General valuation allowance

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With general bad debt allowances , latent receivables and credit risks are taken into account in companies' accounting, because all foreseeable risks must be taken into account according to the principle of prudence . The general value adjustment is a sub-form of the value adjustment .

General

The latent risk consists in the fact that some of the receivables from the receivables classified as not in acute danger of default could also default after the balance sheet date ; However, due to the ignorance of this del credere risk, no individual value adjustments can be made for these receivables . However, in order to still take these latent risks into account when evaluating the entire receivables portfolio, the item of general value adjustment was created. The latent risks that can be taken into account also include latent country risks in those countries in which the debtors are domiciled. General value adjustments are formally booked as direct depreciation and are therefore deducted from the receivables portfolio. A passive presentation is not permitted, at least in the case of corporations , because the position of the general value adjustment is not provided for in the classification scheme of Section 266 (3) HGB .

rating

Receivables are to be valued at their nominal value ( Section 253 (1) HGB). If their fair value is below the nominal amount, they are to be valued at the lower value ( Section 253 (4) HGB). A procedure can be used in which part of the claims is assessed individually and the rest as a lump sum; this is widely used and complies with the principles of proper accounting . Receivables, like other similar assets, can be summarized in collective items in the balance sheet and, following commercial practice, also written down as a lump sum if the similarities outweigh the differences and the individual treatment appears difficult or unreasonable. The amount of the lump-sum value adjustment can be estimated with a percentage of the receivables to be assessed. General valuation allowances are recognized for the tax balance sheet if they “ find an objective basis in the circumstances prevailing on the balance sheet date ” and can expediently be substantiated with appropriate operational experience.

No individual evaluation

The principle of individual valuation that applies to accounting ( Section 252 No. 3 HGB) is broken when general valuation allowances are made, because the calculation uses the entire balance of trade accounts receivable as a basis for valuation and is subjected to a general valuation . A single rating for large receivables portfolios would be too expensive, so the BFH the concept of "materiality" ( English materiality ) is followed in the accounting and the general allowance recognized. The ECJ also considers a general risk assessment for claims to be permissible. However, this group rating is subject to the following restrictions:

  • Accounts receivable that have already been individually adjusted are to be separated out,
  • Claims with offsetting options are also to be excluded,
  • Accounts receivable are to be deducted,
  • insured claims are only to be considered with their retention,
  • a value adjustment is only to be made on the net amount of the claim excluding sales tax.

The entire receivables portfolio is to be reduced by these criteria, so that the “intact, uninsured net receivables” remain as the assessment basis for the general bad debt allowance. The amount of the general bad debt allowance is calculated from past experience by determining an average value from the bad debt losses and sales reductions that have actually occurred . Since 1995, a non-took up border under applicable in the German tax authorities audits (tax audit) as far as the general allowance 1% does not exceed the tax base. The use of higher values ​​requires evidence of corresponding empirical values ​​in previous financial years.

With a dynamic approach, past-based empirical values ​​are unsuitable for dimensioning future failure risks. The use of historical quotas does not play a role in determining the probability of default; a “Dynamic Loan Loss Commission” would prevent major drops in earnings in times of crisis, especially for banks .

Special regulations for credit institutions

In the case of credit institutions, general value adjustments that take account of the latent credit risk are regularly made in accordance with the specifications of the BMF letter of 10 January 1994. This is based on empirical values ​​for the five years preceding the balance sheet date. These general value adjustments are also recognized for tax purposes. In practice, other models under commercial law are now sometimes encountered. B. determine a general bad debt allowance based on the expected loss. These are then only to be taken into account for tax purposes in the amount of the general value adjustments determined in accordance with the aforementioned BMF letter.

Credit claims dominate the balance sheet of most credit institutions worldwide. Therefore, banks are allowed in Germany to § 340f HGB for receivables and securities of current assets to be lower than those required for non-banks ( § 253 para. 1 and § 279 para. 1 sentence 1 HGB) fix the extent of the protection against the specific risks Branch of business is necessary ( precautionary reserve ). The total amount of this value adjustment may not exceed 4% of the assets concerned ( Section 340f (1) sentence 2 HGB). One speaks here of precautionary reserves according to § 340f HGB. These are offset against the asset items (claims on customers, claims on banks, securities in the liquidity reserve) and are therefore not visible to the reader of the balance sheet. The provision reserves are not tax-deductible, ie they are so-called taxed reserves. Their dissolution affects the income statement and is consequently tax-free.

The value adjustments include the individual value adjustments made by the banks as well as portfolio-specific value adjustments (country risks and general value adjustments).

For the purposes of determining capital adequacy at banks that use the so-called IRBA to back the equity capital for credit risk, the following applied up to December 31, 2013 (the CRR regulations apply from January 1, 2014): According to Section 104 (1) SolvV , To calculate value adjustment comparison and to determine the value adjustment surplus or deficit of the expected loss . The expected loss is the product of the one-year probability of default ( english probability of default , PD) and loss given default rate in the case of a loan default ( English loss given default , LGD). Any resulting value adjustment surplus is recognized as supplementary capital for regulatory equity in accordance with Section 10 (2b) Sentence 1 No. 1 KWG ( unbound provision reserves in accordance with Section 340f HGB). Value adjustment deficits (value adjustments are lower than the expected loss ) must each be deducted half of the core and supplementary capital ( Section 10 (6a) No. 1 KWG). To avoid a deduction in regulatory capital, all expected losses must therefore be covered by general or individual value adjustments. The compulsion to compare the value adjustments with the expected loss results from Section 105 SolvV. This means that lump-sum value adjustments are recognized as liable equity capital at banks under the requirements of Section 10 (2) sentence 2 KWG, although they formally belong to the liabilities .

IAS / IFRS

Latent risks such as general bad debt allowances are unknown to the IAS because the risk of default is only permitted with a probability of over 50% for a specific claim in the form of specific bad debt allowances. According to IAS 39.58, general valuation allowances are therefore not permitted. IAS 39.58 was repealed in December 2015 and replaced by the standard IFRS 9 ( Financial Instruments ).

Literature / web links

Individual evidence

  1. ↑ Caroline Sittmann-Haury, Accounts Receivable Accounting of Credit Institutions , 2003, p. 42
  2. ↑ BFH, judgment of April 1, 1958, BStBl. III 1958, p. 291.
  3. ↑ BFH, judgment of May 9, 1961, BStBl. III 1961, p. 336
  4. ↑ BFH, judgment of August 20, 2003, BStBl. 2004 II, p. 941.
  5. ↑ a b BFH, judgment of July 16, 1981, BStBl. II 81, p. 766.
  6. ↑ ECJ, judgment of January 7, 2003, Federal Tax Gazette. II 2004, p. 144 margin no. 119.
  7. ↑ Wolfram Scheffler, Taxation of Companies II, Tax Balance Sheet Volume 2 , 2010, p. 231.
  8. ↑ for example the "Decree concerning principles for the rationalization of the tax audit of the Ministry of Finance of North Rhine-Westphalia of June 13, 1995"
  9. ↑ Chrysanth Herr, The Assessment of Distressed Assets , 2008, p. 38.
  10. ↑ Edgar Löw, Accounting for Banks according to IFRS , 2005, p. 535.