German accounting law (HGB) – when does it matter for Polish companies

The basic legal act which governs the functioning of enterprises and sets out accounting rules in Germany is Handelsgesetzbuch (HGB) – the so-called Commercial Code, historically referred to also as the merchant law. HGB was passed in 1897 and enacted 3 years later. It was overhauled in 1998 to adapt it to contemporary business reality. German accounting law was reformed again in 2009 when a new act came into existence, the so-called Bilanzrechtsmodernisierungsgesetz, or BilMog in short.

It may seem that knowledge of local German accounting law is irrelevant for most businesses operating in Poland. This is true on condition that a Polish company has no equity links with any German entity. This is very not true when an enterprise in Poland belongs to a group established in Germany which compiles consolidated financial statements according to German accounting regulations (HGB). That Poland is currently the most important business partner for Germany in this part of Europe and that Germany is the second largest investor in Poland confirms that a lot of companies which operate in Poland but have foreign equity connections follow or should follow the HGB rules for group reporting. According to the survey conducted by the Polish-German Chamber of Industry & Commerce, as many as 94% of German groups operating in Poland claim that their entry to the Polish market was the right choice and would do it again if they had to face such a choice. Such a survey result may indicate that the investments of German companies in Poland will continue to grow in the future.

If you want to convert financial statements compiled according to the Polish Accounting Act into HGB statements, you must pay attention not only to the issues set out explicitly in German law, but also to group guidelines. These are equivalents of company accounting policies of Polish businesses. They describe in detail all rules of valuation and presentation of all assets and liabilities as well as revenues and expenses within a group, insofar as HGB allows discretion. Consequently, a majority of differences between figures disclosed in financial statements according to Polish regulations and those compiled under German regulations may stem from different valuation rules in a Polish subsidiary and its German parent company.

Therefore, if your company belongs to a German group you may be better off learning some German accounting law so that you are at least a bit familiar with differences in valuation and presentation of standard assets and liabilities, and revenues and expenses. This will improve communication with your shareholder and help you understand its requirements, which will certainly contribute to more effective collaboration.