Handelsgesetzbuch

Defining Handelsgesetzbuch

Handelsgesetzbuch (HGB) is a law that regulates the primary commercial code for organizations and companies in Germany. This law comprises a rule that is related to financial statement preparation and establishes the best practices and guidelines for Accounting.

Moreover, this law is quite similar to GAAP, which the United States follows.

Explaining Handelsgesetzbuch

This commercial code was initially established back in May 1897. However, in 1998, Handelsgesetzbuch was adapted to adhere to the new laws within the community of Europe. Not just that but even Austria has been using HGB since 1938.

But in 2007, Austria replaced HGB with a newer unified commercial code, which is known as Unternehmensgesetzbuch (UGB). HGB comprises the governance on the company registrations in Germany and the ordinances that they must follow.

For instance, HGB has provisions that direct the use of agents, commercial brokers, as well as the development and dissolution of partnerships with any third party. Paying salaries to employees by the end of every month is mandatory of HGB.

Also, under this law, non-compete clauses in the contracts of employees should be written. There are also certain provisions that are related to charter contracts for salvage rights and ships. In 2010, the German accounting law was updated with the Bilanzrechtsmodernisierungsgesetz (BiMoG).

Comparison Between Handelsgesetzbuch & International Financial Reporting Standards

The commercial code and accounting laws of Germany have certain differences and similarities with the International Financial Reporting Standards (IFRS). For instance, the laws of Germany and IFRS use historical costs as the fundamental of accounting.

However, Germany law basically doesn’t affirm by revaluations. On the other hand, IFRS allows revaluation for the fair property value, investment property, intangible assets, inventions and equipment within certain industries.

German accounting law also provides some exceptions to the fair assessment of financial instruments from financial institutions and banks that have been held for the purpose of trading. Income statements are basically similar under any of these accounting laws; however, certain differences do prevail.

Under German account practices, there doesn’t seem to be the existence of any comprehensive income. income statements get issued with the help of either total cost or cost of sales methods. Moreover, income acquired from discounting provisions has to be included with other similar incomes.

With IFRS, on the other hand, a company gets to decide whether to show its expenses or income as a single statement of comprehensive income or in the form of two different statements.