Germany

The legal framework for corporate financial reporting in Germany is established in the applicable EU Directives and Regulations, which are transposed into national laws and other legal instruments.

Accounting Framework

Companies whose debt or equity securities trade in a regulated market in Germany are required to use IFRS in their consolidated accounts as required by the European Commission (EC) Regulation No. 1606/2002. This also applies to companies that have applied for admission of a security within the meaning of § 2 (1) of the German Securities Trading Act (Wertpapierhandelsgesetz - WpHG) to trading on an organized market within the meaning of § 2 (11) of the WpHG in Germany by the respective reporting date. IFRS are also permitted in the preparation of annual and consolidated financial statements of all other types of companies for informational purposes only. For all other purposes, these companies must prepare their financial statements in line with the national accounting standards (German Legally Required Accounting Principles) outlined within the German Commercial Code (Handelsgesetzbuch - HGB). The Deutsches Rechnungslegungs Standards Committee (DRSC) [Accounting Standards Committee of Germany], established in 1998, is recognized as the German standard-setter.

In 2009, the German Accounting Law Modernization Act came into force in order to reduce the regulatory burden on companies and achieve closer alignment of national standards with the IFRS although it is policy to keep the German GAAP for companies without public accountability.

In 2015, the German Accounting Directive Implementation Act was aimed at harmonizing the German accounting law with the EU Accounting Directive (2013/34/EU). The possibilities to reduce the burden on small, medium-sized and large companies was taken advantage of to the greatest extent possible.

According to the German Federal Ministry of Justice, the majority of German enterprises required to keep accounts do not participate in the capital market. The 2015 Act exempts 'sole merchants' (proprietorships) with less than €600,000 turnover and €60,000 profit from any obligation to keep books and records in accordance with the German Commercial Code. Small companies (less than 50 employees, assets of €6 million, and annual sales revenue of €12 million) need not have an audit and may publish only a balance sheet. Medium-sized companies (less than 250 employees, assets of €20 million, and annual sales revenue of €40 million) have reduced disclosure requirements and may combine balance sheet items. In addition, among the new accounting provisions of the Act, financial institutions will measure financial instruments designated as 'held for trading' at fair value, with value changes recognized in a 'special reserve'.

Auditing Framework

European Union member states had until June 17, 2016 to transpose the European audit reform package, comprising the Directive 2014/56/EU on statutory audits of annual accounts and consolidated accounts into their national legislation. At the same time, the Regulation (EU) No 537/2014 on specific requirements regarding statutory audit of public interest entities (PIEs) came into force. The Regulation is directly applicable law in all EU member states and replaces any national law on the same subject matter. The Directive requires auditors and audit firms in member states to apply international auditing standards adopted by the EU Commission which—as stated in the Directive—means ISA, ISQC 1, and other related standards issued by the International Auditing and Assurance Standards Board (IAASB). While the German parliament adopted the EU audit reforms on March 10, 2016, the EU Commission has not yet adopted ISA. Germany has not expanded the definition of PIEs beyond the Directive’s definition which includes listed companies on an EU regulated market, credit institutions, insurance undertakings, and other entities a member state may choose to designate as a PIE.

It remains the responsibility of the professional accountancy organization, Institut der Wirtschaftsprüfer (IDW), to issue applicable auditing standards in the jurisdiction. The IDW Auditing Standards taken together contain the German Generally Accepted Standards on Auditing (GAAS) as promulgated by IDW. With a few exceptions, the German texts of ISAs are now directly applicable with specific German requirements (add-ons). Specially denoted paragraphs (“D paragraphs” for “Deutschland”) are added to deal with the requirements of German law, etc. These standards are named International Standards on Auditing [DE] (ISA-DE).

In Germany, members of the profession are known as Wirtschaftsprüfer and vereidigte Buchprüfer (public accountants / (sworn) auditors, for sake of simplification just referred to as “Wirtschaftsprüfer” in the following). The profession is first and foremost regulated by the Wirtschaftsprüferordnung (Public Accountant Act (WPO)) 1961 and its amendments which outlines the professional duties of Wirtschaftsprüfer, the establishment of the Wirtschaftsprüferkammer (Chamber of Public Accountants (WPK)), and the prerequisites in order to practice as a Wirtschaftsprüfer.

Wirtschaftsprüfer, once licensed, are authorized to carry out examinations of businesses, and in particular to perform audits of annual financial statements of business enterprises, and to issue auditor's reports on the conduct and the results of such audit engagements. Wirtschaftsprüfer may also advise and represent clients in tax matters, act as experts in the field of business management, advise on business matters, and act as trustees.

Before receiving the designation of Wirtschaftsprüfer, individuals must complete a university degree. Candidates must then complete three years’ of practical experience, with at least two years being in audit practice. Subsequently, candidates may sit for examinations. After passing the examinations applicants are appointed as Wirtschaftsprüfer whereupon they receive a certificate issued by the WPK.

The WPK operates under the legal oversight of the Federal Ministry for Economic Affairs and Climate Action and is responsible, in particular, for the following: (i) licensing of Wirtschaftsprüfer and audit firms; (ii) revocation of licenses; (iii) registration of public accountants and audit firms; (iv) conducting examinations for the Wirtschaftsprüfer designation; (v) setting ethical requirements; (vi) establishing continuing professional development requirements; and (vii) carrying out quality assurance (QA) reviews and (viii) disciplinary procedures for auditors of non-public interest entities (PIEs).

The WPK’s activities and members are subject to the independent oversight of the Abschlussprüferaufsichtsstelle (APAS—Auditor Oversight Body (AOB)) which was established as a result of the EU Audit Reform and transposed into national law by the Abschlussprüferaufsichtsreformgesetz (APAReG; Auditor Oversight Reform Act) and amending the WPO. The AOB’s responsibilities as outlined in the amended WPO include: (i) inspections of public interest entity (PIE) audit firms and PIE audits; (ii) enforcement (investigations and sanctions) in relation to PIE audits; (iii) mandatory statement on any amendments to professional rules (ethics, quality control) issued by the WPK for approval by the Federal Ministry for Economic Affairs and Climate Action; (iv) market monitoring in accordance with Article 27 of the Regulation (EU) No. 537/2014; and (v) supervision of and ultimate responsibility and decision-making power especially in relation to the abovementioned activities of the WPK.

Auditing standards that are applicable in the jurisdiction are issued by the Institut der Wirtschaftsprüfer in Deutschland e.V. (Institute of Public Auditors in Germany, Incorporated Association (IDW))—a professional accountancy organization with voluntary full membership for Wirtschaftsprüfer. The IDW’s mission to (i) provide for the education and continuing professional development (CPD) of Wirtschaftsprüfer, and to conduct appropriate measures therefor; (ii) to advocate uniform principles for exercise of the profession in an independent, individually responsible and conscientious manner, and ensure members’ compliance with these principles; and (iii) to foster the further development of the role of the Wirtschaftsprüfer profession. Individuals who join the IDW are required to be registered on the institute’s registry and are subject to its CPD requirements and investigative and disciplinary procedures.

Accounting standards are set by the Deutsches Rechnungslegungs Standards Committee (DRSC) [Accounting Standards Committee of Germany]. The DRSC has the following responsibilities: develop recommendations for the application of principles for consolidated financial reporting; provide advice on planned legislation on accounting regulations at national and EU level; represent Germany in international accounting bodies; develop Interpretations of the international financial reporting; develop Interpretations of the international financial reporting standards within the meaning of section 315a(1) of the HGB; enhance the quality of accounting and financial reporting; and promote research and education in the abovementioned areas.

In Germany, Wirtschaftsprüfer (public accountants / auditors) are subject (either directly (PIEs) or indirectly (Non-PIEs) via WPK) to the independent oversight of the Abschlussprüferaufsichtsstelle (APAS—Auditor Oversight Body (AOB) which was established as a result of the EU Audit Reform and transposed into national law by the Abschlussprüferaufsichtsreformgesetz (APAReG; Auditor Oversight Reform Act) and amending the Public Accountant Act (WPO) 1961. The AOB is member of the International Forum of Independent Audit Regulators (IFIAR) and of the Committee of European Auditing Oversight Bodies (CEAOB). Its responsibilities are outlined in the Regulation section.

The Institut der Wirtschaftsprüfer in Deutschland e.V. (Institute of Public Auditors in Germany, Incorporated Association (IDW))

The IDW was incorporated as an association in 1946 to serve the interests of its members, which comprise individual Wirtschaftsprüfer (public accountants / auditors) and Wirtschaftsprüfungsgesellschaften (German audit firms). Membership in the IDW is voluntary. The IDW’s functions are (i) provide for the education and continuing professional development (CPD) of Wirtschaftsprüfer, and to conduct appropriate measures therefor; (ii) to advocate uniform principles for exercise of the profession in an independent, individually responsible and conscientious manner, and ensure members’ compliance with these principles; and (iii) to foster the further development of the role of the Wirtschaftsprüfer profession. Individuals who join the IDW are required to be registered on the institute’s registry and are subject to its CPD requirements and investigative and disciplinary procedures.

Wirtschaftsprüferkammer (Chamber of Public Accountants (WPK))

The WPK was established by the Wirtschaftsprüferordnung (Public Accountant Act (WPO)) 1961 and its amendments. Membership of the chamber is mandatory for all Wirtschaftsprüfer. The WPK operates under the Federal Ministry for Economic Affairs and Climate Action in addition to the oversight of the Auditor Oversight Body (AOB). The chamber is responsible, in particular, for the following: (i) licensing of Wirtschaftsprüfer and audit firms; (ii) revocation of licenses; (iii) registration of public accountants and audit firms; (iv) conducting examinations for the Wirtschaftsprüfer designation; (v) setting ethical requirements; (vi) establishing CPD requirements; and (vii) carrying out quality assurance (QA) reviews and (viii) disciplinary procedures for auditors of non-public interest entities (PIEs).

Both PAOs are founding members of IFAC, with IDW also being a founding member of Accountancy Europe and with WPK being a member of Accountancy Europe.

• New legislation in the European Union, the Corporate Sustainability Reporting Directive (CSRD), which was enacted in December 2022 will introduce mandatory sustainability reporting and assurance. Member States are required to transpose this legislation into national law. Mandatory reporting and assurance will be introduced in a step-by-step approach, with the largest European companies starting in 2024. Until October 2026, when the European Commission is required to adopt mandatory limited assurance standards, assurance engagements will be undertaken in accordance with national pronouncements. In Germany, the IDW pronouncements and ISAE 3000 have established themselves in the market for voluntary assurance of non-financial information.

Effective June 2016, quality assurance (QA) reviews of the audits of public interest entities (PIEs) are undertaken by the Abschlussprüferaufsichtsstelle (APAS—Auditor Oversight Body (AOB)) which was established as a result of the EU Audit Reform and transposed into national law by the Abschlussprüferaufsichtsreformgesetz (APAReG; Auditor Oversight Reform Act) and amending the the Wirtschaftsprüferordnung (Public Accountant Act (WPO)) 1961.

Under the Wirtschaftsprüferordnung (Public Accountant Act (WPO)) 1961 and its amendments the Wirtschaftsprüferkammer (Chamber of Public Accountants – WPK) is responsible for the QA reviews of audits of non-PIEs subject to the oversight of the AOB and the Federal Ministry for Economic Affairs and Climate Action. Meanwhile, relevant standards for the jurisdiction are issued by the Institut der Wirtschaftsprüfer in Deutschland e.V. (Institute of Public Auditors in Germany, Incorporated Association – IDW). ISQM 1 and 2 have been transposed and translated as part of the IDW QM Standards. These standards and ISA 220-DE (Revised) are applicable for audits of financial statements for periods beginning on or after December 15, 2023.

The WPK states that its QA procedures are in line with the requirements of SMO 1 and based on information from the AOB’s IFIAR profile, as well as from the WPK, it appears its system also meets SMO 1 requirements.

Current Status: Adopted

The Wirtschaftsprüferordnung (Public Accountant Act (WPO)) 1961 sets forth different routes for admission to the Wirtschaftsprüfer profession.

Before receiving the designation of Wirtschaftsprüfer, individuals must complete a university degree. Candidates must then complete a minimum of three years’ practical experience, with at least two years being in audit practice. Subsequently, candidates may sit for examinations (content: see § 4 of the Wirtschaftsprüfer's Examination Regulation and the Referenzrahmen [reference framework]). After passing the examinations (four modules in six years maximum) applicants are appointed as Wirtschaftsprüfer whereupon they receive a certificate issued by the Wirtschaftsprüferkammer (Chamber of Public Accountants – WPK). The WPO and the Wirtschaftsprüfer Examination Regulation (WiPrPrüfV) regulate the specifics of the practical experience and the content of the examinations.

Citizens of a European Union Member State, a Treaty Nation in the European Economic Area, or of Switzerland may sit an aptitude test—which covers German tax and commercial law and German auditing and accountancy regulations—if they have already been approved in other Member States to carry out statutory audits of annual accounts and consolidated accounts.

The WPK sets continuing professional development requirements (CPD) for its members, which are a minimum of 40 CPD hours per year of which 20 hours must include structured learning. The remaining 20 hours may be, for example, self-study. Similarly, the Institut der Wirtschaftsprüfer in Deutschland e.V. (Institute of Public Auditors in Germany, Incorporated Association – IDW)’s articles of incorporation stipulate that individuals who voluntarily join the institute must also fulfill CPD requirements of 40 hours per year - the entire 40 hours must be structured learning.

Overall, the IDW and WPK jointly state that the accountancy educational requirements in Germany meet the IES requirements.

Current Status: Adopted

The German Commercial Code (Handelsgesetzbuch, HGB) regulates, inter alia, purpose and scope of an audit, and audit opinion and report. Only small companies that meet certain criteria are exempted from undergoing an audit of their financial statements.

European Union member states had until June 17, 2016 to transpose the European audit reform package, comprising the Directive 2014/56/EU on statutory audits of annual accounts and consolidated accounts), into their national legislation. At the same time, the Regulation (EU) No 537/2014 on specific requirements regarding statutory audit of public interest entities (PIEs) came into force. The Regulation is directly applicable law in all EU member states and overrides any national law on the same subject matter. The Directive requires auditors and audit firms in member states to apply international auditing standards adopted by the EU Commission which—as stated in the Directive—means standards issued through the International Auditing and Assurance Standards Board (IAASB). While the German parliament adopted the EU audit reforms on March 10, 2016, the EU Commission has not yet adopted ISA.

It therefore remains the responsibility of the professional accountancy organization Institut der Wirtschaftsprüfer (IDW) to issue applicable standards.

In 2018, the IDW commenced a project to adopt the German translation of the ISAs with specific German requirements (add-ons). The German language translations of ISAs are supplemented by add-ons necessary to reflect requirements under German (and EU law) and are applicable as “ISA-DE”. There are exceptions for cases where the use of IDW Auditing Standards (IDW AuS) is necessary because German legal requirements differ from ISA to the extent that translation with add-ons would have been more complex (for example, this applies to ISAs 570, 260, and 265 and the ISA 700 series other than ISAs 710 and 720). The ISA-DE together with the remaining IDW AuS, which also include specific auditing or assurance standards without an ISA equivalent, constitute German GAAS (deutscheGrundsätze ordnungsmäßiger Abschlussprüfungen). ISA-DE have been applicable for audits of all financial statements since December 15, 2022.

ISQM 1 and 2 have been transposed and translated as part of the IDW QM Standards. These standards and ISA 220 (Revised) are applicable for audits of financial statements for periods beginning on or after December 15, 2023. ISA 600-DE (Revised) is expected to be applicable for audits of financial statements for periods beginning on or after December 15, 2024.

Current Status: Adopted

The Wirtschaftsprüferordnung (Public Accountant Act (WPO)) 1961 and the German Commercial Code (Handelsgesetzbuch) establish ethical requirements for the Wirtschaftsprüfer profession.

Both laws form the legal basis on which the Wirtschaftsprüferkammer (Chamber of Public Accountants – WPK) is legally authorized to develop ethical requirements in more detail in the form of by-laws for the profession (WPK’s Professional Charter). The WPK states it has a process to eliminate differences between its ethical requirements and the IESBA Code of Ethics.

The WPK conducts thorough comparisons on a regular basis of the International Code of Ethics issued by IESBA and the German professional requirements to identify and address any differences. In 2021, the German requirements reached convergence with the 2020 version of the International Code of Ethics (in combination with the EU Audit Regulation). The WPK indicates that it expects its requirements to be fully converged with the 2022 version of the International Code of Ethics by end of 2023 or 2024, respectively (in combination with the EU Audit Regulation) – by addressing the remaining revisions related to PIEs/Listed Entity, and Engagement Team/Group Audits.

Current Status: Partially Adopted

The Institut der Wirtschaftsprüfer (IDW) reports that public sector accounting in Germany depends on the respective laws and regulations at national level for central government entities, at state level for the respective states and at local level for municipalities, regions and other local entities. These laws do not usually use the requirements from private sector accounting, but stipulate their own financial reporting frameworks in detail. Legislation stipulates whether cash or accrual accounting is used and outlines basic accounting principles, which may be complemented by regulations from the responsible authorities. Standard setters are therefore:

• at national level: national parliament (“Bundestag”) and the German Ministry of Finance,
• at state level: the state parliament and the respective Ministry of Finance of the respective state,
• at local level: the state parliament and the respective Ministry of the Interior of the respective state.

Since 2010, the German “Budgetary Principles Law” permit central government at national level and at state level to implement accrual accounting. Nevertheless, at a national level, the German Central Government continues to apply cash-based, single-entry accounting. At the state level, a few states have adopted accrual accounting and one federal state is currently in the process of implementation.

At local or municipal levels, all states have their own accrual accounting frameworks. However, as yet, only ten states require accrual accounting for local governments. In three states, the municipalities have an option to either adopt accrual accounting or continue cash accounting. These various frameworks are generally based on private company accounting requirements as set forth in the German Commercial Code (German Legal Accounting Requirements), rather than on IFRSs or IPSASs.

Thus far, the Parliament (Bundestag and Bundesrat) have been critical towards formally adopting IPSAS for application in the jurisdiction considering the ongoing initiative to develop EU’s European Public Sector Accounting Standards (EPSAS) which are based on IPSAS but tailored for application in the EU.

Current Status: Not Adopted

Under the Wirtschaftsprüferordnung (Public Accountant Act (WPO)) 1961 and its amendments the Wirtschaftsprüferkammer (Chamber of Public Accountants – WPK) is responsible for the investigation and discipline (I&D) of the Wirtschaftsprüfer profession subject to the oversight of the Abschlussprüferaufsichtsstelle (APAS—Auditor Oversight Body (AOB)) and the Federal Ministry for Economic Affairs and Climate Action.

The WPK is responsible for investigating and disciplining all violations, i.e., criminal activity, intentional or severe breaches of professional duties and acts likely to bring the audit profession into considerable disrepute; however, breaches of professional duties during statutory audits of public interest entities are within the scope of the AOB’s responsibilities. Members may appeal for a professional court proceeding. The professional courts (special divisions of criminal courts/Senate at the District Court of Berlin in the First Instance, Superior Court of Justice of Berlin in the Second Instance and the Federal Court of Justice in the Third Instance) are responsible in these cases. The professional courts are also composed of members of the profession as associate judges who contribute their professional expertise.

WPK states it has reviewed the SMO 6 benchmark and concluded that its procedures address the SMO 6 requirements.

Current Status: Adopted

Companies whose debt or equity securities trade in a regulated market in Germany are required to use IFRS in their consolidated accounts as required by the European Commission (EC) Regulation No. 1606/2002as well as companies in the process of being listed on such a market. IFRS are also permitted in the preparation of annual and consolidated financial statements of all other types of companies for informational purposes only. For all other purposes, these companies must prepare their financial statements in line with the national accounting standards (German Accounting Standards (GAS)) outlined within the German Commercial Code (Handelsgesetzbuch – HGB). The Deutsches Rechnungslegungs Standards Committee (DRSC) [Accounting Standards Committee of Germany], established in 1998, is recognized as the German standard-setter.

In 2009, the German Accounting Law Modernization Act came into force to reduce the regulatory burden on companies and achieve closer alignment of national standards with the IFRS. At that time, the German Commercial Code was revised as an alternative to the IFRS for SMEs Standard. Currently it is the policy of the German government to keep German GAAP for entities without public accountability.

In 2015, the German Accounting Directive Implementation Act was aimed at harmonizing the German accounting law with the EU Accounting Directive (2013/34/EU). This led to a further alignment with IFRS.

Current Status: Partially Adopted

Relevant Organizations

• Abschlussprüferaufsichtsstelle (APAS—Auditor Oversight Body (AOB)
• Accounting Standards Committee of Germany
• Wirtschaftsprüferkammer
• The Institut der Wirtschaftsprüfer in Deutschland e.V. (IDW)
• Professional Accountancy Education Europe (PAEE)

Relevant Legislation

• Fourth Council Directive of 24 July 1978 on the annual accounts of certain types of companies
• Seventh Council Directive of 13 June 1983 on consolidated accounts
• The Fourth and Seventh Directives are repealed and replaced by the new Accounting Directive 2013/34/EU which entered into force on 20 July 2013
• Directive 2014/56/EU amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts
• German Commercial Code (Handelsgesetzbuch – HGB)
• IAS Regulation 1606/2002
• IDW Articles of Incorporation
• Public Accountant Act (WPO)
• Regulation 537/2014 on specific requirements regarding statutory audit of public-interest entities
• WPK Professional Charter

Relevant Publications

• Accountancy Europe, Structure and Organisation of the Accountancy Profession. Key feature: Germany, 2020.
• --, Member State Implementation of Directive 2014/95/EU, 2017.
• --, Organization of the Public Oversight of the Audit Profession in Europe, a Survey, March 2018.
• --, Definition of Public Interest Entities in Europe, March 2019.
• --, Defining a public interest entity: How to streamline the scope of EU audit rules across countries, 2022.
• --, Overview of the ISA adoption in the EU, 2015.
• European Commission, Audit Directive – Transposition Status, Nov 2021.
• European Commission, “Auditing of companies’ financial statements,” n.d.
• IASPlus, “Modernized accounting law adopted in Germany,” 30 Apr 2009.
• IDW, “IDW Announcement: Change in German Auditing Standard Setting from Transposition of International Standards on Auditing (ISAs) to Adoption of ISAs,” 9 Jan 2018.
• IDW, SMO Action Plan, 2023.
• IFIAR, Member Profile: Germany – AOB, 2023.
• IFRS Foundation, IFRS Application Around the World Jurisdictional Profile: Germany, 18 July 2016.
• KPMG, EU Audit Legislation in Germany, April 2016.
• PricewaterhouseCoopers, Doing business and investing in Germany, January 2018.
• PricewaterhouseCoopers, EU audit reform legislation: facts, n.d.
• PricewaterhouseCoopers, IFRS versus Germany GAAP (revised), February 2010.
• Weik, Andreas and Brigitte Eierle, “Research Insights: Drivers for Voluntary Audit in Small German Companies,” 30 Apr 2018.
• WPK, SMO Action Plan, 2023.