GAS 19 - Duty to Prepare Consolidated Financial Statements, Basis of Consolidation

• Adopted by the German Accounting Standards Board (GASB) on 29 December 2010. Publication of the authoritative German version by the Federal Ministry of Justice under section 342(2) of the HGB on 18 February 2011 (Federal Gazette No. 28a).
• Revised paragraphs 3, 6, 19, 47, 48, 49, 64, 66, 78, 91, 113, 122, 125, and 126, and new paragraphs 5a, 106a, 106b, 106c, 106d, 106e, and 106f adopted by the Accounting Standards Committee of Germany (ASCG) on 21 April 2016. Publication of the authoritative German version by the Federal Ministry of Justice and Consumer Protection under section 342(2) of the HGB on 21 June 2016.
• Revised paragraphs 4, and 5 adopted by the Accounting Standards Committee of Germany (ASCG) on 22 September 2016. Publication of the authoritative German version by the Federal Ministry of Justice and Consumer Protection under section 342(2) of the HGB on 4 December 2017.
• Revised paragraphs 24 adopted by the Accounting Standards Committee of Germany (ASCG) on 17 October 2019. The authoritative German version of the Standard has not yet been published by the Federal Ministry of Justice and Consumer Protection under section 342(2) of the HGB.
• Revised paragraphs 24 adopted by the Accounting Standards Committee of Germany (ASCG) on 17 October 2019. Publication of the authoritative German version by the Federal Ministry of Justice and Consumer Protection under section 342(2) of the HGB on 20 December 2019.

This Standard sets out more detailed requirements for the duty to prepare consolidated financial statements in accordance with section 290 of the HGB. Additionally, the Standard governs the basis of consolidation in consolidated financial statements prepared in accordance with this provision or voluntarily (sections 294, 296 of the HGB).

This Standard also applies to all parent entities that prepare consolidated financial statements in accordance with section 290 in conjunction with section 264a(1) of the HGB, as well as to all parent entities that are obliged to prepare consolidated financial statements in accordance with section 11 of the PublG.

If the parent entity applies section 315e of the HGB, this Standard is only applicable to the assessment of the duty to prepare consolidated financial statements. In such cases, the basis of consolidation is governed by the international accounting standards stipulated in section 315e of the HGB.

Subject to the existence of any of the criteria for exemption (section 290(5) of the HGB, sections 291–293 of the HGB), the legal representatives of a corporation (parent entity) that is domiciled in Germany are required to prepare consolidated financial statements and a group management report for the preceding financial year of the group if the corporation is able to exercise control, directly or indirectly, over another entity (subsidiary). The criteria for exemption set out in sections 291–293 of the HGB are not the subject of this Standard.

Section 290(2) of the HGB contains an unrebuttable presumption of control if at least one of the five criteria defined in this subsection, all of which rank equally, is met. These criteria are not exhaustive indications of the existence of control. A parent/subsidiary relationship may additionally arise solely from the application of section 290(1) sentence 1 of the HGB (eg if voting majorities present at general meetings are not merely coincidental or in the case of potential voting rights).

Section 290(2) nos. 1–3 in conjunction with section 290(3) of the HGB links control to the possession of formal legal interests. It is not relevant in this respect whether or not the associated rights are actually exercised. By contrast, the criterion for assessing control over a special purpose entity in section 290(2) no. 4 of the HGB, which is based purely on the principle of substance over form, links control to the attribution of risks and rewards. Any exercise (or opportunity to exercise) such rights under the articles of association or other legal interests is not relevant in this case.

In addition to corporate entities, special purpose entities may also take the form of other legal persons under private law, such as foundations and associations, or dependent investment funds under private law. As a whole, they must be identified by applying the principle of substance over form. Formal legal definition criteria are not decisive. The list contained in section 290(2) no. 4 sentence 2 of the HGB is not exhaustive in this respect.

Occupational pension schemes and similar external pension schemes (pension funds and other employee pension plans) may meet the criteria for classification as a special purpose entity, in which case they must be consolidated if the parent entity retains the majority of the risks and obtains the majority of the rewards. However, the recognition of any loss in accordance with Article 28(1) sentence 2 of the EGHGB may be dispensed with.

Special investment funds within the meaning of section 2(3) of the InvG, comparable foreign investment funds, open-ended domestic special AIFs with fixed fund rules within the meaning of section 284 of the KAGB that have been established as investment funds under German law, comparable EU investment funds or foreign investment funds that are comparable to open-ended domestic special AIFs with fixed fund rules within the meaning of section 284 of the KAGB that have been established as investment funds under German law are excluded from the definition of a special purpose entity. Investment funds are all German investment funds that are managed separately and held in trust by an investment company for the account of the investors in accordance with the InvG and the relevant fund rules (section 2(2) of the InvG).

The test of control must always take into account the increase and deduction provisions of section 290(3) of the HGB.

The consolidated financial statements must include the parent entity and all subsidiaries, irrespective of their domicile and legal form, unless one or more subsidiaries are not included due to the exercise of exclusion options (section 294(1) of the HGB). Entities that are not subsidiaries may not be (voluntarily) included (consolidated).

The name and domicile of the entities included in the consolidated financial statements, the share of the capital of subsidiaries held by the parent entity and the subsidiaries included in the consolidated financial statements or by a person acting for the account of these entities, as well as the reasons for inclusion in the consolidated financial statements where such inclusion is not based on an equity interest conveying a majority of the voting rights, must be disclosed in the consolidated financial statements. This information must also be disclosed for subsidiaries that are not included because of the exercise of inclusion options (section 313(2) no. 1 of the HGB).

If the composition of the entities included in the consolidated financial statements has changed materially in the course of the financial year, the consolidated financial statements must include disclosures that permit the rational comparison of the consecutive consolidated financial statements (section 294(2) of the HGB).

If a subsidiary is not included in the consolidated financial statements due to the exercise of one or more of the inclusion options in accordance with section 296(1) nos. 1–3 or subsection (2) of the HGB, this must be justified in the notes to the consolidated financial statements (section 296(3) of the HGB).