HGB vs IFRS

HGB vs IFRS: how German GAAP and IFRS actually differ

HGB (the German Commercial Code) and IFRS answer the same question, how do you measure a company's assets, profits and obligations, but from opposite starting points. This page compares the two frameworks for anyone running or reporting on a German entity, and explains which one you are actually required to use.

Two different jobs: creditor protection vs investor information

HGB exists to protect creditors and to measure a prudent, distributable profit. IFRS exists to give investors a fair, forward-looking view of the business. That single difference in purpose explains almost every technical divergence below.

Because HGB is anchored in the prudence principle (Vorsichtsprinzip, § 252 Abs. 1 Nr. 4), it deliberately understates rather than overstates. Unrealised gains are ignored until realised, while foreseeable losses are booked early under the imparity principle. IFRS is more even-handed and will recognise value increases through fair value wherever a reliable measurement exists.

Point by point

The differences that move the numbers most.

Measurement basis

HGB caps most assets at historical cost (§ 253 Abs. 1); there are no fair-value step-ups for property or most financial assets. IFRS permits revaluation and fair-value measurement for investment property, many financial instruments and biological assets.

Development costs

HGB gives an option to capitalise internally generated development costs (§ 248 Abs. 2) while barring research costs. IFRS (IAS 38) makes capitalisation mandatory once the recognition criteria are met, so the trigger and the amount can differ.

Provisions and discounting

HGB books provisions at the prudent settlement amount (§ 253 Abs. 1) and discounts long-term ones at Bundesbank average rates. IFRS (IAS 37) uses a best estimate and a market discount rate, so both the amount and the timing often diverge.

Leases

Under HGB an ordinary operating lease stays off the lessee's balance sheet and the rent is expensed. IFRS 16 puts almost every lease on balance sheet as a right-of-use asset and a lease liability, so the German entity looks lighter.

Disclosures scale with size under HGB

IFRS demands extensive disclosure; a set of IFRS notes for even a mid-size company runs to dozens of pages. HGB instead scales disclosure to the size class. A small company (§ 267 Abs. 1) files reduced notes and no public income statement, and a micro entity (§ 267a) may omit the notes (Anhang) almost entirely by showing a few figures under the balance sheet (§ 264 Abs. 1 Satz 5).

For an owner-managed German GmbH this makes HGB dramatically lighter than IFRS. The framework is designed so that the smaller you are, the less you have to prepare and publish.

Who must use which

German law does not let you simply pick. Every German corporation prepares its individual statutory accounts (Einzelabschluss) under HGB. That is the legally filed document and the basis for distributable profit and, through the tax balance sheet, for tax. There is no IFRS single-entity statutory statement in Germany.

Listed groups additionally prepare consolidated accounts under IFRS as endorsed by the EU (the IAS Regulation), and unlisted groups may opt into IFRS for the consolidated set (§ 315e). So one company can face both: HGB for the entity that files and pays dividends, IFRS for group reporting. jahresabschluss.io prepares the HGB single-entity set, not the group consolidation.

Quick reference

  • Purpose: HGB protects creditors and measures distributable profit; IFRS informs investors.
  • Valuation ceiling: HGB uses historical cost; IFRS permits or requires fair value in key areas.
  • Prudence: HGB is asymmetric (losses early, gains late); IFRS is broadly neutral.
  • Tax link: HGB feeds the tax balance sheet via Maßgeblichkeit (§ 5 EStG); IFRS has no direct German tax effect.
  • Disclosure: HGB scales down by size class; IFRS is uniformly extensive.
  • Statutory status in Germany: HGB is the filed single-entity account; IFRS is used only for consolidated group reporting.

Frequently asked questions

Can a German GmbH file IFRS instead of HGB?

No. The individual statutory accounts that are filed and that determine distributable profit must be prepared under HGB (§ 264). A company may prepare an additional IFRS set for information or group reporting, but it does not replace the HGB filing.

Is HGB or IFRS more conservative?

HGB. Its prudence principle (§ 252) understates by design: unrealised gains are ignored and provisions are set generously, so HGB equity and profit are usually lower than the IFRS equivalents.

Do German listed companies use IFRS?

For their consolidated group accounts, yes, because the EU IAS Regulation requires it. Their individual parent-company statement still follows HGB, since that is what governs dividends and tax.

Why does HGB keep leases off the balance sheet?

HGB follows economic ownership and prudence rather than the IFRS 16 right-of-use model, so an ordinary operating lease is treated as a rental expense with no asset or liability recognised by the lessee.

Does converting from IFRS to HGB change my profit?

Usually yes. Reversing fair-value gains, treating leases differently and re-measuring provisions typically move the result. See our IFRS-to-HGB reconciliation guide for the line-by-line effect.