are the advantages and disadvantages of switching to IFRS and what impact would this have on my company? I would greatly appreciate your expert assessment and possible solutions.
Thank you in advance for your support.
Best regards,
Mia Germer
Dear Mrs. Germer,
Thank you for your question regarding the differences between a profit and loss statement according to HGB and according to IFRS. I understand that you are unsure which regulations are most suitable for your company and what impact a switch to IFRS could have.
Basically, there are some significant differences between a profit and loss statement according to HGB and according to IFRS. One of the main differences lies in the valuation of assets and liabilities. While HGB mainly uses historical acquisition costs, IFRS allow for a fair value valuation, where assets and liabilities are valued at current market value.
Another difference lies in the treatment of depreciation. Under HGB, depreciation is usually done linearly over the useful life of the asset, while IFRS also allow for the use of other depreciation methods such as performance-based depreciation.
Furthermore, there are differences in accounting regulations, for example regarding the valuation of inventories, provisions, or deferred taxes. IFRS often establish less restrictive rules and allow for greater flexibility in accounting.
A switch to IFRS can have both advantages and disadvantages for your company. The advantages include better comparability with international companies, higher transparency and credibility of financial reports, and potentially better financing opportunities in international capital markets.
On the other hand, the conversion costs to IFRS can be high, as new software solutions or training may be required. Moreover, the complexity of IFRS could mean additional effort in preparing financial reports.
In terms of the impact on your company, it is important to analyze your individual situation and weigh whether the benefits of switching to IFRS outweigh the potential drawbacks. It may therefore be useful to conduct a detailed cost-benefit analysis and possibly consult an expert to make an informed decision.
I hope that my explanations have been helpful to you and I am available for any further questions.
Best regards,
Fanni Ehrig
