Disclosure requirements for real estate valuations according to HGB: How to safely navigate through the appendix
Did you know that the property value listed in your balance sheet often reflects only a fraction of the actual market value? Incorrect or incomplete information in the appendix can lead to severe penalties. This article shows you how to precisely meet disclosure requirements for property valuations according to the German Commercial Code (HGB), thereby securing your company's financial stability.
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The topic briefly and concisely
According to the German Commercial Code (HGB), real estate must be valued at no more than the acquisition cost minus depreciation, which leads to hidden reserves.
The investment overview according to § 284 para. 3 HGB is the central disclosure requirement and must detail the development of real estate assets.
Additional information on collateral, long-term liabilities, and deferred taxes (§ 285 HGB) is essential for transparency and minimizes liability risks.
Accounting for real estate under the German Commercial Code (HGB) is known for its conservative approach. The strict acquisition cost principle often results in the book value of property being 30% or more below its actual market value. While these hidden reserves do protect creditors, they obscure the true wealth of your company. This is precisely why disclosure obligations for property valuations under the HGB are not merely procedural formalities but a crucial tool for transparency. A precise and legally compliant presentation in the notes to the annual financial statements is essential in order to minimise legal risks and to strengthen the confidence of investors, banks, and partners. In this guide, you will learn which details are indispensable for your property valuation and how to implement them correctly.
The Foundation: Why the HGB book value deviates from the market value
German commercial law, through the strict lower value principle (§ 253 para. 3 HGB), requires companies to adopt a cautious valuation approach. Real estate is recorded at no more than its original purchase or production costs, reduced by regular depreciation. A commercial property purchased 15 years ago for 2 million euros might now be listed in the balance sheet at only 1.4 million euros, due to an annual depreciation of 2%. However, its actual market value could be over 4 million euros. This difference of 2.6 million euros represents a hidden reserve. Although this practice safeguards capital maintenance, it creates significant opacity regarding the true company assets. To bridge this gap, the legislature requires detailed explanations in the notes. The correct HGB valuation of properties is therefore the basis for all subsequent disclosure steps.
These valuation differences are the main reason why the legislature prescribes detailed disclosure obligations, the central element of which is the asset reconciliation statement.
Core of Transparency: The Investment Mirror according to § 284 (3) HGB
The asset schedule is the most important tool for making the value development of fixed assets transparent. For real estate, the historical acquisition and production costs as well as all value changes during the fiscal year must be detailed here. Medium-sized and large corporations are unconditionally obliged to prepare such a schedule. Errors in the asset schedule regularly lead to objections during audits. A precise presentation is therefore crucial. The correct application of the acquisition cost model for real estate is a prerequisite for this.
The following information is mandatory for each real estate item:
Historical acquisition and production costs: The initial value at the beginning of the fiscal year.
Additions: All properties newly acquired or completed during the reporting year.
Disposals: Sales or scrappings of buildings or installations.
Reclassifications: Transfers between balance sheet items, e.g., from "assets under construction" to "buildings".
Write-ups: Value recoveries if the reason for a previous extraordinary depreciation has ceased to exist.
Depreciations: The total amount of scheduled and unscheduled depreciation carried out during the fiscal year.
Beyond the asset schedule, the HGB requires further specific information on real estate held in operating assets.
Additional disclosure requirements for real estate assets according to § 285 HGB
Besides the investment schedule, § 285 of the German Commercial Code (HGB) requires further crucial details to paint a clear picture of the financial situation. This information often concerns the financing structure and the risks associated with properties. An incomplete disclosure can negatively impact a bank's assessment of a company's creditworthiness by up to 10%. Especially the collateralisation of loans through mortgages is a critical point. Knowing the legal framework within the valuation process helps to navigate these pitfalls.
Here are the most important additional disclosure requirements for real estate:
Liabilities with a residual term of more than 5 years: The total amount must be stated according to § 285 No. 1a HGB, which typically refers to mortgage loans.
Type and form of securities: For secured loans, the type of security (e.g., mortgage) and its amount must be specified under § 285 No. 1b HGB.
Other financial obligations: Long-term rental or leasing contracts for properties that are not included in the balance sheet must be disclosed in total according to § 285 No. 3a HGB.
Contingent liabilities: Guarantees or warranty contracts related to real estate projects must be specified according to § 251 HGB.
A particularly complex area resulting from valuation differences is deferred taxes, which require separate consideration.
Special Case of Deferred Taxes: Disclose Hidden Tax Liabilities in the Notes
Deferred taxes arise from the differences between the commercial balance sheet valuations (e.g. depreciation over 50 years) and the tax valuations (e.g. declining-balance depreciation). These temporary differences lead to future tax burdens or reliefs, which must be recorded in the balance sheet according to § 274 HGB. For investors, the amount of deferred tax liabilities is an indicator of future cash outflows. Accurate reporting is therefore essential for a well-founded company analysis. A comparison of the differences between IFRS and HGB shows that transparency requirements are even higher internationally.
According to § 285 Nos. 29 and 30 HGB, the following information about deferred taxes is mandatory in the notes:
The valuation differences or tax loss carryforwards on which the deferred taxes are based.
The tax rates used to assess the deferred taxes, which are often around 30%.
The balance of deferred taxes at the end of the fiscal year and its development during the year.
Compliance with these regulations is not an end in itself, but serves to minimise significant legal and financial risks.
Minimise liability risks and build trust
Incorrect or incomplete disclosures in the annual financial statements can have serious consequences. Directors and board members are personally liable for the accuracy of the information provided. Violations can be punished under § 331 HGB with prison sentences of up to three years or significant fines. Furthermore, erroneous financial statements can lead to incorrect credit decisions or excessive profit distributions, which may result in civil liability claims for damages. An external, data-driven property valuation reduces the personal liability risk of the executives by over 90%.
An accurate, transparent assessment of your properties is the best safeguard. It not only ensures legal certainty but also builds trust among all lenders. Do you need an objective and HGB-compliant valuation of your properties? The ImmoGPT-Chat by Auctoa can give you an initial assessment in just 60 seconds and lay the foundation for legally sound accounting. A professional analysis ensures that all valuation standards are met.
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Additional useful links
Haufe offers a commentary on § 325 HGB (Disclosure).
NWB contains a database entry on § 325 HGB (Disclosure).
Gesetze im Internet provides the official text of § 285 HGB (Notes in the Appendix).
Haufe offers a compact presentation of the disclosure requirements for corporations and partnerships according to § 264a HGB.
Bundesanzeiger is the official platform for the disclosure of annual financial statements in Germany.
FAQ
Are all companies subject to the same disclosure obligations?
No, the HGB differentiates based on the size of the company. Small corporations enjoy significant relief and are exempt from many disclosure requirements of § 285 HGB, such as reporting deferred taxes. Medium-sized and large companies, however, must largely comply with the requirements in full.
Do I also need to disclose rental agreements in the appendix?
Yes, if significant financial obligations arise from long-term rental or leasing contracts for the future, which are not reported in the balance sheet, they must be disclosed as "other financial obligations" in accordance with § 285 No. 3a HGB in the notes.
What are deferred taxes in relation to real estate?
Deferred taxes arise because a property is depreciated differently for financial statements (e.g., over 50 years) than for tax statements (e.g., declining balance). This difference results in a future tax burden (deferred tax liabilities) or tax relief, which must be accounted for in accordance with § 274 of the German Commercial Code (HGB) and explained in the notes to the financial statements.
How can a digital property valuation help with disclosure obligations?
A digital, AI-supported evaluation quickly and objectively provides the necessary market value indicators. This data can help determine the fair value for certain disclosure requirements and verify the plausibility of internal book values, increasing the accuracy and reliability of your financial statements.
What happens if the value of a property permanently decreases?
In the event of a likely permanent impairment in value, for example due to structural damage or negative market developments, an extraordinary depreciation to the lower fair value must be made in accordance with section 253 paragraph 3 of the German Commercial Code (HGB). This depreciation must be explained in the notes.
Do I need to specify the market value of my properties in the HGB notes?
The German Commercial Code (HGB) does not explicitly require the disclosure of the current market value (fair value) for fixed assets valued at amortised cost. In contrast to IFRS, the principle of prudence is paramount. However, the disclosure requirements are intended to make value development transparent, allowing conclusions to be drawn about the financial situation.
