Consolidated financial statements For companies

In addition, the German Federal
Ministry of Justice (Bundesjustizministerium) issues supplemen-
tary recommendations for the application of group accounting
principles. These recommendations are drawn up by the German
Accounting Standards Committee. For publicly traded parent
companies, the application of the IAS Regulation is mandatory.

Under the German Commercial Code, a corporation (i.e. AG,
KGaA, GmbH, and SE) and “KapCoGesellschaft” (see chapter
4.1.1) that is the parent company of a group of companies and
resident in Germany must prepare worldwide consolidated
financial statements.

All companies controlled by a domestic
parent company (either directly or indirectly) are deemed to be
members of the group (so-called potential control concept).
Companies are always controlled where the parent company
holds a majority of their voting rights or is entitled to appoint the
majority of members of their boards of management or supervi-
sory boards, as well as where the parent company controls the
other companies by virtue of a management control agreement.

Furthermore, a company is deemed to be controlled when such
company only serves a special purpose of the parent company
(so-called special purpose entity) and the parent company is the
recipient of the majority of the risks and rewards. Whether the
parent company holds any ownership interest in the enterprise in
question is no longer relevant.