IDW ERS FAB 18 adopted: The Amendments at a Glance

published on 3 March 2025 I Reading time approx. 5 minutes

On November 22, 2024, the IDW's Financial Reporting Committee (“Fachausschuss Unternehmensberichterstattung”, FAB) adopted the draft of a new IDW statement on accounting for investments in commercial partnerships (“Personenhandelsgesellschaften”) in the annual financial statements according to the German Commercial Code (HGB) (IDW ERS FAB 18 or “draft”). The draft takes into account adjustments and additions that have become necessary as a result of the changed legal situation due to the two laws “Gesetz zur Modernisierung des Körperschaftsteuerrechts“ (MoPeG) and the “Gesetz zur Modernisierung des Personengesellschaftsrechts” (KöMoG). The revised statement will replace the currently valid version of IDW RS HFA 18 (as of June 4, 2014). The final version of IDW RS FAB 18 is expected to be mandatory for the preparation of financial statements for periods beginning after June 30, 2025. However, the FAB of the IDW recommends that the draft should already be applied. This may have implications for a large number of companies.

Background and Overview »
Initial Measurement of Investments in Commercial Partnerships »
Collection of Profit Shares »
Capital repayments by the partnership »
Treatment of Deferred Taxes »
Effective date »
Conclustion and recommendations for action »

Background and Overview

IDW ERS FAB 18 generally regulates the recognition, measurement, and presentation of investments in commercial partnerships with (contractual) domicile in Germany, the accounting for income and expenses resulting from these investments, as well as the treatment of liability risk in the annual financial statements of reporting shareholders under HGB. In addition, certain special issues are addressed.

Through the KöMoG, commercial partnerships had the opportunity for the first time to be treated for tax purposes like a corporation for the fiscal year beginning after December 31, 2021, by applying the option under § 1a KStG. The exercise of the option can also have an impact on the accounting under HGB of the shareholders of the opting commercial partnerships. Therefore, IDW ERS FAB 18 extends the existing IDW RS HFA 18 to include specific regulations for the peculiarities in case of opting of a commercial partnership. The MoPeG, which largely came into force on January 1, 2024, also affects the accounting on investments in commercial partnerships. These changes were accordingly considered in the draft. Additionally, the draft includes further clarifications and changes compared to the previous version of IDW RS HFA 18, which are independent of the KöMoG and MoPeG.

In the following, some important changes and clarifications of the draft will be examined in more detail in the areas of

Initial measurement of investments in commercial partnerships,
Collection of profit shares,
Capital repayments by the commercial partnership,
Treatment of deferred taxes.

Initial Measurement of Investments in Commercial Partnerships

The draft specifies, among other things, the treatment of contributions in kind and payments in kind in the context of initial measurement. Accordingly, the acquisition costs for the acquisition of an investment through contributions in kind are generally to be recognized either as the book value or as the higher, conservatively estimated fair value of the contribution in kind, in analogy to exchange transactions of assets. The latter also forms the upper limit for the initial measurement. Recognition at an intermediate value below the fair value is not permissible. Furthermore, the draft clarifies that the initial measurement of the investment by the shareholder is independent of the valuation of the contribution in kind by the commercial partnership.

In the case of payments in kind that lead to an increase in equity for the commercial partnership, the contributing shareholder must capitalize subsequent acquisition costs, provided that their capital share is not increased, and the intrinsic (fair) value of the investment is increased by the payment. To determine the subsequent acquisition costs, the draft again stipulates the application of exchange principles.

Collection of Profit Shares

The draft considers the changes brought about by the MoPeG, which affect the accounting of profit shares under HGB. The MoPeG assumes the principle of full distribution for commercial partnerships. In the case of these companies, the individual entitlement to the profit share arises already on the balance sheet date, unless otherwise stipulated in the articles of association or in a shareholder resolution passed before the end of the preparation of the financial statements of the commercial partnership. In contrast to corporations, the shareholders are directly entitled to the profit share without a resolution on the appropriation of profits if the normal statutory regulations are met and in the case of financial years with the same accounting periods as well as if the annual financial statements of the commercial partnership are not subject to possible change. The draft now clarifies that this applies to both majority and minority shareholder. However, in the case of deviating provisions in the articles of association, this only comes into consideration for minority shareholders in certain cases.

Capital Repayments by the Partnership

IDW ERS FAB 18 also contains a revision of the provisions on the accounting treatment of asset distributions (including so-called liquidity distributions) by commercial partnerships at shareholder level. Capital repayments can therefore be recognized either as investment income (through profit or loss) or as a subsequent reduction in acquisition costs, i.e. the carrying amount of the investment (not through profit or loss). A combination of both variants is also possible.

If at least the corresponding amount of retained earnings can be proven during the term of the investment, the distribution is recognized as investment income by the shareholder. Otherwise, particularly if reserves already existed when the investment was acquired or were formed from contributions of funds from shareholders, they are not recognized through profit or loss. The payment of free liquidity to shareholders (so-called liquidity distributions) must also not be recognized through profit or loss. However, this does not apply to loan payments that lead to the recognition of repayment liabilities.

In the case of an investment acquired several years ago, the distribution of assets – if the fair value of the investment has increased in the meantime – must be divided into a repayment of capital to be recognized not through profit or loss and a “return” to be recognized through profit or loss.

In the case of asset distributions that exceed the carrying amount of the investment, the excess amount must continue to be recognized as a liability. Furthermore, legally impermissible payments continue to trigger a repayment obligation on the part of the shareholder.

Treatment of Deferred Taxes

The draft also extends the previous version of IDW RS HFA 18 to include comments on the treatment of deferred taxes in connection with investments in commercial partnerships that have opted for corporate taxation under § 1a KStG. For tax accounting purposes, such investments are considered as investments in corporations. The corresponding measurement principles then also apply to the assessment and measurement of deferred taxes. In addition, depending on the legal form, any previously recognized deferred corporate income taxes from the investment must be derecognized against the carrying amount of the investment in the shareholders annual financial statements for the financial year in which the application pursuant to § 1a KStG is submitted, with no effect on income. This applies to both deferred tax assets and deferred tax liabilities as well as in the event of a return to transparent taxation of corresponding commercial partnerships. As before, the draft also contains guidelines on the legal form-dependent recognition of deferred taxes from investments in transparently taxed commercial partnerships.

Effective Date

The draft represents a preliminary professional opinion that has not yet been finalized. It can be commented on by interested members of the public until May 31, 2025. According to the IDW Auditing Standard: Accounting and Auditing Principles for Financial Statement Audits (“IDW-Prüfungsstandard: Rechnungslegungs- und Prüfungsgrundsätze für die Abschlussprüfung”, IDW PS 201 n. F.) (as of September 28, 2022), the draft can be considered immediately within the auditor's own responsibility and professional judgment, provided it does not contradict existing IDW statements on accounting. The FAB has issued a recommendation for application because the regulations of the KöMoG and/or the HGB as amended by the MoPeG already affect the financial statements of shareholders in commercial partnerships that must be prepared for reporting dates prior to the initial mandatory application of the final IDW RS FAB 18. The final version of IDW RS FAB 18 is expected to be mandatory for the preparation of financial statements for periods beginning after June 30, 2025. In this respect, the IDW provides guidance for preparation and auditing practice.

Conclusion and Recommendations for Action

The regulations of IDW ERS FAB 18 generally apply to all shareholders of domestic commercial partnerships that prepare financial statements in accordance with HGB and thus affect a large number of companies. Since the FAB of the IDW already recommends the application of the current draft version, it seems sensible and advisable from the perspective of affected shareholders to analyze the individual effects of the draft promptly and, if necessary, together with their tax advisor and/or their auditor.