GAS 14 requires a firm to translate all transactions involving foreign currency into the its functional currency. The standard provides that the functional currency should be identified considering the general economic condition (Drsc.de). Transactions are initially recorded at the spot exchange rate on the date of the transaction. After which, monetary items are translated using the exchange rate on the date of preparing the statements (closing rate). Non-monetary items are translated using the rates used on acquisition. Any losses or gains on translation are recognised in the income statement as profit or loss (Drsc.de). The financial statements of subsidiaries or members of a group are incorporated into the consolidated statements of the group. Subsidiaries’ financial are translated into the reporting currency. A group has the freedom to choose the reporting currency. Any gains or losses on translation are included
The Deutsche Bundesbank has been doing its best to ensure price stability in the country. Since World War II and the currency reforms that followed, Germany has not been a high inflation country (Biondi and Zambon 45). The German accounting rules require firms to adhere strictly to the historical basis of accounting. They prohibit any methods of inflation accounting or revaluation of assets and liabilities to reflect changes in price (Biondi and Zambon 45). Inflation accounting is prohibited in both financial accounting and tax accounting.
Disclosures under German GAAP is based on legal regulations. There are several disclosure requirements for entities preparing their statements under the German GAAP. The disclosure in financial and tax accounting as well auditing depend on the nature or legal form of the entity, its size, industry, among other aspects.
Germany has unified its tax and financial accounting frameworks. Unlike other countries like the US, there are no parallel and frameworks for financial and tax accounting. It has made it possible for an entity to prepare financial accounting statements and the same statements apply for taxation purposes.
Transfer pricing is permitted in Germany. However, there are several regulations governing transfer pricing domestically as well as in cross-border trade. Intercompany transactions in Germany are assessed using the arm’s length principle which follows article 9 of the OECD Model Tax Convention. Regulations relating to transfer pricing in Germany include section 8 of the German Corporate Income Tax Act which deals with hidden profit distribution. Cross-border transactions with related party are regulated by the Foreign Transactions Tax Act of 2008.
Auditing in Germany is guided by the IDW Auditing Standards. German Generally Accepted Standards on auditing provide the procedures, requirements and other aspects of auditing different entities. The German auditing standards conform to the International Standards on Auditing (ISA). Among the bodies that ensure compliance by auditors in Germany. They include the Auditing Oversight Commission and the Chamber of Public Accounts as well as the oversight by the relevant ministry (Apak-aoc.de). The Public Accountants Act guides the oversight and the disciplinary of auditors.
Germany has adopted the IFRS bust some entities in the country still use the German GAAPs. It adopted IAS regulation alongside other countries in the European Union. Currently, all firms whose securities are publicly traded in any European stock exchange are required to use IFRS in the preparation and presentation of their financial statements. German publicly traded firms use IFRS (Iasplus.com). However, it is yet to impose any regulation for other entities to adopt the IFRS. Most small and medium enterprises in Germany are still uncomfortable with IFRS.
Works cited
Apak-aoc.de. (2016). AOC - Auditor Oversight Commission - Auditor Oversight in Germany. [online] Available at: http://www.apak-aoc.de/index.php/en/about-aoc/auditor-
Oversight-in-germany [Accessed 29 Apr. 2016].
Drsc.de. (2016). ASCG :: The German Accounting Standards. [online] Available at:
http://www.drsc.de/service/drs/standards/index_en.php?ixstds_do=show_details&entry_id=20 [Accessed 29 Apr. 2016].
Biondi, Y. and Zambon, S. (2013). Accounting and business economics. New York:
Routledge.
Iasplus.com. (2016). Germany. [online] Available at:
http://www.iasplus.com/en/jurisdictions/europe/germany [Accessed 29 Apr. 2016].
