Inventory Sampling Under the German Commercial Code (HGB): When It Is Permitted—and What Happens If a Requirement Is Not Met

The full inventory brings parts of the warehouse to a standstill every year, ties up staff, and puts pressure on the schedule for the annual financial statements. Inventory sampling is seen as a solution, but before it becomes a topic of discussion with your auditor, another question arises: Is it even legally permissible? The answer is in the law, but it is subject to clear conditions. Anyone who overlooks one of these risks exactly what the spot inventory is supposed to avoid: a recount under time pressure.

Is a sample inventory permissible under the German Commercial Code (HGB)? The short answer

Yes. Section 241 (1)of the German Commercial Code (HGB) expressly permits determining inventory “using recognized mathematical and statistical methods based on samples.” However, the law makes this permission subject to two conditions:

• The procedure must comply with the principles of proper accounting (GoB). 
• Its informative value must be equivalent to that of a complete physical inventory. 

If a procedure cannot demonstrate compliance with either of these two conditions, the sample inventory is not legally considered a full substitute for a complete physical inventory, regardless of how plausible the result may seem.

The Legal Basis: What Section 241 of the German Commercial Code (HGB) Specifically Regulates

Section 240 of the German Commercial Code (HGB) generally requires you to conduct a complete physical inventory. Section 241 of the German Commercial Code (HGB)—the so-called simplified inventory procedure—provides specific exceptions to this requirement. Paragraph 1 serves as the legal basis for the sample inventory. 

Important to note: The law does not legalize every form of extrapolation. It requires a recognized procedure—that is, a method established in professional literature and auditing practice—not a self-developed estimation logic. In practice, this is precisely what determines whether an auditor accepts or rejects the result.

These four requirements must be met

In auditing practice, the two legal requirements—compliance with GoB and equivalent informative value—can be translated into four specific points: 

1. Proper inventory record-keeping. The basis of any sample is quantitative inventory record-keeping that records receipts and issuances completely and in a timely manner. Without this reference point, a sample cannot be drawn accurately in the first place. 
2. A recognized mathematical-statistical method. Established random sampling methods, such as difference estimation or sequential tests, are permissible. A rough estimate “based on experience” does not meet this requirement. 
3. A 95% level of assurance and narrow error limits. In audit practice, fixed guidelines apply: With a 95% level of assurance, the relative sampling error should not exceed 1%, and the difference between the book value and the estimated value should not exceed 2%. This makes the “equivalent level of assurance” required by law mathematically tangible.
4. Transparent documentation. The selection of sample items and the determination of results must be documented in such a way that a knowledgeable third party—in practice, your auditor—can understand them without needing to ask for clarification.

What happens if a requirement is not met?

If the procedure fails to meet any of these four conditions, it loses its status as a GoB-compliant inventory procedure. In practice, this means that your auditor cannot accept the result as evidence. In case of doubt, a full inventory count will be necessary (at least in part), often shortly before the balance sheet date and under time pressure. In practice, sampling procedures rarely fail due to the basic concept itself, but rather due to details such as:

• a random selection that is not properly documented, 
• a missing or incorrectly calculated error limit, 
• or inventory records that do not fully reflect additions and disposals.

How to Ensure Your Process Is Legally Compliant

Properly meeting these four requirements is not an accounting issue, but primarily a matter of the method used and its documentation. Software such as INVENT XPERT does exactly that: The sample is automatically drawn from your existing ERP/WWS system; a variance estimation (for manual warehouses) or a sequential test (typically for automated warehouses) applies the recognized methodology; and the result is a complete documentation report for your auditor. The underlying procedure was certified by PwC in accordance with IDW PS 880, the Institute of Public Auditors’ auditing standard for the audit of software products, and thus independently verified.

Conclusion: Inventory by sampling is permissible—provided these conditions are met

Inventory by sampling is neither a compromise nor a gray area, but rather a procedure expressly provided for in Section 241(1) of the German Commercial Code (HGB). It is legally equivalent to a full inventory, provided it is properly implemented and documented. The difference between a procedure that your auditor accepts and one that, in case of doubt, leads to a recount lies not in the idea of sampling itself, but in three details: 

• a recognized mathematical-statistical method based on proper inventory record-keeping, 
• a 95% confidence level with tight error limits (max. 1% sampling error, max. 2% deviation between book value and estimated value), 
• and documentation that a knowledgeable third party—in particular your auditor—can understand without needing to ask for clarification. 

If any of these components is missing, the sample loses its legal status as a full-fledged substitute for a full physical inventory, regardless of how plausible the result may seem. On the other hand, those who properly incorporate these elements from the start can conduct their inventory in a legally compliant and audit-proof manner, with significantly less effort.