Accounting in Denmark - Legal and Regulatory Framework

As a member of the European Union, Denmark follows accounting, auditing, and financial reporting standards set by the EU. These standards are integrated into the country's laws and regulations. Denmark has made its legal system completely consistent with EU regulations related to accounting and auditing.

The Danish Parliament has given two main government bodies the responsibility of overseeing financial reporting and auditing: the Danish Business Authority (DBA) and the Danish Financial Supervisory Authority (DFSA). Both these bodies establish standards for the organizations they oversee.

Financial Reporting Structure

Denmark follows the rules and guidelines set by the EU regarding accounting, auditing, and financial reporting. Public companies in Denmark have to use EU-approved IFRS for their consolidated financial statements and listed non-group companies have to do the same for their individual financial statements. But, since 2009, listed companies don't have to use IFRS for their separate financial statements anymore. Non-listed companies need to follow the Danish Financial Statements Act and can choose to use IFRS or the Danish Accounting Standards developed by FSR - danske revisorer Danish Accounting Standards Committee (DASC). Using DASC or IFRS voluntarily is an option for more transparency and better user information. However, Danish accounting standards are somewhat different from IFRS, even though they are based on it.

In Denmark, the DFSA is responsible for supervising financial reporting of financial institutions, in accordance with the Danish Financial Business Act and other related laws. Non-listed financial institutions must follow the standards set by the Danish Financial Statements Act, as directed by the DFSA. IFRS has not been adopted for small and medium-sized entities (SMEs) in Denmark. The Danish Parliament gave the DBA permission in 2015 to create rules for any changes needed in the Danish Financial Statements Act, in case IFRS for SMEs is applied to Danish companies. As of now, no such rules have been put into effect.

Audit Structure Guidelines

The 2014 EU audit reform (regulation and directive) was added to the Act on Approved Auditors and Audit Firms in June 2016. The latest consolidated Act on Approved Auditors and Audit Firms came out on November 20, 2018 (Consolidated Act No. 1287).

According to Article 16 of the Danish Act on Approved Auditors and Audit Firms (the Audit Act) No. 468 of June 17, 2008, and Executive Order No. 968 (2016) on Quality Assurance Reviews, audits should be performed following "generally accepted auditing practices". The DBA hasn't given a clear definition of "generally accepted auditing practices", but in reality, the auditing standards issued by the FSR are used.

Since 2010, Danish auditing standards are actually the International Standards on Auditing (ISA) as issued by the IAASB and translated by the FSR. The FSR says the translated standards have the same effective dates in Denmark as those set by the IAASB.

Oversight of the Accounting Profession

In Denmark, only auditors are regulated by the state. The Audit Act, which was updated on November 20, 2018, is the primary law that regulates the audit profession in Denmark. The DBA, which is overseen by the Danish Parliament and falls under the Ministry of Industry, Business, and Financial Affairs, is responsible for supervising the audit profession.

The SPA title is reserved for auditors under Act No. 617 of June 12, 2013. DBA, DSFA, and universities are in charge of establishing and administering Initial Professional Development (IPD) for SPAs in Denmark. To become an auditor, you need a master's degree, three years of practical training, and must pass a final professional competence test given by the DBA and FSR.

Since 2006, members of FSR – danske revisorer – the professional accounting organization in Denmark, are required to complete at least 120 hours of CPD over a 3-year period and prove compliance.

In Denmark, the Audit Act gives the DBA the power to do a lot of things, like:

Aside from state regulation, the FSR also has responsibilities for its members. They create accounting and auditing standards, enforce ethical requirements, collaborate with the DBA to investigate and discipline FSR members, and work with the Danish Business Agency and the Danish Financial Supervisory Authority to make requirements for initial and ongoing professional development.

The folks in charge of keeping an eye on the finance sector in Denmark, the Danish Financial Supervisory Authority, can put in more educational requirements for auditors if they want. According to Executive Order No. 1406 from December 11, 2013, auditors working on official audits for financial institutions have to finish at least 180 hours of Continuing Professional Development over a span of three years. And they gotta do an extra 60 hours of CPD about giving accounting and auditing services for those same institutions.

Audit Supervision Framework

In Denmark, the Audit Act is the main law that governs the audit profession, and it's overseen by the Danish Business Authority (DBA), which is part of the Ministry of Industry, Business and Financial Affairs and is supervised by the Danish Parliament. The DBA is responsible for regulating the audit profession and making sure it operates independently. It does this by:

The DBA is also a member of the International Forum of Independent Audit Regulators (IFIAR).

Accountancy Professional Associations

FSR is an organization that was started way back in 1912, and it is made up of professional accountants who have voluntarily joined. In 2011, three auditing institutes, FSR (chartered accountants), FRR (Danish Institute of Chartered Accountants), and REVIFORA (association of junior accountants or trainees), merged into a single association under the name FSR. Chartered accountants in Denmark are not required to be members of FSR, but the organization claims that most of the state-authorized public accountants who work independently are members.

FSR is responsible for various things such as:

FSR is also part of Accountancy Europe, the Nordic Federation of Accountants, and IFAC.

Assurance of Quality

In Denmark, the Danish Business Authority (DBA) is in charge of overseeing the quality assurance (QA) review system for auditors and audit firms as per the Audit Act. The DBA operates under the Ministry of Industry, Business and Financial Affairs and is overseen by the Danish Parliament. The QA reviews are conducted on a three-year cycle for auditors and audit firms auditing public interest entities (PIEs) and every six years for non-PIEs. If any issues are found during the reviews, the DBA suggests appropriate follow-up actions to the firms and enforces relevant sanctions if required. According to FSR – danske revisorer – the QA review system run by DBA is in compliance with SMO 1 (revised 2012).

Global Auditing Standards

The EU audit reform of 2014 was made a part of the Act on Approved Auditors and Audit Firms in June 2016, and the latest consolidated Act was issued on November 20, 2018 (Consolidated Act No. 1287). The Audit Act No. 468 of June 17, 2008, and Executive Order No. 968 (2016) on Quality Assurance Reviews require that audits be carried out following "generally accepted auditing practices." In practice, auditors follow the standards issued by FSR. Since 2010, Danish auditing standards have been based on the International Standards on Auditing (ISA) issued by the IAASB and translated by FSR. FSR says that the translated standards have the same effective dates in Denmark as those issued by the IAASB.

Global Public Sector Accounting Standards

The people in charge of setting public sector accounting standards in Denmark, which is the Ministry of Finance, haven't made use of IPSAS in Denmark yet, and they haven't said when they will do so. Public sector bodies create their financial statements using accrual basis (IFAC, CIPFA 2018). Nevertheless, the Central Government Accounts Council, which has members from various ministries, the National Audit Office, and FSR – danske revisorer – keeps an eye on the progress of IPSAS and the use of these standards by other European Union member countries. There are no Danish translations available for IPSAS at the moment.

Investigation and Disciplinary Procedures

The Danish Business Authority (DBA) set up the Auditors' Tribunal, along with FSR – danske revisorer – to look after the investigation and disciplinary (I&D) process for State Authorized Public Accountants (SPAs) in Denmark, who are also known as statutory auditors. FSR is also responsible for investigating suspicious activities carried out by its non-auditor members to safeguard its membership's reputation. The DBA initiates and manages investigations to detect, rectify, and deter violations of duties under section 37 of the Audit Act. The Auditors' Tribunal operates independently of the profession and can impose various sanctions based on its investigation's results. FSR has established internal rules to govern members' professional conduct and may refer cases relating to auditors who are members to the Tribunal for investigation. Depending on the Tribunal's findings, FSR has the power to expel its members. Furthermore, Section 43 of the Auditors' Act permits FSR to file a complaint against any professional accountant, regardless of whether they are members or not.

FSR asserts that the I&D procedures in Denmark comply fully with the revised SMO 6 requirements.

Adoption of Global Accounting Standards

The Danish Financial Supervisory Authority (DFSA) and the Danish Business Authority (DBA) are responsible for deciding on accounting standards in Denmark. Public companies listed in Denmark must follow EU-endorsed IFRS, both for their consolidated and separate financial statements. Non-listed companies must comply with the Danish Financial Statements Act, which gives them the choice to follow either IFRS or the Danish Accounting Standards made by the Danish Accounting Standards Committee (DASC) under FSR. Although Danish Accounting Standards are based on IFRS, they have some differences. Both Danish Accounting Standards and IFRS can be adopted on a voluntary basis to enhance transparency and meet user information needs.

DFSA supervises financial institutions' financial reporting in Denmark under the Danish Financial Business Act, and they follow the standards outlined in the Danish Financial Statements Act and DFSA directives, which are in line with the IFRS Framework and standards.

However, Denmark has not adopted IFRS for SMEs. In 2015, the Danish Parliament allowed the DBA to establish rules on deviations from the Danish Financial Statements Act, which are needed to apply IFRS for SMEs to Danish companies. Nonetheless, there are no such rules established yet.

 

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