US/ German Startup Differences – Accounting

It should come as no surprise that Germany has different accounting and financial requirements than the US.  As neither an attorney, nor CPA, nor tax consultant, I try to limit this post to a general background on some of the issues that Americans will experience with German accounting which may differ from their previous experiences with GAAP.

Generally speaking, the culture in German is much more oriented towards Managerial Accounting (“Controlling”) rather than financial accounting.  Midsized companies have shown a greater willingness to invest in controlling mechanisms like ERP and more detailed analysis of cost centers than their American counter parts. (Source)

To understand the actual differences in the required financial principles, we start with a short background of the key components in Germany. The basis of German commerce laws is the Handelsgesetzbuch (HGB—the German Commercial Code).  Section 243 (1) of the HGB declares that financial statements must be setup following the Grundsätze ordnungsmäßiger Buchführung (GoB—German principles of proper accounting).  However, the standards are not explicitly defined within the GoB, but rather assembled based on multiple sources and principles, including statutory laws on tax and corporations, as well as external sources like the IFRS.

Some examples:

  • Revenue recognition can be a key difference between US GAAP.  For example, under IFRS, if a company has a contract with a customer but there is not a guaranteed payment, then revenue recognition is differed until collection.
  • Customer Loyalty programs are another area of difference.  For example, if free samples or gifts are recognized as marketing expenses, and when.

Extensive analysis from PWC available here.

KPMG also has a good guide of the differences between the IFRS and the HBG here.

And finally, a handy translation guide for some accounting key terms: