HGB (Handelsgesetzbuch / German Commercial Code)

Where the HGB fits in German audit work

Every statutory audit of a German corporation starts with the same question: does this entity actually need an audit under the HGB? Getting the §267 size classification wrong is one of the most common compliance failures in German practice. In our experience, the error usually runs in one direction: a GmbH that has grown past the medium thresholds continues filing as small because nobody rechecked the two-consecutive-years rule. By the time the Bundesamt für Justiz sends the Ordnungsgeld notice, the omission is already a legal breach.

HGB §§238–263 set baseline bookkeeping and annual accounts requirements for all merchants (Kaufleute) registered in the Handelsregister. For corporations (GmbH, AG, KGaA) and certain partnerships with no natural person as general partner (GmbH & Co. KG), the supplementary rules in HGB §§264–335c apply, implementing EU Directive 2013/34/EU and imposing tiered disclosure and filing obligations, plus size-dependent audit requirements.

HGB §267 classifies corporations into four categories: micro, small, medium, and large. Classification depends on whether the entity exceeds two of three thresholds (balance sheet total, revenue, average employees) on two consecutive balance sheet dates. HGB §316.1 makes the statutory audit mandatory for medium-sized and large corporations. A Wirtschaftsprüfer conducts the audit under HGB §317 and issues the Bestätigungsvermerk. Small corporations file abbreviated financial statements (FS) with the Bundesanzeiger (Federal Gazette) and face no audit requirement, which makes the §267 classification one of the highest-stakes annual compliance judgments in German practice.

Worked example: Hoffmann Maschinenbau GmbH

Client: German engineering company, FY2025, revenue EUR 28M, HGB reporter. Hoffmann has 180 employees and a balance sheet total of EUR 18M.

Step 1: Classify the entity under HGB §267

The engagement partner applies the three §267 thresholds for medium-sized corporations (after the April 2024 increase): balance sheet total exceeding EUR 7.5M, revenue exceeding EUR 15M, average employees exceeding 50. Hoffmann exceeds all three. It exceeded the same thresholds in FY2024. The entity qualifies as medium-sized under §267.2 because it exceeds two of three criteria on two consecutive balance sheet dates.

Step 2: Confirm audit obligation and scope

Because Hoffmann is medium-sized, HGB §316.1 requires a statutory audit of the Jahresabschluss and the Lagebericht (management report). The engagement partner confirms that the firm holds a WPK registration and that the signing Wirtschaftsprüfer satisfies the independence requirements under §319 HGB. The audit follows the IDW Prüfungsstandards, which incorporate ISA into German practice.

Step 3: Apply HGB recognition and measurement rules

Hoffmann capitalised EUR 1.4M of development costs for a new CNC machine prototype. HGB §248.2 permits (but does not require) capitalisation of internally generated intangible assets, unlike IFRS where IAS 38 requires capitalisation when criteria are met. The engagement team verifies that Hoffmann's accounting policy elects capitalisation under §248.2 and that the corresponding distribution restriction under §268.8 has been applied (blocking dividend distribution up to the carrying amount of the capitalised development costs less associated deferred tax liabilities).

Step 4: Verify filing with the Bundesanzeiger

After issuing the Bestätigungsvermerk, the engagement partner reminds Hoffmann's management that HGB §325 requires publication of the annual financial statements in the Bundesanzeiger within 12 months of the balance sheet date. Medium-sized corporations may use the disclosure simplifications under §327a (omitting the profit and loss account from the published version) but must file the full set with the Unternehmensregister.

The engagement file is defensible because it traces the classification decision from §267 through the audit obligation under §316, applies HGB-specific recognition rules (§248.2 capitalisation option with §268.8 distribution lock), confirms the §319 independence requirements, and documents the filing requirements under §325.

Why it matters in practice

The April 2024 threshold increase under the Zweites Gesetz zur Änderung des DWD-Gesetzes created a one-time reclassification opportunity. Practitioners at smaller firms frequently apply the new thresholds without verifying the two-consecutive-years rule in §267.4. A corporation that exceeded the old thresholds in FY2023 but falls below the new thresholds in FY2024 does not automatically reclassify; it must fall below the new thresholds on two consecutive balance sheet dates before the reduced obligations apply.

German practitioners sometimes treat the §248.2 option to capitalise internally generated intangible assets as a free accounting policy choice without documenting the §268.8 distribution restriction. The restriction requires that dividends cannot be distributed to the extent of the carrying amount of capitalised development costs (net of associated deferred tax liabilities under §274). Auditors who test the capitalised asset but skip the §268.8 dividend lock leave a gap that WPK peer reviewers flag regularly.

We think the §267 classification check is one of the most under-audited procedures in German practice. It takes ten minutes and prevents a compliance disaster, yet it often gets reduced to ticking and bashing prior-year numbers forward without rechecking source data. When a GmbH crosses a threshold and nobody catches it, the penalty from the Bundesamt für Justiz is the least of the problems. The real damage is an audit that should have happened and did not.

HGB vs. IFRS

The distinction matters when auditing a German group that prepares IFRS consolidated statements but HGB individual accounts. The auditor must apply HGB recognition and measurement rules to the Einzelabschluss (which determines distributable profits and the tax base) while applying IFRS to the consolidated package. Mixing the two frameworks in the wrong direction produces financial statements that are neither HGB-compliant nor IFRS-compliant.

Related terms

Related reading

Frequently asked questions