What is Accounting Act?
The Accounting Act is a law that sets rules and guidelines for the accounting of expenses and revenue items. The law applies to all business enterprises, associations, and organizations.
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The Accounting Act describes, among other things, the requirements for storing accounting material. It is prescribed that all accounting documents must be kept for a minimum of five years from the end of the accounting year in question.
Most legislations change occasionally – the same goes for the Accounting Act. The current accounting law in Denmark was updated in 2022 to accommodate the increasing use of electronic storage of receipts and data and to ensure better protection thereof.
The updated legislation also allows companies to store accounting material in the cloud on any server, provided that the companies still meet several requirements.
These requirements include, among other things, that the authorities can always access the accounting material.
This places a requirement for transparency on the part of the companies, ensuring that the authorities can always review accounts from the last five financial years if there is any doubt as to whether the accounts have been calculated and reported correctly.
The Accounting Act primarily states that all business enterprises in Denmark, with the exception of government-led companies and municipalities, are required to keep accounts. This refers to the companies’ accounting obligation.
The law does not prescribe how the accounting should be carried out. It can, therefore, be done manually and with the help of online accounting programs or an internal accounting department.
The accounts are prepared continuously as the months progress and culminate in an annual report at the end of the year. Both must be submitted to the Danish Business Authority.
New Accounting Act
On July 1, 2022, a new Danish accounting act introduced stricter requirements for digital registration and the use of an approved digital accounting system. This makes Denmark a leader in the EU regarding digital accounting requirements.
A new accounting law aims to increase security so that companies’ accounts provide an accurate picture of a company’s financial situation.
What does the new accounting act say about digitization?
The new accounting act requires companies to keep electronic accounts. In short, this means that, as a company, you must be able to present invoices and receipts digitally.
The purpose of digitizing accounting is to make it easier for the Danish tax authority to control companies’ accounting, increasing the likelihood of detecting any fraud or errors in the accounts.
The new accounting law was introduced for security reasons, but fortunately, digitizing accounting has many benefits. For example, companies can use automatic accounting and invoice handling with an app that provides a digital and automated invoice workflow.
Registrations and receipts must be handled digitally in the future
From July 1, 2024, storage and registration of vouchers must be handled by a digital accounting system for companies in accounting classes B-D. For companies in accounting class A, it is at the earliest a legal requirement from July 1, 2026. The digital accounting system must be approved by the Danish Business Authority (Erhvervsstyrelsen). The list of approved accounting systems will be published in January 2024.
However, the requirements for a digital accounting system are already defined. It must support ongoing registration of transactions and storage of registrations and vouchers.
Storage of registrations and vouchers can be done in a third-party cloud solution. In that case, the company must describe its procedures for how this solution handles the registration of transactions and storage of accounting material.
New accounting act leads to tighter control of accounting material
Until now, the Danish Business Authority has only controlled the annual report as it was submitted. This means that the Authority has just now had the opportunity to examine the detailed accounting material.
With the new rules, the Danish Business Authority can demand to see detailed accounting material. They can even involve the auditor in the investigation and require a statement from them.
Companies that do not comply with the rules will receive a reprimand or an order, where the fine will depend on the company’s turnover. In extreme cases, there may also be the possibility of compulsory liquidation of the company.
Minimum Requirements Regulation
The Accounting Law describes the rules for accounting in Denmark, making it essential to know if you run a business.
The minimum requirement regulations describe the guidelines for how a company’s tax accounting records should be prepared correctly. All companies in Denmark – large and small – are covered by the minimum requirement regulations because it falls under the Accounting Act.
The Minimum Requirements regulation for smaller or bigger companies
The minimum requirement regulation for small or large companies is divided into two parts: one for small companies and one for larger ones.
Therefore, there is a difference from company to company, where the regulation for larger companies has the strictest and most detailed rules when it comes to accounting.
If you are unsure which minimum requirement regulation to follow, look at your company’s accounting class.
What is your company’s Accounting Class?
Danish companies are classified based on their size in accounting classes A, B, C, and D. Accounting Class A denotes the smallest companies where the requirements are basic rules for preparing accounts. Conversely, accounting class D is for the largest companies where there are stricter rules.
Here is more specific information about each accounting class:
- Accounting Class A
The size of the turnover is irrelevant, while personal liability is crucial. Examples may be sole proprietorship or partnership.
- Accounting Class B
There is limited liability where you follow the same basic requirements as class A with some additional requirements supplemented. Examples may be joint-stock companies, commercial foundations, or limited liability companies.
- Accounting Class C
Companies that do not fall under accounting class A or B and are not state-owned joint-stock companies or listed companies fall under accounting class C. Here, you follow the same rules as A and B, with additional requirements for C.
- Accounting Class D
This concerns listed companies and state-owned joint-stock companies (regardless of size). Here, strict rules need to be followed.
For further information on the various requirements, you can visit the Danish Business Authority’s website.