What is the Annual Accounts Act?
The Annual Accounts Act is a set of regulations establishing clear requirements for how associations and companies should prepare and submit their annual accounts.
The law was introduced in 1983 and has since served as a guide for companies to provide a fair view of their finances.
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The Annual Accounts Act contains several requirements for how your company should prepare its annual accounts. At a minimum, it should include the company’s financial activities for the previous year.
What is an annual report?
An annual report is a statement of your finances for the most recent fiscal year. All companies must prepare one once a year, regardless of their size.
By reporting on income and expenses, an annual report takes the temperature of your company’s finances.
Who must comply with the Annual Accounts Act?
The Annual Accounts Act applies to all small and large companies in Denmark. Regardless of their size, they must meet the requirements for preparing an annual report.
However, the requirements that companies must meet under the law vary. The requirements are related to the size of a given company.
In Denmark, companies are classified by type and size into accounting classes A, B, C, and D. Class A includes the smallest companies – typically sole proprietorships – while class D consists of the largest companies, such as state-owned companies.
The requirements for class A companies are the fewest, while they become more numerous for B and C companies and most for D companies.
What does the Annual Accounts Act contain specifically?
The Annual Accounts Act has ten fundamental prerequisites that must be in order when companies prepare their annual accounts.
Here are the ten prerequisites:
- Clarity: The accounts must be clear and unambiguous.
- Substance: The content must be realistic rather than formal and entirely accurate.
- Materiality: Only essential information for the economy must be included.
- Going concern: The company states that it expects to continue its operations for at least one year after the balance sheet date.
- Neutrality: There must be no manipulation or subjectivity – all information must be objective and truthful.
- Periodization: If there are changes in value or other events, they must be included in the accounts at the time of the event, regardless of whether it corresponds to the payment date. Companies may deviate from the requirement if it does not provide an accurate picture of the economy.
- Consistency: The calculation methods must be the same in the accounts. However, a company can use different measurement bases if it provides a more accurate picture.
- Gross principle: The company’s assets and liabilities must be valued separately, and income and expenses must be recorded independently.
- Formal continuity: The opening balance for the fiscal year must match the closing balance for the previous fiscal year. In the event of changes in accounting practices, mergers, or the like, the company may deviate from the requirement.
- Real continuity: The preparation methods must be the same from year to year to analyze and compare the company’s development.
The overriding provision in the Annual Accounts Act
The main focus of the law for annual reports is the undisputed requirement that the annual report should show an accurate and fair view of the company’s financial position. This is known as the general clause, which overrides all other basic law provisions.
Therefore, the company has an obligation to deviate from other requirements of the law if they lead to a distortion of the financial picture. If the company differs from any of the ten basic assumptions mentioned earlier, it must be disclosed in the accounts.
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FAQ
Which companies are covered by the Annual Accounts Act?
All Danish commercial companies are covered by the Annual Accounts Act. This means that both small and large companies are required to prepare annual accounts, with varying requirements depending on the type of company.