German Accounting Standards Committee Approves New Rules for Consolidated Financial Statements

The German Accounting Standards Committee (DRSC) has finalized and adopted two new accounting standards: DRS 26 concerning "Associates" and DRS 27 on "Proportionate Consolidation." These standards provide updated guidance for German companies preparing consolidated financial statements.

The new rules, officially approved by the DRSC's committee for German Commercial Code standards on July 17, 2018, will be mandatory for fiscal years commencing on or after December 31, 2019. The standards introduce clarifications and minor adjustments compared to their prior drafts. DRS 26, for instance, refines the equity method application for associates, notably by adjusting the presumption of significant influence for holdings below 20% to require a case-by-case assessment of overall circumstances.

DRS 27 addresses the consolidation of joint ventures. It clarifies the criteria for identifying a joint venture and outlines the requirements for applying proportionate consolidation. A key update in DRS 27 is the stipulation that joint control must be based on a durable contractual arrangement, whether through agreement or company law.

These standards are now being forwarded to the Federal Ministry of Justice and Consumer Protection for official publication in the Federal Gazette (Bundesanzeiger). Their adoption aims to ensure compliance with German Generally Accepted Accounting Principles (GAAP) for consolidated financial reporting, particularly benefiting companies with complex group structures and investments in other entities.