The Stock Corporation Law represented generally accepted accounting principles, but there were really no binding rules for non-stock corporations, liability companies and limited partnerships. In 1985, however, the Fourth, Seventh, and Eighth EC Directives were incorporated into German law. This changed completely the regulatory system regarding preparation, publication and auditing of single and group accounts. The most important change was the revision of the Commercial Code, which included the insertion of a third book with accounting and auditing rules applicable to all businesses. Although the EC Directives were adopted into German Law, many exceptions and generous translation rules were provided for.
Financial statements are to be drawn up in accordance with generally accepted accounting principles.
It should be noted that in connection with the prudence principle, provisions and allowances may be set up, if it is possible, but not necessarily probable, that an asset has been impaired or a liability has been incurred. Also, even though corporations are required to present a true and fair view, the German interpretation may be quite different from that in Anglo-Saxon countries. It is generally believed that compliance with legal requirements ensures a true and fair view, even if the law allows for exceptions from GAAP, as in the case with hidden reserves. The general rules are only referred to when doubts arise in the interpretation and application of individual rules or if uncertainties need to be resolved. The fact that most tax incentives can only be claimed if the same treatment is applied in the commercial statements leads to a reversal of the authoritative nature of the commercial financial statements for the tax accounts.