The short answer
In Germany, IFRS is mandatory only for the consolidated accounts of capital-market-oriented parent companies (§ 315e HGB). Every other parent may choose to prepare IFRS consolidated accounts instead of HGB ones.
The statutory single-entity accounts under HGB remain in every case. They determine what may be distributed and they feed the tax return. An IFRS single-entity statement is permitted for disclosure purposes only — it comes on top of the HGB accounts, it does not replace them.
So the trigger is rarely the law. It is the environment: an investor with an international portfolio, a planned listing, a buyer who expects comparable numbers, or a lender whose covenants are written on IFRS metrics.
A note for readers outside Germany
HGB is not a lighter version of IFRS. It serves a different purpose. HGB accounts exist to protect creditors and to establish what a company may pay out, and they are tied closely to the tax balance sheet. IFRS accounts exist to inform investors. That single difference explains most of what follows: HGB recognises less, measures lower, and is systematically more prudent.
The practical consequence for a foreign parent is worth stating precisely. Your German subsidiary will keep preparing and filing HGB accounts whatever you decide. If the group reports under IFRS, what you need from that subsidiary is an IFRS reporting package alongside its HGB books — not a conversion of the entity. A full conversion only arises where the German company is itself the top of a group that must, or wants to, present IFRS consolidated accounts.
The differences with the largest effect
- Leases (IFRS 16). Almost every lease and rental agreement comes onto the balance sheet — a right-of-use asset and a lease liability. Total assets and debt go up; EBITDA improves, because rent becomes depreciation and interest. For covenants this is the single most critical item.
- Revenue (IFRS 15). Revenue is recognised against identified performance obligations. In software, subscriptions and project business the timing often shifts materially.
- Development costs (IAS 38). Capitalisation is mandatory once the criteria are met. Under HGB it is an option — one that carries a distribution block and is not recognised for tax at all.
- Goodwill. No scheduled amortisation, an annual impairment test instead. Earnings are smoother, at the price of valuation work and the risk of one large write-down.
- Provisions. IFRS works from probabilities, HGB from prudence. The two produce different numbers systematically, not occasionally.
How the conversion runs
- Scoping. Which matters are actually affected? The output is a list of material differences with an estimated effect.
- Accounting manual. A written rulebook for the group, including how options are exercised. Without it, every closing reopens the same discussions.
- Opening balance sheet at the transition date (IFRS 1). Because a comparative year has to be presented, the transition date sits a full year before the first IFRS statements. This is the most consequential point in the whole timeline.
- Parallel accounting. One financial year is effectively run twice, HGB and IFRS. In a second ledger, not in a side spreadsheet.
- Reporting and planning follow. KPIs, budget, investor reporting and covenant calculations all have to move with it, or the company reports one thing internally and another externally.
- First IFRS statements, with reconciliations of equity and profit.
Time and effort
Nine to eighteen months from decision to first IFRS statements is realistic, towards the upper end for a group with several entities. The largest block of work is not technical — it is contract analysis. Lease, rental and customer contracts have to be assessed one by one.
In staffing terms this is a project next to the day job. It regularly fails because it is handed to the same person who owns the monthly close.
What gets overlooked
- Contractual metrics. Where covenants are defined on HGB figures, IFRS 16 changes leverage overnight. Settle the definitions with the lender before the conversion, not after.
- Incentive plans. Bonuses on EBITDA or net income move with the accounting framework.
- The HGB accounts stay. They still have to be prepared, audited where applicable, and filed.
- Two audits, two scopes. The German statutory auditor signs the HGB accounts. The IFRS package is covered by the group audit. Different engagement, different materiality.
- Tax. IFRS is not authoritative for German tax, but it does create deferred tax in the consolidated accounts.
Common questions
Does IFRS replace our German subsidiary's HGB accounts?
No. The HGB single-entity accounts remain mandatory — they govern distributions and feed the tax return. What an IFRS group gets from a German subsidiary is a reporting package, not a replacement set of statutory accounts.
Is IFRS worth it before an exit?
Only if the likely buyer pool expects it — international strategic buyers, or a listing kept open as an option. For a sale to a German financial investor, solid HGB numbers with a clean EBITDA normalisation are normally enough.
Is there a middle path?
Yes: IFRS-aligned management reporting without formal IFRS statements. That satisfies the comparability expectation of most investors at a fraction of the cost — as long as it is made clear these are not audited statements.
When is the right time?
Not alongside a transaction, and not in the same year as a system migration. A quiet financial year, with the transition date at the start of it, is ideal.
Who should run the project?
Someone with IFRS experience from practice, not only from the standard. Leases, revenue recognition and goodwill are judgement calls, and judgement is where experience pays for itself.
What does the transition date mean for our planning?
Work backwards from it. If the first IFRS statements cover the year ending December 2028, the transition date is 1 January 2027 and the opening balance sheet has to be right at that date — which means the project starts in 2026.
Read on
- Consolidated accounts after buy-and-build – the stage before this one in a growing group.
- Covenant reporting – why the definitions have to be settled first.
- The first statutory audit in Germany – what the HGB audit actually covers.
- The going-concern forecast – the other German document a foreign shareholder ends up needing.
- Exit readiness – where the comparability question usually comes from.
- Implementing finance software – when the systems have to follow.
- Interim CFO references – mandates including group reporting and system change.
Sources and status
Legal references are to § 315e HGB and to the IFRS standards named, as adopted in the EU. As of September 2026. This article is an overview and does not replace tax or legal advice.
