GoB Principles

German GAAP principles: the Grundsätze ordnungsmäßiger Buchführung (GoB)

German GAAP rests on a set of foundational principles known as the Grundsätze ordnungsmäßiger Buchführung (GoB), the generally accepted principles of proper accounting. This page explains each one, where it is codified (mostly § 252 HGB), and why the German emphasis on prudence and historical cost produces more conservative numbers than IFRS.

What the GoB are and where they live

The GoB are the bedrock principles the HGB assumes and repeatedly references. Some are written directly into the statute — the general valuation principles are listed in § 252 Abs. 1 — while others are unwritten but generally accepted and enforced by courts and the tax authorities.

They matter because the HGB cannot legislate every situation. When a specific rule is silent, you fall back on the GoB, so understanding them lets you reason to the German-correct answer rather than guessing.

The general valuation principles of § 252

Going concern (§ 252 Abs. 1 Nr. 2)

Value the business as a continuing operation unless the facts require otherwise. Break-up values are used only when continuation is genuinely in doubt.

Individual valuation (Nr. 3)

Each asset and liability is valued separately at the balance sheet date. Gains on one item cannot be netted against losses on another, which reinforces prudence.

Prudence (Nr. 4)

Value cautiously. Recognise all foreseeable risks and losses that arose up to the balance sheet date, even those known only afterwards, but recognise profits only once realised.

Accrual and consistency (Nr. 5–6)

Match income and expense to the period they belong to regardless of cash, and keep valuation methods consistent from year to year (Bewertungsstetigkeit).

The prudence trio: prudence, realisation, imparity

The prudence principle (Vorsichtsprinzip) breaks into two operational rules. The realisation principle says profit may be recognised only when it is realised — typically when goods or services are delivered and the claim is secure. Unrealised, merely expected gains stay off the books.

The imparity principle is its asymmetric twin: foreseeable losses and risks must be recognised as soon as they are probable, before they are realised. This is why German companies book provisions for looming losses and write assets down promptly, and why unrealised gains and unrealised losses are treated so differently.

Historical cost and lower-of-cost measurement

Assets are carried at acquisition or production cost (Anschaffungs- oder Herstellungskosten, § 253 Abs. 1) and that cost is a ceiling: with narrow exceptions you cannot revalue assets upward to fair value the way IFRS often permits.

On the downside the rule bites hard. Current assets follow the strict lower-of-cost-or-market principle (strenges Niederstwertprinzip, § 253 Abs. 4) — you must write down to the lower market value at the balance sheet date. Fixed assets follow a moderate version, written down only for an impairment likely to be permanent.

Completeness, clarity and the rest

  • Completeness and no netting (§ 246): record all assets, liabilities and accruals, and do not offset assets against liabilities or income against expense.
  • Clarity and order (§ 243 Abs. 2): the statements must be clear and follow the prescribed structure so a reader can navigate them.
  • Balance sheet identity (§ 252 Abs. 1 Nr. 1): the opening balance sheet must equal the prior year's closing balance sheet.
  • Materiality: minor items may be simplified where doing so does not mislead, a principle the HGB applies pragmatically rather than by a fixed percentage.
  • Consistency: once chosen, valuation and presentation methods are kept stable, and any change must be disclosed in the notes.

Why these principles matter for foreigners

If you are used to IFRS, the practical effect is that a German balance sheet tends to be more conservative: lower asset values, earlier loss recognition, no fair-value uplifts, and hidden reserves that build up when assets are worth more than their carried cost. Understanding the GoB explains why the same company can show a lower HGB equity than its IFRS equity.

Frequently asked questions

What does GoB stand for?

GoB stands for Grundsätze ordnungsmäßiger Buchführung, the generally accepted principles of proper accounting. They are the foundation of German GAAP, partly codified in § 252 HGB and partly unwritten but binding.

What is the prudence principle in German GAAP?

The Vorsichtsprinzip (§ 252 Abs. 1 Nr. 4) requires cautious valuation: recognise all foreseeable losses and risks as soon as they are probable, but recognise profits only once realised. It is the defining instinct of the HGB.

What is the difference between the realisation and imparity principles?

They are the two halves of prudence. Realisation delays profit until it is earned and secure; imparity brings losses forward as soon as they are foreseeable. The result is a deliberate asymmetry between gains and losses.

Does German GAAP allow fair value?

Only in narrow cases, such as certain plan assets covering pension obligations. As a rule, assets are capped at historical cost under § 253 Abs. 1, with write-downs but no upward revaluation, unlike IFRS.

Are the GoB legally binding?

Yes. The HGB references them directly, and books or statements that breach the GoB can be rejected by auditors or the tax office. They carry the force of law even where they are not written out in a specific paragraph.