IFRS 15 Revenue Flowchart — Germany Edition

IFRS 15 in Germany

IFRS 15 Adoption in Germany

Germany adopted IFRS 15 Revenue from Contracts with Customers through the EU endorsement mechanism, effective for annual periods beginning on or after 1 January 2018. IFRS 15 is mandatory for German entities that prepare consolidated financial statements under IFRS, which primarily includes publicly listed companies (kapitalmarktorientierte Unternehmen) traded on regulated markets such as the Frankfurt Stock Exchange. The EU endorsed IFRS 15 without modifications, meaning that the standard as applied in Germany is identical to the IASB-issued version. Non-listed German entities continue to report under the Handelsgesetzbuch (HGB), where revenue recognition follows the realisation principle (Realisationsprinzip) under Section 252(1) No. 4 HGB, which differs fundamentally from the IFRS 15 control-transfer model.

BaFin and DPR Enforcement Focus

The Deutsche Prüfstelle für Rechnungslegung (DPR, also known as FREP — Financial Reporting Enforcement Panel) conducts enforcement examinations of IFRS financial statements prepared by German listed entities. Revenue recognition under IFRS 15 has been a recurring focus area in DPR enforcement reviews since the standard's effective date. The DPR has identified issues including premature revenue recognition where control had not transferred, incorrect identification of performance obligations in complex bundled contracts common in the German automotive and engineering sectors, and inadequate disclosure of the significant judgements applied in determining the transaction price for contracts with variable consideration. BaFin oversees the DPR's work and can take enforcement action where material misstatements are identified, including requiring restatement of published financial statements.

HGB vs IFRS 15: Key Revenue Recognition Differences

The differences between HGB revenue recognition and IFRS 15 are significant and create practical challenges for German dual reporters. Under HGB, revenue is recognised when the risks and rewards of ownership transfer to the buyer, which is generally at the point of delivery for goods and completion for services. IFRS 15 uses a control-transfer model assessed through the five-step framework, which can result in different timing of recognition, particularly for long-term contracts, bundled arrangements, and contracts with significant financing components. Under HGB, the Realisationsprinzip prohibits recognition of revenue before the critical event (typically delivery), whereas IFRS 15 may require over-time recognition under paragraph 35 if the customer simultaneously receives and consumes benefits, the entity's performance creates an asset the customer controls, or the entity has no alternative use for the asset and has an enforceable right to payment for performance completed to date.

IDW Auditing Standards and Guidance

The Institut der Wirtschaftsprüfer (IDW) has issued guidance relevant to the audit of IFRS 15 revenue recognition, including considerations for German Wirtschaftsprüfer performing statutory audits. IDW auditing standards supplement ISAs as adopted in Germany and address the specific risks associated with revenue recognition as a presumed fraud risk under ISA 240. The IDW has emphasised the importance of understanding the entity's business model and contract terms to properly identify performance obligations and assess the appropriateness of revenue recognition timing. For German automotive and engineering companies, the IDW guidance highlights the complexity of bill-and-hold arrangements, consignment stock, and tooling revenue that are prevalent in the German manufacturing sector.

German Industry Focus: Automotive and Engineering

Germany's economy is heavily weighted towards automotive manufacturing, precision engineering, industrial machinery, and chemical production. These industries present distinctive IFRS 15 challenges that require careful analysis. Automotive suppliers frequently enter into long-term supply agreements with OEMs that include tooling development, prototype production, and series delivery components, each potentially representing distinct performance obligations. The allocation of the transaction price across these obligations using relative standalone selling prices requires significant estimation. Engineering companies providing customised plant and machinery must assess whether their contracts meet the over-time recognition criteria, particularly the alternative-use test and the enforceable right-to-payment condition under German contract law (BGB). The Maschinenbau sector's use of percentage-of-completion accounting under IFRS 15 requires robust cost estimation and progress measurement methodologies.

Recent Enforcement and IFRIC Agenda Decisions

German entities have been affected by several IFRS Interpretations Committee (IFRIC) agenda decisions relating to IFRS 15, including the 2019 decision on training costs incurred to fulfil a contract, and the 2020 decision on the determination of standalone selling prices in real estate bundled sales. DPR enforcement actions have resulted in error findings where German entities incorrectly applied the principal-versus-agent assessment in supply chain arrangements, failed to identify significant financing components in extended payment term contracts, or did not adequately constrain variable consideration estimates for performance-based fees. The German legal framework under BGB also affects the assessment of enforceable rights to payment, as the distinction between fixed-price and cost-plus contracts influences whether the over-time recognition criteria in IFRS 15.35(c) are met.

Regulatory Inspection Focus Areas

DPR enforcement reviews have identified premature revenue recognition before control transfer, incorrect identification of performance obligations in automotive and engineering bundled contracts, inadequate disclosure of significant judgements for variable consideration, and failure to apply the principal-versus-agent assessment correctly. APAS and WPK audit inspections have found insufficient auditor challenge of management's over-time recognition methodology and limited testing of standalone selling price allocations.