The economy has changed a lot in the past two to three decades. Above all, companies have to adapt to the ever advancing globalization and adhere to various standards in order to keep up with the competition. This is not always easy, especially for small and medium-sized companies, and accounting in particular is a constantly changing process. To make things easier for these companies, the BilMog (Accounting Law Modernization Act) was initiated and passed in 2009.
What is the Accounting Law Modernization Act?
According to AVIATIONOPEDIA, the Accounting Law Modernization Act, also just called BilMoG, is an article law that was introduced to reform accounting law. BilMoG is an advantage especially for small and medium-sized companies, because the reform put the focus on cost reduction and deregulation. If you, as a sole trader, only run a small business, you are exempt from the commercial accounting obligations under the Accounting Law Modernization Act . With the BilMoG in May 2009 it was ensured that there was the largest reform of accounting law in Germany to date.
What are the goals of the BilMoG?
At the beginning of 2003, the BMF and the Federal Ministry of Justice announced that they would further develop German accounting law and initiate a reform. But it took until the spring of 2009 before a draft law could be presented to the Bundestag and Bundesrat and the final version passed there. The Accounting Law Modernization Act then came into force on May 29, 2009. The BilMoG pursues the following goals:
- The development from accounting law of the HGB to a fully-fledged and permanent alternative to the internationally applicable accounting standards is to become. However, this alternative should be simpler and cheaper for companies.
- BilMoG will lead to the deregulation of commercial accounting obligations and the financial reporting standards contribute.
- There should be an implementation of the EU’s amendment and auditing directive into national law.
- The informative value of the annual financial statements in relation to commercial law is to be improved.
- The HGB accounting law is to be retained as the basis for assessing the distribution and for determining taxable profits.
What innovations have been introduced at BilMoG?
The innovations in the Accounting Law Modernization Act will primarily benefit you as a small or medium-sized entrepreneur. The main innovations of the BilMoG here for you at a glance:
- The reverse relevance is canceled
- The recognition of deferred tax liabilities becomes mandatory
- Goodwill must be amortized over the expected useful life
- For goodwill acquired against payment, there is an obligation to capitalize in the individual financial statements
- After the reform, you may activate self-created assets that are intangible, for example patents or know-how according to Section 248 (2). According to Section 255 (2a) of the German Commercial Code, the prerequisite for this is that the manufacturing costs relate to the development phase. However, if you cannot properly separate the research and development phases from each other, you cannot use the activation.
Which deregulation measures were specified in the BilMoG?
In the Accounting Law Modernization Act there are two essential deregulation measures that are of great importance.
Exemption from accounting and bookkeeping obligations
This is a very important deregulation measure. It provides that sole proprietorships according to § 241a HGB new version, provided that in two consecutive years (financial years) the sales do not exceed an amount of 600,000 euros. In addition, the annual surpluses must not exceed EUR 60,000 and are no longer obliged to keep accounts. In addition, the obligation to draw up an inventory is no longer required, as described in Sections 240 f. HGB, and after the reform there is no longer any obligation to prepare annual accounts to have to. It is important for you as a founder to know that this applies to a start-up. It is important to note that these thresholds are not fallen below. This applies to the first reporting date. The aim of this new regulation is to achieve a convergence towards threshold values in accordance with Section 141 AO.
Raising the thresholds for size classes
The Accounting Law Modernization Act provides for an increase in the threshold values. These thresholds decide which information obligations affect you as an entrepreneur. The threshold values for the balance sheet total were raised by a value of 20% according to Section 267 of the new version of the German Commercial Code (HGB). For you, this means that you have to fulfill information obligations that have more or less scope. This depends on whether your company is a small, medium or large corporation. If you only have a small corporation, you no longer have to have your annual financial statements audited by the auditor as before. You no longer need to disclose your income statement, just your balance sheet.
Changes in relation to general accounting principles
Accounting principles are guidelines that you must observe when preparing annual financial statements. These principles are only partially anchored in the HGB, i.e. in national legislation. The aim of the accounting principles is to ensure the comparability of annual financial statements. The BilMoG provides for the following changes.
Anchoring the principle of economic imputation
The principle of economic attribution is specifically anchored in Section 246, Paragraph 1, Clause 2 of the new version of the German Commercial Code (HGB). It becomes particularly important when economic and legal property fall apart. This principle was previously anchored in sentences 2 and 3 of Section 246 (1) of the old version of the German Commercial Code (HGB), but this has been limited to special cases.
Goodwill acquired against payment becomes an asset
The goodwill acquired in return for payment is subject to a fictional capitalization through Section 246 (1) sentence 4 of the new version of the HGB. It rises to an asset that can be used over time. However, the previously valid activation option no longer applies. The so-called prohibition of value recovery is based on the consideration that any repetitions of your goodwill or your businesswill take place after a write-off that was carried out extraordinarily. But it must be based on the business of your company.
Set off assets and debts
If assets are primarily used to service liabilities from obligations for old-age provision or other comparable long-term obligations, Section 246 (2) sentence 2 of the new version of the German Commercial Code (HGB) stipulates that assets must be offset against debts. However, you have to meet the requirement that no creditor has access to these assets.
Important! This requirement does not apply to the fixed assets that are important for you to run your company.
Internally generated intangible fixed assets
In the future, you will have the option of capitalizing assets that are intangible and self-created from fixed assets in the HGB balance sheet. These assets include , for example, patents or corresponding know-how.
Important! However, this option does not apply to brands, publishing rights, print titles, etc.
Reverse relevance is waived
After the reform of the BilMoG, due to the abolition of a so-called reverse relevance, special items with a reserve portion may no longer be recognized as a liability. In addition, you are not allowed to make any tax-related depreciations that contradict commercial law.