The regulation of asset valuation in Germany

Abstract

This article examines the regulatory history of asset valuation in Germany from the fifteenth century to the implementation of the European Economic Community’s Fourth Directive in 1986. Aiming to explain regulatory changes by reference to preceding socio-economic and political developments, we find that accounting requirements often became more restrictive following economic crises, after which regulation was perceived to be inadequate. In the nineteenth century, fair valuation replaced the early practice of historical cost accounting. Following a severe economic crisis in the 1870s, historical costs were reintroduced as an upper valuation boundary for Aktiengesellschaften (stock companies). However, the requirements were unspecific and discretionary and provoked a lively debate on principles-based accounting after 1900. The interwar years and the Great Depression encouraged the Government also to implement historical cost as a lower boundary to asset valuation. Following the Second World War, the valuation principle was extended to all company forms.