IAS 37 (as adopted by EU) · IDW / BaFin

IAS 37 Provision Calculator
Germany

IAS 37 provision assessment with Germany-specific regulatory guidance, IDW / BaFin expectations, and local legal framework considerations.

Obligation Type

Present Obligation

Does a present obligation exist from a past event?

IAS 37 Provision Assessment Toolkit — free PDF

Complete audit toolkit: IAS 37 recognition decision flowchart, measurement methodology guide, discounting worked examples, disclosure checklist, provision type cheat sheet, and journal entry templates.

No spam. Unsubscribe anytime.

IAS 37.14 — A provision shall be recognised when: (a) an entity has a present obligation from a past event; (b) it is probable that an outflow will be required; (c) a reliable estimate can be made.

IAS 37.36 — The amount recognised shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

IAS 37.39 — Where there is a large population of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities (expected value).

IAS 37.45 — Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to settle the obligation.

IAS 37.72 — A constructive obligation to restructure arises only when an entity has a detailed formal plan and has raised a valid expectation in those affected.

IAS 37 Application in Germany

Germany adopted IAS 37 Provisions, Contingent Liabilities and Contingent Assets through EU endorsement. IAS 37 applies to German entities preparing consolidated IFRS financial statements, primarily publicly listed companies (kapitalmarktorientierte Unternehmen). Non-listed German companies typically report under HGB (Handelsgesetzbuch), where provisions are governed by §249 HGB and are known as Rückstellungen. The HGB framework for Rückstellungen is significantly broader than IAS 37: under HGB, provisions are required not only for uncertain obligations to third parties (Verbindlichkeitsrückstellungen) but also for internal obligations such as maintenance deferred beyond three months (Aufwandsrückstellungen under §249(1) Satz 2 Nr. 1 HGB). This creates a dual reporting landscape where German entities must understand the conceptual differences between HGB Rückstellungen and IFRS provisions. The Institut der Wirtschaftsprüfer (IDW) has issued guidance in IDW RS HFA 34 and related pronouncements addressing practical application of IAS 37 for German entities, while BaFin supervises IFRS financial reporting quality through the Deutsche Prüfstelle für Rechnungslegung (DPR/FREP).

IDW / BaFin Regulatory Expectations

The DPR/FREP has conducted enforcement reviews examining the application of IAS 37 among German listed entities, identifying areas where practice falls short of the standard's requirements. Key enforcement findings include premature recognition of restructuring provisions where the formal plan had not been communicated to affected parties, failure to discount long-term provisions such as environmental remediation obligations, and inadequate disclosure of the uncertainties affecting provision measurement. The IDW has issued guidance through IDW RS HFA 34 on the recognition and measurement of provisions under IFRS, addressing practical questions such as the distinction between legal and constructive obligations in the German legal context, the appropriate discount rate for long-term provisions, and the treatment of provisions for potential losses on executory contracts. BaFin has indicated that IAS 37 application is an area of ongoing supervisory focus, particularly for provisions related to litigation, regulatory penalties, and environmental obligations in heavily regulated industries such as automotive, chemicals, and energy.

Practical Guidance for Germany

German entities applying IAS 37 should pay close attention to the differences between HGB Rückstellungen and IFRS provisions. Under HGB §249(1), Rückstellungen für drohende Verluste aus schwebenden Geschäften (provisions for impending losses from pending transactions) are mandatory, which aligns with the IAS 37 concept of onerous contracts following the amendments effective 1 January 2022. However, HGB permits Aufwandsrückstellungen for internally generated maintenance obligations, which have no equivalent under IAS 37 since there is no obligation to a third party. For measurement, HGB requires provisions to be stated at their settlement amount (Erfüllungsbetrag) under §253(1) Satz 2 HGB, with discounting required for provisions with a remaining term exceeding one year using Bundesbank-published average market interest rates. IAS 37 uses a pre-tax discount rate reflecting current market assessments of the time value of money and risks specific to the liability. German entities should document the reconciliation between HGB and IFRS provision amounts, as auditors and enforcement reviewers frequently examine these differences.

Audit Expectations

German auditors (Wirtschaftsprüfer) must apply ISA (International Standards on Auditing) as adopted for use in Germany when auditing IFRS financial statements. The IDW has issued supplementary practice notes addressing IAS 37-specific audit considerations, including the assessment of legal opinions for litigation provisions, the evaluation of environmental remediation cost estimates, and the testing of restructuring provision completeness and measurement. The WPK (Wirtschaftsprüferkammer) and APAS (Abschlussprüferaufsichtsstelle) conduct quality inspections that have identified IAS 37 as an area where audit quality requires improvement. Common findings include insufficient scepticism when evaluating management's assessment of whether a present obligation exists, over-reliance on management's legal advisors without independent assessment of the probability of adverse outcomes, and inadequate procedures to test the completeness of the provision and contingent liability population. German auditors should ensure they engage specialists for complex provision estimates such as environmental remediation or actuarial calculations for long-term employee-related provisions.

Germany-Specific Considerations

Germany-specific IAS 37 considerations include the impact of German civil law (Bürgerliches Gesetzbuch — BGB) on the identification of legal obligations. German contract law creates specific obligations that may differ from common law jurisdictions, including Gewährleistung (warranty) obligations under §§434-442 BGB that apply by operation of law even without contractual warranty terms. The German Commercial Code (HGB) imposes record-keeping obligations that may create constructive obligations when entities have established consistent past practice of providing remedies beyond legal minimums. German environmental law, including the Bundes-Immissionsschutzgesetz (BImSchG) and the Bundesbodenschutzgesetz (BBodSchG), creates strict liability obligations for site contamination that frequently give rise to IAS 37 provisions. For the automotive sector, which is of particular significance in Germany, provisions for product recalls under the Produkthaftungsgesetz and EU product safety regulations can be highly material. The Dieselgate emissions scandal demonstrated how regulatory and legal claim provisions can reach billions of euros for German automotive manufacturers, highlighting the importance of robust provision estimation processes.

Common Audit Inspection Findings — Germany

Restructuring provisions recognised before IAS 37.72 criteria were satisfied — formal plan not communicated to affected employees prior to the balance sheet date

Long-term environmental provisions not discounted — entity applied the undiscounted settlement amount, materially overstating the provision balance

Reconciliation between HGB Rückstellungen and IFRS provisions not documented — auditor unable to verify the bridging calculations

Contingent liability disclosures for material litigation proceedings omitted — legal proceedings disclosed in the Lagebericht but not in the IFRS notes

Frequently Asked Questions — Germany

How does IAS 37 differ from HGB Rückstellungen for German dual reporters?
The key differences are substantial. HGB §249 permits or requires provisions for internally generated obligations (Aufwandsrückstellungen) such as deferred maintenance, which IAS 37 does not recognise since there is no obligation to a third party. HGB recognises provisions at the settlement amount (Erfüllungsbetrag) and requires discounting only for provisions exceeding one year using Bundesbank rates, while IAS 37 uses a pre-tax risk-free rate adjusted for liability-specific risks. HGB requires provisions for impending losses on all executory contracts (Drohverlustrückstellungen), while IAS 37 applies onerous contract provisions only when unavoidable costs exceed expected economic benefits. German dual reporters must maintain separate provision calculations and clearly reconcile the differences.
What does the DPR/FREP typically find in enforcement reviews of IAS 37?
The DPR has identified recurring deficiencies including: restructuring provisions recognised prematurely before a detailed formal plan was established and communicated (violating IAS 37.72), inadequate disclosure of the nature and timing of material provisions, failure to discount long-term provisions such as environmental obligations, insufficient description of the uncertainties affecting provision amounts, and incomplete contingent liability disclosures where material litigation was omitted. In several cases, these findings resulted in error findings (Fehlerfeststellungen) requiring restatement or public correction.
How do German environmental laws create IAS 37 obligations?
The Bundesbodenschutzgesetz (BBodSchG) imposes strict liability on property owners, former operators, and polluters for contaminated land remediation. The Bundes-Immissionsschutzgesetz (BImSchG) requires operators of industrial installations to prevent and remediate environmental damage. These create legal obligations that meet the IAS 37 recognition criteria when contamination is identified or suspected. The entity must assess whether remediation is probable and estimate the costs, which often requires specialist environmental consultants. German courts have consistently upheld broad interpretations of remediation liability, making provision recognition highly likely once contamination is identified.
What are country-specific provision considerations for German automotive companies?
German automotive manufacturers face unique IAS 37 challenges including product warranty provisions across global markets with varying consumer protection laws, recall provisions under EU and national product safety regulations, environmental provisions for manufacturing sites and end-of-life vehicle obligations under the Altfahrzeug-Verordnung, and litigation provisions for product liability claims. The Dieselgate scandal illustrated how regulatory investigations and class action lawsuits can generate provisions of extraordinary magnitude. Auditors of German automotive companies scrutinise the completeness and accuracy of warranty provision models, which must reflect historical claims data segmented by model, market, and defect type.
What discount rate should German entities use for long-term IAS 37 provisions?
IAS 37.47 requires a pre-tax discount rate reflecting current market assessments of the time value of money and risks specific to the liability. German entities typically reference Bundesanleihen (German government bond) yields for the risk-free component, matched to the expected settlement period of the provision. For HGB purposes, §253(2) HGB requires discounting using the average market interest rate published by the Bundesbank for provisions exceeding one year. The difference in discount rates between HGB and IFRS is a common reconciliation item for dual reporters and is frequently examined in DPR enforcement reviews.

IAS 37 Provision Calculator

General (Hub)

Related IFRS Tools

IFRS 9 ECL Calculator IFRS 16 Lease Calculator Going Concern Checklist Materiality Calculator