IDW issues guidance on new company size thresholds

The German Institute of Public Auditors (IDW) has published guidance concerning the voluntary and retroactive application of new, increased thresholds under the German Commercial Code (HGB). These changes, stemming from an update to an EU directive, affect how companies are classified and impact their accounting, consolidated financial reporting, and audit obligations.

The revised thresholds, effective April 17, 2024, allow companies to benefit from eased requirements, such as those related to consolidated financial statements. Companies have the option to apply these higher thresholds retroactively to fiscal years beginning after December 31, 2022, provided they make a specific election. Without this election, the new thresholds will be mandatory for fiscal years commencing January 1, 2024.

IDW's guidance addresses how companies should handle situations where they can opt for the new, less stringent rules. The institute emphasizes that financial statements already approved can be restated to align with the new, smaller size categories under certain conditions. It is advisable to disclose such adjustments in the notes to the financial statements. However, if the new thresholds are not voluntarily applied, the financial statements cannot be amended afterward.

The guidance also covers the implications for consolidated financial statements. If a company can retroactively be exempted from the obligation to prepare consolidated financial statements due to the new thresholds, its highest governing body must revoke its prior approval of the consolidated statements to signify this choice. The guidance also provides clarifications for other size categories and their respective obligations.