IFRS-Conversion

An IFRS conversion is the structured transition from an existing financial reporting framework—typically the German Commercial Code (HGB)—to International Financial Reporting Standards (IFRS). The aim is to adapt accounting policies, reporting processes, systems, charts of accounts, internal controls and documentation so that audit-ready IFRS financial statements can be prepared.

The conversion typically involves analysing the differences between the existing accounting framework and IFRS that are relevant to the company, designing specific adjustments and transition steps, implementing them and, as a result, preparing the first IFRS financial statements, including comparative periods.

A transition to IFRS may be required or advisable for various reasons. Typical triggers include an IPO, the issuance of listed equity or debt instruments, group reporting requirements, an acquisition by international or private equity investors, and the internationalisation of the business model.

IFRS reporting may also be useful for improving comparability with international competitors, enhancing investor communications or better aligning internal and external financial reporting.

Ideally, an IFRS transition follows a structured project approach. First, a quick review is carried out to assess key accounting matters, the expected impact of the transition and the resources required. The findings are consolidated into an action plan and translated into a project plan.

The second step is a detailed analysis of the differences between local accounting standards—typically HGB—and IFRS that are relevant to the company making the transition. This analysis is used to define specific adjustments and implementation steps.

In the third step, the findings are reflected in the opening IFRS statement of financial position, the IFRS reconciliations are documented, and the first IFRS financial statements, including comparative periods, are prepared.

The timeframe depends largely on the company’s size and complexity, data availability, system landscape, number of entities, scope of relevant IFRS topics and availability of internal resources. A structured IFRS conversion typically takes around 6 to 18 months.

For capital markets-related projects, complex group structures, acquisitions or significant changes to ERP systems and controlling processes, the conversion should be started early.

IFRS is more investor- and capital markets-oriented, while HGB is shaped more by creditor protection, the prudence principle and the determination of distributable profits. Key differences arise in particular in revenue recognition, leases and financial instruments. Presentation and disclosure requirements also differ, with IFRS requiring significantly more extensive notes than local law.

IFRS 1 governs the first-time adoption of IFRS and generally requires IFRS to be applied retrospectively in preparing the opening IFRS statement of financial position. This means that a company accounts as if it had always applied IFRS, except where IFRS 1 provides mandatory exceptions or optional exemptions.

Key considerations include determining the date of transition, identifying and applying relevant IFRS 1 elections, fully documenting the IFRS reconciliations and providing audit-ready support for the accounting decisions made. The auditor should be involved at an early stage.

The opening IFRS statement of financial position is the starting point for IFRS financial reporting. It presents the company’s assets, liabilities and equity under IFRS at the date of transition, including adjustments arising from the change in accounting framework.

It is central to all subsequent IFRS reporting because it provides the basis for comparative figures, subsequent measurement and future financial statements. It should therefore be fully documented, clearly reconciled and discussed with the auditor as early as possible.

The impact depends on the business model and the accounting topics involved. IFRS 15, for example, can change the timing and amount of revenue recognised, particularly for multiple-element contracts, variable consideration, long-term projects, licences or service components.

IFRS 16 is another example. Its application increases EBITDA because, for lessees, rent and lease expenses are often replaced by depreciation of right-of-use assets and interest expenses. At the same time, total assets and financial liabilities increase.

IFRS 9 provides another example. Its application tends to reduce equity because the expected credit loss model requires earlier and often higher impairment allowances for financial instruments than the previous incurred loss model. The greater focus on fair values also means that changes in the value of certain financial instruments are recognised either in other comprehensive income (OCI), without affecting profit or loss, or in profit or loss, depending on their classification. These changes therefore have a direct effect on equity.

An IFRS quick review provides early clarity on relevant accounting topics, expected transition impacts, required resources, data gaps and a realistic timeline. It helps prioritise critical issues and establish the project organisation.

For capital markets-related projects in particular, a quick review is an important first step in clarifying risks, milestones and coordination requirements with the executive board, supervisory board, investors, auditor and other stakeholders at an early stage.

Accounting memos—or a comprehensive IFRS accounting policy manual for the reporting entity—provide audit-ready documentation of significant accounting decisions. They describe the facts and circumstances, analyse the relevant IFRS requirements, assess judgemental matters and set out the resulting accounting treatment.

Documentation is particularly important for complex topics such as revenue recognition, leases and financial instruments. Well-prepared memos reduce the time required to coordinate with the auditor or other external authorities, such as BaFin, and improve the quality and clarity of the IFRS conversion. They also help preserve the company’s knowledge if key employees leave.

Common pitfalls include starting the project too late, insufficient resources, missing data in the ERP system, charts of accounts that have not been aligned, unclear responsibilities, incomplete contract analyses and involving the auditor too late.

Change management is also often underestimated: IFRS affects more than accounting. It also involves controlling, tax, treasury, legal, investor relations, IT and operational business functions.

Grant Thornton supports companies throughout the conversion process—from the IFRS quick review, IFRS gap analyses, accounting memos and training through to the opening IFRS statement of financial position and the first IFRS financial statements. The aim is an IFRS conversion that is audit-ready, completed on time and practical to implement.

Our approach combines technical IFRS expertise with hands-on experience in implementing changes to processes, systems, controls and financial communications. This means we not only prepare the first IFRS financial statements, but also help build IFRS expertise within the company.

Yes. In principle, a company can switch from IFRS back to HGB, provided it is not legally required to apply IFRS. Companies that are not publicly traded can often choose between IFRS and HGB for their consolidated financial statements. If the reasons for applying IFRS no longer apply—such as group reporting requirements, investor requirements or a capital markets orientation—a company may return to HGB accounting. Its accounting policies and measurement methods must then be adjusted to HGB requirements, which may change its assets, liabilities, equity and results. However, there is no specific framework for reverting to HGB comparable to IFRS 1. The financial statements must therefore be fully aligned again with HGB accounting and measurement requirements.

In practice, reverting to HGB usually involves considerable effort, since all differences between IFRS and HGB must be analysed, assessed and documented. Complex group structures, financial instruments and leases may require extensive adjustments. Early planning and structured project support are therefore essential to ensure an audit-ready and efficient transition. We would be pleased to support companies in assessing the impact and planning and implementing a return from IFRS to HGB.