The change in the Accounting Directive and its effects
On February 22, 2024, the German Bundestag adopted the draft of a second law to amend the DWD Act and to amend commercial law provisions (BT-Drucksache 20/10428) introduced by the federal government. The law changes the provisions of Sections 267, 267a and 293 of the German Commercial Code. Formally, this is a reaction by the German legislature to a directive delegated by the EU Parliament to the EU Commission (Directive (EU) 2023/2775), which was adopted in October 2023. Raising the thresholds means that the companies affected may be reclassified in terms of their size categories. The thresholds under Section 293 of the German Commercial Code for consolidated financial statements are also to be raised. The law was finally dealt with in the plenary session of the Bundesrat on March 22, 2024 and will come into force the day after it is published in the Federal Law Gazette.
The new size criteria
The size class in which a company is to be classified is determined based on the following size characteristics:
The size criteria are derived from Article 3 of Directive 2013/34/EU of the European Parliament and of the Council and have been adopted by the German legislature in Sections 267 and 267a of the German Commercial Code (HGB). Logically, only the two monetary criteria (balance sheet total and sales revenue) have been increased due to inflation - the number of employees remains unchanged. The so-called 2-of-3 rule pursuant to Section 267 IV of the German Commercial Code (HGB) also still applies, according to which a company is only reassigned to a size class if it exceeds or falls below two of three criteria on two consecutive dates. In summary, the size criteria have now changed as follows:
Background of the changed criteria for determining the size classes
In adjusting the size criteria, the EU Commission fulfilled its obligation to compare the threshold values of the monetary size categories for classifying companies with inflation trends every five years. The directive delegated to the EU Commission is based on Eurostat data for the eurozone, which shows inflation of 5% over the last 10 years. In line with this, the amendment to the law now passed provides for an increase in the monetary threshold values for determining company size classes in commercial accounting law by 24,3% for small, medium and large companies and by around 25% for micro-enterprises. This adjustment aims to prevent micro and small companies from being inadvertently subject to stricter accounting regulations that actually apply to larger companies due to inflation.
When should the new criteria be applied?
According to the transitional provisions of the aforementioned law, there is an option to apply the amended provisions for determining the size categories either already – i.e. retroactively – for financial years beginning on or after December 31, 2022 or only for financial years beginning on or after December 31, 2023.
What effect does the change have?
In particular, disclosure obligations, the statutory audit obligation, the scope of information in the annual financial statements and management report, and a possible obligation to report on sustainability are linked to the thresholds. Users are well advised to check carefully whether making use of the inflation-related adjustment of the size characteristics could be individually advantageous for the 2023 financial year. The reduction in the scope of application under the CSRD affects large and listed medium-sized and smaller companies. The change affects the obligation to report on sustainability in accordance with the CSRD, as well as the EU Taxonomy Regulation. There are currently no exact figures on how many companies are no longer subject to the CSRD due to this change. Nevertheless, it is advisable for companies to review their thresholds. This way they can ensure that they continue to comply with the relevant reporting obligations.
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