HGB vs US GAAP

German GAAP vs US GAAP: what a US parent's finance team needs to know about HGB

If you consolidate a German subsidiary into US GAAP, you still need an HGB statutory statement at the local level. This page compares HGB with US GAAP on the points that matter to a US controller: inventory, R&D, leases, provisions, revenue and disclosure, and where the German reporting package fits.

Same goal, different instincts

Both HGB and US GAAP aim to report a company's position and performance, but they get there differently. HGB is codified in a single statute and driven by creditor protection and prudence. US GAAP is a large, detailed body of standards (the ASC) driven by decision-useful information for investors.

For a US finance team, HGB feels shorter but more judgemental in places and stricter, more conservative, in others. The German entity will often carry higher provisions, fewer capitalised items and a smaller balance sheet than the US GAAP version.

Point by point

How the same transaction lands differently.

Inventory and LIFO

Both allow FIFO and LIFO cost-flow assumptions (HGB § 256), but HGB adds a strict lower-of-cost-or-market rule (§ 253 Abs. 4) that forces write-downs US GAAP would not always require. There is no HGB analogue to the US LIFO reserve disclosure.

Research and development

US GAAP expenses most R&D immediately (ASC 730). HGB lets you capitalise internally generated development costs (§ 248 Abs. 2), an option US GAAP does not offer, while research stays expensed. So HGB can capitalise where US GAAP cannot.

Leases

US GAAP (ASC 842) capitalises both operating and finance leases as right-of-use assets. HGB keeps ordinary operating leases off balance sheet as rental expense, so expect the German entity's balance sheet to look lighter.

Provisions and contingencies

HGB recognises provisions on a prudent, probability-based threshold and often earlier (§ 249). US GAAP (ASC 450) recognises a loss only when it is probable and estimable, so the German entity tends to book more provisions, and sooner.

Revenue recognition

US GAAP applies the detailed five-step model of ASC 606. HGB has no equivalent codified standard: revenue follows the realisation principle (§ 252 Abs. 1 Nr. 4) and is recognised when it is substantially earned and the risk has passed.

For straightforward sales the answer is often the same. Long-term contracts diverge sharply: HGB generally bars percentage-of-completion profit recognition on prudence grounds, deferring profit to completion, whereas ASC 606 spreads it over time.

Disclosure depth and the reporting package

US GAAP financial statements carry heavy disclosure. HGB scales its notes (Anhang) to the size class, so a small German GmbH files far less. That gap is why the local statutory set and the group figures look different.

For consolidation, the German subsidiary sends the US parent a reporting package: its HGB figures re-mapped to the group's US GAAP policies. jahresabschluss.io produces the German entity's statutory HGB set that underpins that package. It does not produce the US group consolidation.

Quick reference

  • Inventory: both allow FIFO/LIFO, but HGB forces stricter lower-of-cost-or-market write-downs.
  • R&D: HGB may capitalise development (§ 248 Abs. 2); US GAAP expenses it (ASC 730).
  • Leases: US GAAP capitalises operating leases (ASC 842); HGB keeps them off balance sheet.
  • Provisions: HGB books earlier and more generously (§ 249) than US GAAP (ASC 450).
  • Revenue: HGB defers long-term-contract profit to completion; ASC 606 recognises over time.
  • Disclosure: HGB scales to size; US GAAP is uniformly extensive.

Frequently asked questions

Does Germany use US GAAP?

No. German statutory accounts use HGB. A German subsidiary of a US group prepares its HGB accounts locally and then reports figures into the parent's US GAAP consolidation through a reporting package.

Can I capitalise R&D under HGB but not US GAAP?

Yes for development. HGB § 248 Abs. 2 gives an option to capitalise internally generated development costs, which US GAAP (ASC 730) does not, although both frameworks expense pure research.

How different are HGB and US GAAP provisions?

HGB recognises provisions earlier and more generously under the prudence principle (§ 249), while US GAAP (ASC 450) waits for a probable, estimable loss. The German entity therefore often shows higher provisions.

Why is my German subsidiary's balance sheet smaller than the US GAAP one?

Mostly leases and fair value. HGB keeps operating leases off balance sheet and caps assets at historical cost, so no right-of-use assets or fair-value step-ups appear.

Do German accounts recognise revenue over time like ASC 606?

Rarely. HGB follows realisation and prudence, so long-term contracts are usually recognised on completion rather than by percentage of completion.