What are the disadvantages of historical accounting

The effects of accounting according to IAS / IFRS on the equity ratio of small and medium-sized companies

Table of Contents

List of figures

List of abbreviations

1 Introduction
1.1 Introduction
1.2 Problem
1.3 Procedure

2 Definition of SMEs
2.1 Quantitative Aspects
2.2 Qualitative aspects

3 The role of medium-sized companies in Germany
3.1 The economic situation of the German middle class
3.2 Advantages and disadvantages of international accounting
3.2.1 Advantages
3.2.2 Disadvantages
3.3 The attitude of German medium-sized companies towards international accounting

4 Effects on Equity
4.1 Equity statement
4.2 Not profitable
4.2.1. Revaluation of fixed assets Application requirements Revaluation reserve Example of revaluation reserve
4.2.2 Leasing Sale and lease back procedure Leasing and Equity Example of leasing and sale and lease back
4.3 Affecting the results
4.3.1 Inventories Acquisition and manufacturing costs Inventories and Equity Example of inventories
4.3.2 Internally generated intangible assets Research and development costs Intangible assets and equity Example of intangible assets
4.3.3 Long-term production orders - partial profit realization Percentage of completion method Long-term construction contracts and equity Example of a partial profit realization
4.3.4 Pension provisions Projected Credit Method Pension provisions and equity Example of pension provisions
4.3.5. accruals Provisions for expenses Provisions and equity Example of provisions
4.3.6. Extraordinary depreciation Example of unscheduled depreciation Extended depreciation period
4.4 Differentiation between equity and debt
4.4.1 IAS
4.4.2 Effects on Equity
4.4.3 Solution approaches
4.5 criticism
4.6 Summary of the effects on equity and the equity ratio

5 The equity ratio and the bank rating
5.1 Background to Basel II
5.2 Effects of a transition to IFRS on quantitative and qualitative information
5.2.1 Quantitative information
5.2.2 Qualitative information
5.3 Banks and IFRS
5.3.1 Analysis of the financial institutions' annual financial statements
5.3.2 Bank Preferences
5.3.3 Basel II compliant rating systems
5.4 Facilitation for small and medium-sized enterprises
5.5. Conclusion


List of figures

Figure 1: IfM Bonn's definition of medium-sized companies

Figure 2: EU definition of SMEs

Figure 3: Equity ratio of medium-sized companies

Figure 4: Spread of the IAS / IFRS in medium-sized companies

Figure 5: Reassessment

Figure 6: Leasing and sale and lease back

Figure 7: Components of the HK in comparison

Figure 8: Inventories

Figure 9: Self-created intangible assets

Figure 10: Partial profit realization

Figure 11: Pension provisions

Figure 12: Provisions

Figure 13: Extraordinary depreciation

Figure 14: Effects on the equity ratio

Figure 15: The three pillars of Basel II

Figure 16: Allocation of the credit rating to the risk weighting for companies

List of abbreviations

Figure not included in this excerpt

1 Introduction

The internationalization of accounting has become increasingly important in recent years.1 It can no longer be denied that the German balance sheet world is facing a fundamental upheaval.2 After accounting according to IAS / IFRS (in the following only called IFRS)3 from 01/01/2005 for the consolidated financial statements of capital market-oriented4 Company has been introduced5, German medium-sized companies are now also faced with the question of whether they should voluntarily convert to IFRS.

1.1 Introduction

The European Union created the legal framework for the application of international accounting regulations back in the summer of 2002. All consolidated financial statements of listed companies within the EU must take into account the IFRS regulations for the financial years beginning on January 1, 2005.6 This ordinance also gives companies with listed debt securities (bonds) a transition period until 2007.

For companies that are not capital market oriented and their individual financial statements, it is up to the member states themselves to accept or stipulate international accounting standards. In Germany, these member state options are granted by the BilReG7 regulated.8 Unlisted companies have been given the option in Section 315a (3) of the German Commercial Code (HGB) to prepare exempting consolidated financial statements from 2005, also in accordance with IFRS principles.9 In contrast to the consolidated financial statements of listed companies, the ordinance does not apply directly to the individual financial statements. This is to be created unchanged in accordance with the commercial law.10 According to Section 325 (2a) of the German Commercial Code (HGB), companies are permitted to also prepare IFRS financial statements for disclosure purposes.11 For taxation and distribution, however, the figures determined in accordance with the German Commercial Code are still relevant.12

1.2 Problem

Against this background, the question now arises as to whether medium-sized companies should accept the expense and convert their accounting to IFRS. In the literature it is often reported that a change will have a positive effect on the equity ratio and thus also on the rating13 will affect14 which is becoming increasingly important for lending to companies in the wake of Basel II.15 The equity ratio of small and medium-sized companies in Germany is relatively low.16 However, the question arises as to whether a new accounting system alone is sufficient to increase the equity ratio in the long term.

In addition, it must also be examined whether accounting according to IFRS is really to be favored for the banks, and whether this leads to an improved rating.

1.3 Procedure

Chapter 1 first explains the legal framework that goes along with the IFRS. Then the problem facing the German middle class is described. Chapter 2 follows with a definition, divided into quantitative and qualitative aspects.

The role of small and medium-sized enterprises in Germany is the subject of Chapter 3. First, their economic situation is presented and then the advantages and disadvantages of international accounting are listed and explained. At the end of Chapter 3, the attitude of SMEs towards international standards is shown.

Chapter 4 deals with the concrete effects of IFRS accounting on the equity ratio of medium-sized companies on the basis of selected balance sheet items and the accounting treatment of certain facts. A distinction is made between effects that do not affect income and those that affect income and the division into equity and debt. This work specifically deals with individual balance sheet items (property, plant and equipment, intangible assets, inventories, provisions, pension provisions) and the different treatment of leasing, long-term construction contracts and extraordinary depreciation. Using examples, the different accounting of HGB and IFRS is shown. This is followed by a critical opinion on the individual balance sheet items and the treatment of the balance sheet. At the end of the 4th chapter a conclusion is drawn.

Chapter 5 establishes a connection between accounting according to IFRS and the banks. First, terms such as rating, Basel II and the related quantitative and qualitative rating criteria are explained. Then the attitude of the banks is discussed. In addition, relief options are presented specifically for small and medium-sized companies. The 5th chapter ends with a conclusion.

2 Definition of SMEs

The term SME, which can often be found in the literature as an abbreviation for small and medium-sized enterprises, is often used as a synonym for medium-sized companies - the middle class. There is no consensus on a clear definition of this term.17 Rather, there are different approaches to classifying small and medium-sized companies.18

2.1 Quantitative Aspects

So that comprehensive statistical evaluations of the companies can be carried out and these can be compared, it is necessary to classify companies based on their size.19 Accordingly, SMEs are all companies that do not cumulatively exceed certain criteria. Two different definitions are shown below.

Figure 1 shows the size classes that the Institute for SME Research in Bonn has set up in order to distinguish small and medium-sized companies from the large ones.

Figure not included in this excerpt

Figure 1: IfM Bonn's definition of medium-sized companies

This delimitation also corresponds to the New Basel Capital Accord (Basel II)20, which is discussed in more detail in subsection 5.1.

Furthermore, a recommendation of the EU Commission came into force on January 1st, 2005, which divides the SMEs as follows:

Figure not included in this excerpt

Figure 2: EU definition of SMEs21

2.2 Qualitative aspects

The quantitative aspects make companies more tangible for empirical purposes and are therefore more helpful than qualitative aspects. Nevertheless, a qualitative understanding of the term “medium-sized companies” probably corresponds more to the self-image of a medium-sized entrepreneur.22 The characteristic feature is the relationship between the owner and his company. This close relationship has a very strong influence on market behavior and the performance of medium-sized companies.23 Further qualitative characteristics are:

- Identity between owner and personal responsibility for company activities
- Identity between owner and personal liability for the financial situation of the entrepreneur and the company
- Personal responsibility for the success or failure of the company
- Personal relationship between employer and employee24

A look at the quantitative definition of medium-sized companies shows that this includes SMEs, but can also go beyond them.25 Since this thesis deals with the effects on the equity ratio of small and medium-sized enterprises, a quantitative definition is assumed.

3 The role of medium-sized companies in Germany

The small and medium-sized companies in Germany are often referred to as the growth engine of the German economy.26 This enormous importance of the middle class can also be recognized by its size. The almost 3.4 million medium-sized companies make up 99.7% of all German companies.27 Furthermore, according to estimates by the IfM, medium-sized companies employed around 70% of all employees and trained 83% of all apprentices in 2002.28 That corresponds to around 20 million jobs. In Germany, SMEs are responsible for 40% of gross investments and 49% of sales.29 In addition, German medium-sized companies are responsible for innovations. According to surveys by the IfM, in 1999 in companies with fewer than 100 employees, more than 10% of the employees worked in research and development. For comparison: this share was around 8% for companies with more than 5000 employees.30 SMEs are often more closely and directly connected to the consumer. Services and support therefore play a central role in small and medium-sized companies.31

The thesis deals with the effects of accounting according to IFRS on the equity ratio of small and medium-sized companies. For this reason, the current situation of the equity structure of medium-sized companies is shown in the following subsection.

3.1 The economic situation of the German middle class

Globalization does not stop at the middle class either.32 Greater competition on the home market and shorter product life cycles due to the ever increasing technical progress represent risks for medium-sized companies on the one hand. On the other hand, increasing internationalization also offers opportunities. Larger sales markets, the development of new earnings potential and the possibility of reducing costs through cheaper production facilities abroad are all part of this.33 In summary, it can be said that medium-sized companies are subject to ever stronger and faster structural change. This makes doing business more risky for them.34

This also has consequences for corporate financing. Higher economic risks make a higher equity backing necessary.35 In addition, there are the requirements that Basel II prescribes. The creditworthiness of a company when it comes to lending is becoming more and more important, as the capital backing of credit institutions will in future be more closely aligned with the creditworthiness of the debtor.36 That makes a strong equity base for companies more and more important.

But precisely therein lies a major problem for German medium-sized companies. According to calculations by the Deutsche Bundesbank, equity in relation to total assets was only 7.5% for small and medium-sized companies in 2001.37 The German Savings Banks and Giro Association even goes a little further and has broken down and compared the equity ratios according to company size. It turned out that the equity ratio of medium-sized companies in international as well as in comparison to large companies is very low.38

Figure not included in this excerpt

Figure 3: Equity ratio of medium-sized companies39

In comparison, large companies with an annual turnover of more than 50 million euros and more than 500 employees have an average equity ratio of 25% and are thus approaching the usual international levels of between 30% and 40%.40

There are many reasons why SMEs in general have such a low equity ratio, but these are beyond the scope of this paper. The subject of the thesis is whether an increase in the equity ratio is possible through accounting according to IFRS and whether this leads to a better rating.

3.2 Advantages and disadvantages of international accounting

A changeover from accounting under German commercial law to international accounting in accordance with IFRS has both advantages and disadvantages for the companies concerned.41

3.2.1 Advantages

A significant advantage, which is often mentioned in the literature with an IFRS changeover, is the increase in the transfer of information compared to annual financial statements according to commercial law standards.42 The primary goal of international accounting is to give the various users of the balance sheet a clear insight into the company's asset, financial and earnings position. Accounting according to IFRS, according to the IASB, gives the readers of the balance sheet an insight that corresponds to the actual circumstances and thus provides them with information relevant to decision-making.43 It is questionable, however, whether the balance sheet reader of a medium-sized company has such a great need for information at all.44

Furthermore, the harmonization of international accounting is seen as an advantage of IFRS accounting. As already mentioned in sub-chapter 1.1, all capital market-oriented companies are obliged to prepare their consolidated financial statements for all financial years beginning after December 31, 2004 in accordance with the IFRS principles.45 This has happened against the background of increasing globalization of the financial markets and the resulting (2004), p. 426 or also Kussmaul, the need for uniform, comparable accounting. Medium-sized companies can also benefit from uniform accounting standards, because the global search for capital and sales markets is also becoming increasingly important for medium-sized companies.46 In this respect, international comparability can be worthwhile.

Mandler sees a further advantage that the IFRS financial statements can also be used for internal control.47 This is particularly important for medium-sized companies, as they often do not have their own controlling and often use the data from external accounting for corporate management.48

In the literature, it is often presented in such a way that accounting in accordance with IFRS, due to the comprehensive disclosure obligations and the market-based valuation as well as the associated transparency, leads to a better rating of the company by the banks and consequently to cheaper loans.49 The bank rating is mainly determined by two factors: the equity ratio and the company's future development opportunities. Both should be better represented by the accounting according to IFRS.50 The extent to which this is applicable is explained in detail in Chapters 4 and 5.

3.2.2 Disadvantages

Turning away from the decisive factor is one such disadvantage. Because according to IFRS, the relevance and inverse relevance of the tax balance sheet do not play a role in the commercial balance sheet.51 It is assumed that the financial statements according to IFRS will not serve as the basis for determining taxable profits in the future either.52 As a result, double accounting is necessary for commercial and tax law purposes, since the single balance sheet that prevails in medium-sized companies would then no longer be possible.53 Such a procedure consequently leads to additional costs and additional expenditure of time. It therefore seems questionable whether medium-sized companies are ready and able to bear this.

Another disadvantage is the abandonment of the precautionary principle.54 In accounting according to the principles of commercial law, the principle of caution dominates. This serves to preserve capital in the company and to protect creditors.55 In the case of IFRS, on the other hand, the principle of prudence is only of secondary importance.56 However, giving up careful accounting (e.g. not building up hidden reserves) poses a risk, especially for medium-sized companies that are heavily financed by loans.57

A switch to a new accounting system is accordingly associated with considerable costs and an enormous amount of time. How high the conversion costs are in detail can only be estimated. A study by Ernst & Young from 200358 shows that approx. ¾ of the companies expect a changeover cost of less than 150,000 euros, which in the study is referred to as “great naughtiness”.59 In a press release from Ernst & Young dated January 21, 2003, they assume that the conversion costs for the companies affected will be between EUR 100,000 and well over EUR 1,000,000.60

3.3 The attitude of German medium-sized companies towards international accounting

How medium-sized companies react to the internationalization of accounting is explained below. Despite the undeniable advantages of accounting according to IFRS, medium-sized companies are rather skeptical about the "new" accounting.61

The statements are based on a survey of decision-makers in medium-sized companies about their attitude towards IFRS, which was carried out by Mandler in autumn 2002.62 The key message of this survey is that the smaller medium-sized companies (maximum 250 employees)63 reject accounting according to IFRS and the larger medium-sized companies (employees over 250 and under 5000 employees) are more open-minded, but still skeptical about international standards.64 This thesis is supported by the additional survey on the spread of international accounting standards among medium-sized companies. The subject of the investigation was the question of what significance the IFRS had for the companies concerned at the time of the investigation.65

Figure not included in this excerpt

Figure 4: Spread of the IAS / IFRS in medium-sized companies66

Figure 4 shows that the application of IFRS in their company is a new issue for the majority of medium-sized companies. A total of 33% are opposed to the IRFS. So far, none of the smaller companies has taken IFRS into account in their financial statements. The larger medium-sized companies are somewhat more open to international standards. 21% of them are planning to implement it, 14% have already included the IFRS in their financial statements.67

The question arises as to whether a financial statement according to international principles is suitable for all medium-sized companies in view of their rather poor equity ratio68 is still worthwhile and therefore has a positive impact on a rating with lower lending rates as a consequence.

4 Effects on Equity

Equity is an important parameter for SMEs in the area of ​​lending. The following examines how equity on the balance sheet tends to change as a result of a changeover to IFRS69 changed.

4.1 Equity statement

Both under commercial law and according to the principles of IFRS, equity can be defined as the residual amount of assets and debt.70 In contrast to the HGB regulations, the IFRS do not contain a generally applicable presentation of equity and its components. IAS 1.68 only stipulates that subscribed capital and reserves71 as well as the minority interest must also be shown separately in the consolidated financial statements. The SMEs can, however, retain their “old” HGB classification scheme, since according to IAS 1.69 the creation of additional items is permitted when converting to IFRS.

4.2 Not profitable

A change in equity can either be neutral in profit or loss72can be achieved through profit or loss or through a change in the equity and debt structure.

It is often difficult to achieve a clear distinction between income-neutral and income-effective. Some items contain both profit-effective and profit-neutral components. The division of the individual items is done in this thesis for the component in which the greatest difference d. H. the greatest change in equity. The items in question can trigger both changes (not affecting income and affecting income).

In the next subsection, the change that does not affect the result is examined in more detail.

4.2.1. Revaluation of fixed assets

Both accounting systems require tangible and intangible assets to be valued at the cost of acquisition or production when they are first recorded.73

In contrast to the acquisition cost principle74 allow IFRS to revaluate (revaluation), d. H. an approach beyond the acquisition and production costs for

- real fixed assets75 and
- intangible assets76

to undertake. In the context of the subsequent evaluation, the re-evaluation is a permitted exception (allowed alternative treatment) from the acquisition cost principle. This enables the company to uncover hidden reserves from fixed assets and thus to increase the company's equity.77 The valuation results from the fair value (fair value) at the time of the revaluation, less all scheduled and unscheduled depreciation after the revaluation.78 A prerequisite, however, is that the fair value can be reliably determined79.80 For machines and equipment, for example, the market price determined by estimates is decisive.81 If this cannot be determined, the amortized replacement costs (depreciated replacemnt cost) are used for the evaluation. In the case of land and buildings, the fair value must be established by an expert.8283 Application requirements

The possibility of making use of the revaluation method depends on the following conditions:

- A revaluation is to be carried out during the useful life with sufficient regularity so that the revalued book value (carrying amount) not materially from the fair value (fair value) deviates on the respective balance sheet date84

- A reassessment must be carried out with sufficient frequency during the service life.85 The decisive factor is a significant deviation in the fair value (fair value) at book value (carrying amount). In the case of high value volatility, an annual adjustment may be necessary, otherwise an adjustment every three to five years is sufficient.

- A revaluation method may not apply to individual assets (assets), but only for a whole group (entire class) of tangible fixed assets.86 According to IAS 16.37, such groups can be formed as follows:

- undeveloped land
- Land and buildings
- Machines and technical systems
- Ships
- planes
- motor vehicles
- Factory equipment
- Office equipment

- A re-evaluation must take place for the respective group at the same time.87

IAS 16.38 also permits a rolling system; z. B. 1/3 of the machines are reevaluated once a year.88 Revaluation reserve

If a revaluation leads to an increase in the book value, this difference is entered directly in equity under the item of the so-called revaluation reserve (revaluation surplus) to book.89 In the subsequent valuation, the difference between the higher depreciation due to the revaluation and the depreciation based on the historical acquisition costs can be transferred to retained earnings with no effect on income.90 However, the effectiveness of the subsequent evaluation is disputed. Another option for subsequent valuation is treatment with an effect on income: the fixed assets are depreciated over the income statement and the revaluation reserve is released against the revenue reserves.91

In the event of a revaluation, there is a difference between the IFRS and tax balance sheet values. This difference is called passive tax latency92 reported in accordance with IAS 12.93 In the opinion of Hoffman and Lüdenbach or Wagenhofer94 the passive tax latency should be charged to the revaluation reserve.95 The offsetting entry for the revaluation of the asset in question is accordingly split up - partly in favor of the revaluation reserve and partly in favor of the deferred tax liability item.96

There are two possible scenarios should a revaluation lead to an impairment. If there has not yet been an increase in value not affecting net income in the past, the revaluation must be treated with an effect on earnings,97 d. H. it must be written off directly to the income statement. However, if there is a revaluation reserve due to previous revaluations, the depreciation must be charged to this reserve.98

As a result, it can be stated that the application of the revaluation method may lead to an increase in equity in the year of the changeover. If it is assumed that the subsequent evaluation will be treated effectively, this benefit is not permanent. As a result of the increased depreciation, the increase in value gradually balances out again. Another negative is the return on equity99 deteriorated compared to the HGB. This is due to the lower net income for the year compared to the increased equity in the form of the revaluation reserve not affecting income.100

For small and medium-sized companies that can uncover hidden reserves, especially in the land, a changeover can be particularly advantageous. The reason for this is that this increase will not lead to an increased burden on earnings due to higher depreciation in the following periods.101 Example of revaluation reserve

The example is based on a representation by Wolf.102 The numbers have changed. The following is a comparative presentation of the different valuations according to HGB and IFRS, which have an impact on a company's equity. An income tax rate of 40% is assumed. Furthermore, a liquidity-effective annual surplus before depreciation of EUR 800,000 is assumed. The profit distributions are not taken into account. Profits from the current financial year are therefore added to retained earnings in the following year. The elimination of deferred taxes by means of balance sheet analysis is neglected. The assumptions remain constant for all examples.

On 01/01/2004 Wiesel GmbH bought a machine with acquisition costs i. H. of 1,200,000 euros. The straight-line depreciation is used; the actual useful life is 4 years. On December 31, 2004 the machine had a market value of 1,200,000 euros.

Figure not included in this excerpt

Figure 5: Reassessment

Figure not included in this excerpt

In the year of the revaluation (2004) the following equity ratio results for Wiesel GmbH:

Figure not included in this excerpt

4.2.2 Leasing

For small and medium-sized companies in particular, alternative forms of financing are becoming more and more important due to the increasingly restrictive lending practices of banks.103 Leasing is an important financing alternative that is becoming increasingly important.104

IAS 17.4 defines a lease as “an arrangement whereby the lessor grants the lessee the right to use an asset for an agreed period in return for a payment or a series of payments”. A distinction is made between two leases:105

1. Finance leasing106: All risks and rewards associated with ownership of an asset are transferred.

In this case, the lessee has to capitalize the leased item and pass the lease liability. Beneficial ownership is attributed to him.107

2. Operating leases: applies to all other leases.

The leasing contract establishes a normal rental relationship that can be terminated at any time. The investment risk therefore lies with the lessor.108

German commercial law does not contain any specific regulations on leasing. It therefore makes use of tax regulations. The central question is who is accounting for the leased item. There is a great need for adjustments when converting to IFRS. Because an attribution of the leased object to the lessee is carried out under IFRS rather than under commercial law.109 When it comes to commercial law, companies orient themselves in practice to practicable rules for economic attribution.

The following scheme generally applies to movable assets and full amortization contracts:110

- The basic rental period is less than 40% or more than 90% of the normal useful life: allocation to the lessee.
- The basic rental period is between 40% and 90% of the normal useful life: lessor.111

The criteria laid down in IAS 17 for assigning leased items to the lessor or lessee, on the other hand, differ fundamentally from the provisions of commercial law. The international standards are based on the opportunities and risks associated with the leased item.112

Is there a finance lease, d. H. All the requirements of IAS 17.10 are met, if the item is allocated (capitalized) by the lessee and a liability is recognized at the same time. The lessee must recognize the asset and liability in the same amount in the balance sheet at the beginning of the term. The amount of the leased item is based on the fair value or the present value of the minimum lease payments. The decisive factor is which value is the lower.113 The capitalized item is depreciated in the following periods. At the same time, interest is paid on the liability and is repaid. The resulting depreciation and costs of the financing are to be offset as expenses.114

In the case of an operating lease, the assignment is made by the lessor.115 The lessee must recognize the lease payments as affecting net income, with the expense generally being spread over the term of the lease on a straight-line basis.116 Sale and lease back procedure

Sale and lease back transactions involve the sale of a leased item and the leasing back of the same item by the seller. If the lease is a finance lease in accordance with IFRS, a positive difference between sales proceeds and book value must not be recognized immediately as a profit, but must be divided over the term of the lease.117 In contrast to this, according to commercial law, profit is realized immediately upon sale.118 From an economic point of view, according to IFRS, sale and lease back means that no sale has taken place, but the lessor grants the lessee a loan, with the leased object serving as security.119 Leasing and Equity

A comparison of the two accounting regulations shows that according to commercial law, higher requirements are placed on beneficial ownership. This means that commercial law is more oriented towards the legal property concept. As a result, when switching to IFRS, in most cases the leased item is accounted for by the lessee.120 Especially in the case of small and medium-sized companies that use leasing transactions as a form of sales financing or to finance investments, the changeover to IFRS often results in the activation of leased items. The result is i. d. Typically, an increase in property, plant and equipment and debts due to the need to enter the lease obligations as liabilities.Oehler comments on this: "The effects on the balance sheet equity cannot be clearly forecast due to the changes on the assets and liabilities side."121 He refers to the investigation by Weißenberger and Haas122according to which the reclassification of leasing contracts at BMW has led to a relative increase in equity of 20%. At TUI and VW, however, it led to a reduction in equity by 13.5% and 9.4%, respectively.123 Jebens has a clearer opinion. When switching to IFRS in the area of ​​leasing, he sees a reduction in the equity ratio in any case due to the extension of the balance sheet total.124 This change does not affect profit or loss because the income statement is not addressed when a leased item is activated.

In contrast, the sale and lease back process has more significant effects on equity. Since, according to IFRS, the profits from the sale of a “leased item” must be recognized as deferred income, which is only released to income over the term of the lease, there is no increase in equity. That would be the case with accounting according to HGB, since the profits are recognized immediately.125 In contrast to the original leasing, this effect on equity affects profit or loss. The profit under IFRS is significantly lower than under HGB.

According to Jebens, the juxtaposition of earlier allocations of the leased item to the lessee (balance sheet extension) and the delimitation of the profit generated from the sale and lease back business compared to the commercial balance sheet can lead to a strong reduction in the equity ratio.126 Example of leasing and sale and lease back

The following example is based on Jebens' example of finance leasing.127 The numbers are chosen by yourself. The numbers from the other examples are retained.128 A reassessment did not take place.

The balance sheet of Wiesel GmbH includes a warehouse building for 2 million euros, which is reflected in the liabilities with a bank liability of 2 million euros. Wiesel GmbH sells this warehouse building for 2.5 million euros and at the same time leases it back. The remaining useful life of the building is 25 years. The leasing period is 20 years (80% of the remaining useful life).

According to HGB, the lease does not have to be accounted for because the basic rental period does not account for the required 90% of the normal useful life.


1 See Küting, K./Dürr, U. et al. (2002), p. 1; Pellens, B./Fülbier, R. et al. (2006), pp. 40ff.

2 See Wolf, T. (2004), p. 707.

3 The IAS that have been developed by the IASB since June 2003 are known as IFRS.

4 Companies that are listed with shares or bonds on a regulated market in Germany or abroad are considered to be capital market-oriented. See Mandler (2003A), p. 143.

5 See Leibfried, P / Weber, I. (2003), p.21.

6 See The European Parliament and the Council of the European Union, 2002.

7 The BilReG was passed as a transformation law on December 4th, 2004 by the German Bundestag.

8 See Coenenberg, A. (2005), p. 22.

9 In contrast to the individual financial statements, the consolidated financial statements are not a tax base.

10 See Wolf, T. (2004), p. 707.

11 See Coenenberg, A. (2005), p. 22.

12 See Leibfried, P./Weber, I. (2004), p. 50.

13 See footnote 279.

14 See Jebens, C. (2003A). P. 2345; Leibfried, P / Weber, I. (2004), p. 55 or Dücker, R. (2003), p. 448.

15 See Behringer, S. (2003), p. 538.

16 See subsection 3.1.

17 See Oehler, R. (2005), p. 6.

18 In the course of developing its own standards for SME, the IASB is considering a suitable definition for SME that is based on qualitative characteristics. See Gross, B./Steiner, E. (2004), p. 875.

19 See Günterberg, B./Kayer, G. (2004).

20 See Oehler, R. (2006), p. 113.

21 See The European Parliament and the Council of the European Union, (2003).

22 See Mandler, U. (2004), p. 13.

23 See Günterberg, B./Kayer, G. (2004).

24 See ibid.

25 See Mandler, U. (2004), p. 14.

26 See DSGV (2005), p. 6 or Trees, p. (2004.

27 See Trees, S. (2004).

28 See Deutsche Bundesbank (2003), p. 32.

29 See German Bundestag (2002).

30 See Deutsche Bundesbank (2003), p.32.

31 See DSGV (2005), p. 6.

32 See Sinn, H.-W. (2005), p. 67.

33 See Clement, Reiner / Terlau, Wiltrud et al. (2004), p. 81f.

34 See Meister, M. (2005).

35 See ibid.

36 See Oehler, R. (2006), p. 113.

37 See Deutsche Bundesbank (2003), p. 44.

38 See DSGV (2005), p. 23ff.

39 Cf. based on DSGV (2005), p. 25.

40 See DSGV (2005), p. 26.

41 See Mandler, U. (2003), p. 682ff, Leibfried, P / Weber, I. (2004), p. 50f.

42 See Behringer, S (2003), p. 538; Keitz, I./Stibi, B. H./Tcherveniachki, V. (2005), pp. 619f.

43 See Mandler, U. (2004), p. 78.

44 See Hüttche, T. (2002), p. 1804.

45 See Jebens, C. (2003), p. 3.

46 See Dücker, R. (2003), p. 448.

47 See Mandler, U. (2003A), p. 145.

48 See Mandler, U. (2004). P. 83.

49 See Leibfried, P./Weber, I. (2004), p. 51; Dücker, R. (2003), p. 450 or also Keitz, I./Stibi, B. (2004), p. 426f.

50 See Jebens, C. (2003A), p. 2350.

51 See Dücker, R. (2003), p. 450.

52 See Herzig, N./Bär, M. (2003), p. 1f.

53 See Mandler, U. (2003A), p. 146.

54 See Mandler, U. (2004), p. 86.

55 See Winnefeld, R. (1997), Tz.E 70ff., P. 573.

56 See Coenenberg, A. (2005), p. 62.

57 See Mandler U. (2003A), p. 146.

58 The work is based on surveys of listed companies.

59 See Ernst & Young (2003), p. 13.

60 See Mandler, U. (2004), p. 94.

61 See Mandler U. (2003B), p. 457.

62 For details on the methodology of the company survey, see Mandler, U. (2003A), p. 144. 10

63 The delimitation of this subgroup corresponds to the quantitative definition of SMEs by the EU.

64 See Mandler, U. (2003B), p. 453.

65 The question was asked to what extent they take into account international standards in their financial statements under commercial law by exercising their right to vote or by providing additional information.

66 Mandler, U. (2003B), p. 454.

67 It should be noted here that over 70% of the larger medium-sized companies are obliged to prepare consolidated financial statements.

68 See subsection 3.1.

69 The tendency is because to date no special studies have been carried out on the effects of a changeover among SMEs.

70 See F. 49 (c).

71 See IAS 1.68 (o) and (p).

72 Income-neutral means that the items in the income statement are not addressed. 12th

73 See Section 253 (1) HGB or IAS 16.15 and IAS 38.24.

74 The acquisition and production costs for VG of the AV are the starting point and the upper limit of the assessment (Section 253 (1) sentence 1 HGB), see Coenenberg, A. (2005), p. 155.

75 See IAS 16.29.

76 See IAS 38.72.

77 See Padberg, T. (2004), p. 1094.

78 See Coenenberg, A. (2005), p. 157.

79 See IAS 16.31.

80 IAS 38.78 requires in addition to determining the fair value one imm. VG an "active market". This requirement is seldom met. For the imm. There is no such market for VG (patents, trademarks); the revaluation method is therefore ruled out. See Hoffman, W-D./Lüdenbach, N. (2003), p. 565.

81 See IAS 16.32.

82 See Dawo, S. (2004), p. 60.

83 See Hoffmann, W.-D./Lüdenbach, N. (2003), pp. 565f.

84 See IAS 16.31 and 38.75.

85 See IAS 16.34 and 38.79.

86 See IAS 16.36.

87 See IAS 16.38.

88 See Hoffman, W.-D./Lüdenbach, N. (2003), p. 566. 14

89 See IAS 16.39.

90 See IAS 16.41.

91 See Padberg, T. (2004), p. 1095.

92 Deferred taxes arise from temporary differences (temporary differences) between the book value of a balance sheet item according to IFRS and its tax base. Cf. Wagenhofer, A. (2005), p. 323. Since SMEs in particular often only draw up a balance sheet for reasons of economy, trade and tax balance sheets are generally required. d. Usually identical. See Peemöller, V. (2003), p. 119.

93 See Wolf, T. (2004), p. 710.

94 See Hoffmann, W.-D./Lüdenbach, N. (2003), p. 567.

95 See IAS12.61.

96 See Hoffmann, W.-D./Lüdenbach, N. (2003), p. 567.

97 See ibid.

98 See IAS 36.60.

99 Return on equity = annual surplus / average equity, see Coenenberg, A. (2005), p. 1082.

100 See example (300T / 2550T = 11.76% and 240T / 2750T = 8.73%)

101 See Oehler, R. (2005), p. 116.

102 See Wolf, T. (2004).

103 See Steiner, M./Mader, W. et al. (2003), p. 519.

104 See Stephan, A. (2002), pp. 640f.

105 See IAS 17.4.

106 Examples of finance leasing, see in detail IAS 17.10.

107 See Coenenberg, A. (2005), p. 83.

108 See Oehler, R. (2005), p. 61.

109 See Jebens, C. (2003), p. 46.

110 In contrast to the partial amortization contracts, the entire costs are amortized during the basic rental period through the installments to be paid by the lessee. See Coenenberg, A. (2005), p. 182.

111 See ibid., P. 182f.

112 See Wagenhofer, A. (2005), p. 283.

113 See IAS 17.20.

114 See IAS 17.25.

115 See Oehler, R. (2005), pp. 61f.

116 See Wagenhofer, A. (2005), p. 289.

117 See IAS 17.59.

118 See ADS (1995), § 252 Item 82.

119 See Wagenhofer, A. (2005), p. 289.

120 See Pellens, B./Füllbier, R. et al. (2006), p. 625.

121 Oehler, R. (2005), p. 63.

122 See Weißenberger, B./Haas, C. (2004).

123 See Oehler, R. (2005), p. 63.

124 See Jebens, C. (2003A), p. 2348.

125 See Lüdenbach, N./Hoffmann, W.-D. (2002), pp. 232f.

126 See Jebens, C. (2003A), p. 2348.

127 See Jebens, C. (2003), p. 48f.

128 An income tax rate of 40% and a liquidity-effective annual surplus before depreciation of € 800,000 are assumed. The depreciation amounts to 300K € (1200K €: 4 years). The profit distributions are not taken into account.

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