Handelsgesetzbuch (HGB): The Commercial Code of Germany

What Is Handelsgesetzbuch (HGB)?

Handelsgesetzbuch (HGB) is a law that governs the primary commercial code for companies in Germany. The law includes a regulation related to the preparation of financial statements and establishes accounting guidelines and best practices. HGB is similar to generally accepted accounting principles (GAAP), which is followed in the United States.

Key Takeaways

  • Handelsgesetzbuch (HGB) is Germany's commercial code and accounting standards for how companies must prepare and report financial statements.
  • The HGB also mandates various corporate ordinances and regulations dealing with the treatment of workers.
  • In many ways, the guidelines spelled out in the HGB are similar to the U.S. GAAP and IFRS with a few notable differences.
  • Germany’s laws and IFRS both use historical costs as the core of accounting, but German law generally?does not allow for revaluations as the IFRS does.

Understanding Handelsgesetzbuch (HGB)

The commercial code of Germany, known as Handelsgesetzbuch, was first established on May 10, 1897. In 1998, the code was adapted to conform to new laws within the European community.

The HGB has also been used in Austria since 1938. In 2007, the HGB in Austria was replaced by a newer unified commercial code called the Unternehmensgesetzbuch (UGB). German accounting law was further updated in 2010 with the Bilanzrechtsmodernisierungsgesetz (BilMoG).

HGB includes the governance on the registration of companies in Germany and the ordinances they must adhere to. For example, HGB includes provisions on the use of commercial brokers, agents, and the formation and dissolution of partnerships with third parties.

The mandates of HGB include paying employees’ salaries by the end of each month. Under the law, non-compete clauses in employees' hiring contracts must be in writing. There are also provisions regarding charter contracts for ships and salvage rights.

Handelsgesetzbuch (HGB)?vs. IFRS

Germany’s commercial code and accounting laws share similarities and differences with International Financial Reporting Standards (IFRS). For example, Germany’s laws and IFRS both use historical costs as the core of accounting, but German law generally does not allow for revaluations.

IFRS allows for the revaluation of the fair value of property, intangible assets, investment property, equipment, and inventions within set industries. German accounting law does offer some exceptions to the fair value assessment of financial instruments from banks and financial institutions that are held for trading.

Income statements are largely similar under either set of accounting laws, but differences do exist. There is no statement of comprehensive income under German account practices. Income statements can be issued by using the cost of sales or total cost methods. Furthermore, income drawn from discounting provisions must be included with other interest and similar income.

With IFRS, a company can decide to show its income or expenses as a single statement of comprehensive income or as two statements. The separate statements can show components of profit or loss, plus another statement for other income.

HGB only requires a statement of cash flows for consolidated financial statements and for publicly traded companies that are not required to file consolidated financial statements. IFRS and German accounting practices both classify cash flows by operating, investment, and financing activities.

Article Sources
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  1. Germany Federal Ministry of Justice. "Commercial Code."

  2. Hamburg Chamber of Commerce. "From the Accounting Duty to the Publication Duty in Germany."

  3. PricewaterhouseCoopers. "Similarities and Differences: IFRS and German GAAP."

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