The short answer
German limited-liability companies become subject to a statutory audit once they count as medium-sized or large under section 267 HGB. Three criteria decide it – balance sheet total, revenue and average number of employees – and two of them must be exceeded on two consecutive balance sheet dates.
The thresholds were raised in 2024. For small companies they now stand at €7.5 million balance sheet total, €15 million revenue and 50 employees on annual average. Exceed two of those twice in a row and the company moves up a size class, and with it into the audit requirement under section 316 HGB. Because the classification is detailed, it belongs checked case by case.
Independently of the statutory duty, an audit is often required contractually – by the articles of association, an investment agreement or a loan agreement. In growing companies that is the more common trigger in practice.
A note for readers outside Germany
Three things differ from Anglo-American practice. The auditor is appointed by the shareholders' meeting, not by management or the audit committee, and the appointment should happen before the financial year being audited has ended. The audit opinion is issued on HGB accounts, which serve both as the basis for distributions and as the starting point for the tax return – there is no separate set of statutory accounts alongside a management one. And the audited accounts are published in the Company Register, where they are publicly accessible; competitors and counterparties can and do read them.
One further point that surprises foreign parents: audit size classes are assessed for the German entity itself. A small German subsidiary of a very large group is not automatically audited – and a fast-growing one can become audited without anyone at group level noticing.
What changes with the first audit
The accounts are not only finished later; they are prepared differently. Three things shift:
- Evidence instead of plausibility. What used to be traceable internally now has to be proven to a third party – with a document, a contract or a calculation.
- Processes become part of the audit. The auditor looks at approvals, segregation of duties and access rights. Where one person orders, books and pays, a finding follows.
- A fixed timetable. Interim audit, main audit, closing meeting, opinion. Those dates tie up the finance function for several weeks on top of the running business.
The process
- Selecting and appointing the auditor. Appointment is by the shareholders' meeting, sensibly before the end of the financial year to be audited.
- Interim audit in the final quarter: systems, processes, controls, critical accounting topics. Settling questions here avoids arguing under time pressure later.
- Main audit once the draft is available: confirmations from banks, lawyers, customers and suppliers, sample testing, valuation questions, notes and management report.
- Closing meeting with findings and adjustments.
- Audit opinion and audit report, then adoption of the accounts and publication.
What to prepare
A first audit almost always turns on the same points. Addressing them beforehand shortens the process noticeably:
- Opening balances and prior-year comparatives. In a first audit the auditor also has to form a view on the opening positions – a point that regularly surprises people.
- Fixed-asset register and useful lives, complete and reconciled.
- Inventory valuation with stocktake evidence; where a year-end count is used, the auditor's attendance has to be scheduled.
- Receivables valuation with a traceable basis for allowances.
- Provisions with their derivation, especially holiday, bonuses, warranty and legal risks.
- Revenue recognition – in subscription and project businesses the single most common discussion. Cut-offs need a documented method, not just a result.
- Capitalised internal work with time records per project.
- Contracts and resolutions: shareholder resolutions, loans, leases, related parties.
What works in practice is a dedicated folder with one piece of evidence per balance sheet item – the same logic as the data room in a transaction, only for the auditor.
Frequently asked questions
When exactly does the audit requirement apply?
Only once the size criteria are exceeded on two consecutive balance sheet dates. A single strong year does not trigger it. Equally, it ends only once the figures fall below the thresholds twice in a row.
How long does a first audit take?
For a medium-sized company with clean bookkeeping, typically four to eight weeks from submission of the draft to the audit opinion, plus the interim audit. Where evidence is missing that can double.
What does the audit cost?
The fee depends on size, complexity and the quality of the documentation. The part you control is the preparation: every query that arises from missing evidence is billed in hours.
Do you need additional staff for it?
Often not permanently, but for the first cycle. Temporary reinforcement for preparing the accounts is common – through interim management, for example – so that the running monthly close does not slip.
What if the auditor asks for adjustments?
With first audits that is the rule, not the exception. What matters is spotting the topics early: settle valuation questions during the interim audit and you are not negotiating last year's figures in January.
Read on
- Exit readiness – why audited figures help in a sale process.
- Consolidated accounts after buy-and-build – when the group, not the entity, has to be audited.
- Accounting as a Service at nugrow – bookkeeping and accounts outsourced.
- Interim management at nugrow – reinforcement for the first audit cycle.
Sources and status
Legal references are to sections 267 and 316 et seq. HGB as amended after the 2024 increase in the size thresholds. The figures given apply to small limited-liability companies; classification in an individual case has to be assessed separately. As of September 2026. This article is an overview and does not replace tax or legal advice.
