bAV: Valuation of pension provisions – auditors sound the alarm

IDW criticizes unrealistic balance sheet approach The renowned Institut der Wirtschaftsprüfer (IDW) puts it in a nutshell in its press release of 16.01.2006:


“Deficiencies in the current regulations – The tax requirement of 6% thus results in a provisioning approach that is too low. Similarly, Section 6a of the Income Tax Act prohibits the inclusion of future salary and pension increases even in the case of pension benefits that are dynamised. For the valuation of provisions, a pension level is thus assumed that is generally significantly below the level that can actually be expected.”

In 2005, the author of the book “Zukunftsmarkt bAV in der Versicherungswirtschaft” (Future market for occupational pension schemes in the insurance industry) described the situation as follows. (Verlag C.F.Müller) describes the situation in such a way that on a national average of all commitments made under labour law, only about one third of the necessary assets/provisions are available for their financing. Estimate proceed from the fact that with it only approximately 1,000 euro would be financeable in the age. If one subtracts from it the usual costs of private health insurance, then the remainder is sufficient ? saloppuliert ? for the proverbial sleep place under a Isar bridge. Inaccurate balance sheet testates Put simply, the IDW is concerned with the problem of balance sheets with pension provisions being signed off by the balance sheet auditor, which are valued according to the usual partial value method (§ 6 a EStG), because the balance sheets are actually all inaccurate, as they fail to take into account in particular the following – not entirely insignificant – details:

realistic interest level
Salary increases
Pension increases



Under labour law, a minimum pension adjustment of 1% is generally prescribed (§ 16 BetrAVG). However, this minimum adjustment is only assessed if it has been firmly committed, which is usually not the case. The pension cash value at age 65 would be around 7-10% higher if the minimum adjustment is factored in – and that is still the least important of the 3 points mentioned, because the real problem is the actuarial interest rate of 6%.

In many cases, the true value of the provision is likely to be twice the value shown in the balance sheet.

Many medium-sized companies are now aware of this problem, but only large corporations seem to be actively addressing the issue. The initiative would usually have to come from the consultant. However, this would lead to having to listen to unpleasant truths, because the consultants’ guild in particular has often recommended internal financing via pension commitments as a tax-saving model in the past, without giving any thought to the financing of the promised benefits.
Formally correct auditor’s certificates Even if the so-called “unqualified auditor’s certificate” at the end of the auditor’s certificate for annual financial statements with §6a provision is formally correct, objectively it is simply a bare lie. Possibly the IDW fears liability risks for the WP`s. Given the number of accounting scandals that have come to light recently, one can understand why.

Criminal liability of tax advisors and auditors Tax advisors and auditors are regularly instructed extensively. As a result, they acquire, often without being aware of it, a position of guarantor under criminal law. This means in fact a responsibility from the comprehensive expert knowledge and personal comprehensive knowledge advantage over the client. The trade press of the tax advisor associations have been pointing out this risk for years.

Liability and extent of damage in the case of insolvency delay First of all, the board of directors or managing director is liable for the so-called quota damage. Furthermore, in the case of the GmbH managing director from §§ 823 para. 2 BGB, 64 para. 1 GmbHG, liability also extends to the loss of confidence incurred by a new creditor as a result of granting credit to the currently insolvent GmbH or making any other advance payment to it (cf. BGHZ 126, 181). Tax consultants and auditors come into consideration as participants of the criminal offences, which is also shown by numerous preliminary proceedings.

Often, restructuring is the order of the day In many cases of company pension schemes, it becomes apparent that company bosses rely on a tax advisor or auditor who, as the de facto tax man, does not make the risk of imminent demise transparent. Many companies are already over-indebted as a result of the occupational pension scheme when viewed from an economic perspective and valued in accordance with insolvency law. In the case of another group, commitments (e.g. to widow’s pensions, invalidity) are not reinsured, which means that there is a considerable risk of over-indebtedness. On the other hand, only a few selected occupational pension consultants are up to such tasks.


by Dr. Johannes Fiala


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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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