Preparation of Consolidated Financial Statements in Accordance with the German Commercial Code (HGB) & IFRS

The requirements of the different regulations for individual financial statements in accordance with the German Commercial Code (HGB) and consolidated financial statements in accordance with IFRS mean that there is a continuous need for action on the part of capital-market-oriented companies. The preparation of consolidated financial statements in the context of consolidation often requires specific technical knowledge and an in-depth understanding of national and international accounting and consolidation regulations.

Different Regulations for Individual and Consolidated Financial Statements

A first step with companies to be included is to adapt the individual financial statements prepared in accordance with the German Commercial Code (HGB) to the recognition and measurement rules of the controlling company. In this step, it may also be necessary to answer the question of whether and which adjustment entries are necessary when converting from the Commercial Code (HGB) to IFRS regulations. The resulting so-called Commercial Balance Sheet II is an auxiliary balance sheet that is required for the preparation of the consolidated financial statements. The preparation of the Notes to consolidated financial statements in accordance with IFRS, which continues to be required in such cases, can be very time-consuming due to the scope of the disclosure requirements and the additional data and analyses required.

Consolidation – Challenges in Preparing Consolidated Financial Statements

The main challenge to be mentioned is the consolidation of the subsidiaries. Depending on the parent company’s degree of influence, different consolidation methods must be applied – from an equity investment not to be consolidated, to an associated company to be reported as an “at equity investment,” all the way to a fully consolidated subsidiary. In the case of fully consolidated equity investments of less than 100%, it is necessary to disclose the minority stakes. The initial consolidation of previously unconsolidated or newly acquired companies leads to additional complexity – which is why we also prepare the purchase price allocation (PPA) for you here. Intra-Group transactions are eliminated in the course of capital consolidation (Section 301 of the Commercial Code/IFRS 3), debt consolidation (Section 303 of the Commercial Code/IFRS 10.B86 (c)), elimination of intercompany profits and losses (Section 304 of the Commercial Code/IFRS 10.B86 (c)) and consolidation of expenses and income (Section 305 of the Commercial Code, IFRS 10.B86 (c)). Posting differences between Group companies often pose an additional challenge for intra-Group eliminations.

WTS Advisory as Partner in the Preparation of Consolidated Financial Statements in Accordance with the German Commercial Code (HGB) & IFRS

WTS Advisory supports its clients in the preparation of audit-proof consolidated financial statements in accordance with the German Commercial Code (HGB) and IFRS. Our experts have extensive knowledge of the Commercial Code and IFRS regulations and will support you from the preparation of the adjustment entries necessary for the conversion of the individual financial statements in accordance with the Commercial Code to the consolidated financial statements in accordance with IFRS, all the way to the individual consolidation steps and the preparation of the Notes to the consolidated financial statements. By using our consolidation tools, we ensure that the consolidation is carried out efficiently and in a resource-saving manner. Complex issues and circumstances often arise in the course of consolidation. Here, our experts with many years of experience in accompanying financial statements and the consolidation of companies with different sizes and in different sectors can provide you with advice and practical support.

If you are interested or have any questions, please contact us.