International Financial Reporting Standards in Denmark
Countries of the world are using different type, form &
style of accounting system for sake of
their respective companies some are using the GAAP ( generally Accepted
accounting principles) and some are using the IFRS ( international financial
reporting standard ) but the question came into our minds what basically the
GAAP is so basically is set and procedures or maybe say conventions which can
define all the procedure of accepted accounting which includes the board
guidelines & several procedures. Many authors define GAAP at around three
different levels which are listed below:
1)
This is the basic accounting standard
and guidelines for example in the form of matching principal, full closure or
cost account.
2)
This a fully detailed set of standards
which have been issued by Financial Account Standard Board also known as FASM
and its other concerns i.e. Accounting Principles Board.
3)
These are generally accepted set of
rules and process for the industry practices.
the concerned
authorities of the company generally adopted the GAAP rules when the company is
intends to distribute its financial info outside to anyone and it is applicable
to any company where the stock is publically traded and the special part to
know is that the GAAP rules are predominantly applied in the United states of
America
with the GAAP
practices being used in united states of America, there are several other
countries which are using an another rule which is known as IFRS (International
financial reporting standard) and this system is more reliable and focused
system it is very well known because many countries are using this system and
it is also known for its globalization now let’s see some other authors to
understand what basically IFRS is and on what principles this IFRS system
stands.
The international financial
reporting standards
Basically the
international financial reporting standard is an international procedure of
writing the company’s financial reports. It is wide known set of accounting
standards which have been developing by international accounting standard
boards (“IASB”). It is becoming one of the most and widely used standard and it
is being used all over the globe because through following the IFRS rules it is
more reliable to prepare the financial reporting standard more precise for the
public companies.
IFRS is an international procedure
which is used by many companies in many countries now days for the financial
reporting purpose. This is wide known set of accounting standards which have
been developed by International Accounting Standards Boards (“IASB”). It is
becoming global standard at which different companies create and prepare the
financial statements more precisely for public companies.
The importance of financial
reporting is critical in nature and it is used by many sources especially the
primary user known as investors. Although different companies which are
residing in different countries have different set of standards for preparation
of financial statement yet International Financial Reporting Standards are developed
in such a way that minimize or at times demolish these differences and brings
harmony in the reporting system throughout all the countries.
Talking about IFRS, it consists of
9 different yet effective standards, 29 different international accounting
standards widely known as IAS, 15 well known interpretations which have been
originated by International Financial Reporting Interpretation Committee and 10
SIC also known as Standard Interpretation Committee’s interpretation.
The end goal of these standards it
to obtain global framework for all the public companies as this gives an
outline to all the companies to have a standardized form of accounting system
to make the financial reporting easier. IFRS provides general outline for
generalized format of financial statements instead of industry specific
creation of these reporting statements.
It is also understood that
international standard which provides help in creation of generalized financial
statement is also useful for all the large companies which has sub businesses
or subsidiaries in other countries. Adopting a single set of well-known and
worldwide accepted standards will help simplifying the accounting producers
where it permits the company to use one reporting language to maintain the
consistency. Moreover a single standard also provides the primary and secondary
users known as investors and auditors with unified understanding of finances of
the company.
Currently there are 100 countries
which use IFRS for their small, medium and mostly large companies while many
other countries are expected to converge to IFRS by 2015. Moreover, till date
IFRS is always misunderstood with IAS which is actually the older version of
IFRS.
The assignment required
understanding the benefits and disadvantages of implementing IFRS in different
countries and for understanding purpose, Finland has been selected as countries
where IFRS was implemented in 2005 but this transition took a lot of time to
actually happen. (Sapp\"Al\"A and Others, 2009)
The advantages and disadvantages of
Adopting IFRS
The advantage of IFRS is that you have more space to stretch
your wings mean to say it is globally accepted rule and used by companies and
countries all over the globe not only in European countries also used in the
third world countries because it is more transparent system as compare to GAAP.
The GAAP restrict you to some certain line there is no doubt about that it is
use dominantly in The united states of America which is the birth place of some
major industries and famous brands of the world but you have to deal with the
whole world have to attract customers or investors from every single corner of
the world so the better option you have is IFRS because is globally accepted it
is nowadays become the source of financial communication between many firms and
countries.
IMPLEMENTATION OF IFRS IN DENMARK
In the year 2001, the government of Denmark makes or passed
the Annual accounts of 2001. the act was a close rough translation of the
international financial reporting standard and the thing which is interesting
is that it required all economic entities for the sake of building their annual
accounts in accordance with international financial reporting standards except
for some companies like the insurance companies the banks who have the
permission to use the International financial reporting standard but they don’t
have need of IFRS or can say that they don’t required (Nielsen 2009, p. 4) . but the European community
regulation No.1606 of 2002, listed that companies in the Danish state need to
implement the international financial reporting standard as it is endorsed by
the European union to setup the consolidated accounts but in the year 2009 it
is clearly defined that non-financial companies in the list are also required
to use the international financial reporting standard in preparation of Annual
reports.
Accounting principles of Denmark
Companies in Denmark are required to use the GAAP principles
but they are also allowed to use the International financial reporting
standards.
Financial statements under the Danish GAAP are investor
oriented with great emphasis on the use of the prudence principle in
representing the true and fair view of a company’s financial position
Annual reports & financial
statements
Least the financial statement in Denmark must be consisted
of balance sheet, statement & if appropriate financial statement and
sometime the Director’s report must be prepare. The form & content of the
financial reporting statement should be governed with provisions of the Danish
financial statements Act which whole based upon the 7th & 4th
EU directives.
Auditing, Disclosure &
publications
Generally the Danish public limited companies must prepare
audited financial statements. But small public companies may allowed to present
and can file the unaudited statements if two consecutives accounting periods
they fall to meet 2 of the listed conditions
Total of assets:
€
200.000
•
Net turnover:
€ 400.000
•
Average number of employees in the
accounting period: 12
INTERNATIONAL FINANCIAL REPORTING
STANDARDS IMPLEMENTATION BENEFITS:
Many firms and people researched over the benefits of
implementing the IFRS rules in the finance market of Denmark and guess what the
benefits are more than one can think. The most important and is that this
system gives access to the whole globe means now they are in better position to
deal and communicate in terms of money with the other countries of the world
now they are attracting more international investors in their country because
the communication with them gets easier through the IFRS. All the countries
which are using IFRS rules are now much closer with the people of Denmark
because now they are using same accounting framework. Now the countries using
the IFRS can understand better the words and figured poured in the financial
system hence any part of the world can understand the financial figure due to
harmony of the system. (Daske,
2006, pp. 329--373)
IFRS demands for more details hence reports with high quality are created
whether it is small medium enterprise or a large company with different
subsidiaries in different countries. Hence the 2nd most important
benefit is when one is applying for funding from any bank. This application
because far more easier if IFRS in the financial reporting is being used. One
can understand the financial stability of the bank as well of the potential
customer because of the quality of the financial reports. If a company is using
IFRS accounting standards, it becomes easier for banks to analyze the financial
health of the company hence the process become easier. (J. Schadewitz, and J.
Vieru, 2007, pp. 4-9)
Once the IFRS is implemented in any company or bank, the overall cost of
financial reporting is reduced as it bring consistency between all the
operation within any countries and also with the subsidiaries if any is
operating outside the parent country and this is the third benefit of
implementing IFRS. For the companies, where the subsidiaries are working
abroad, it is always critical to know the financial position of these
divisions. Hence to be able to compare and contrast the financial figures,
uniformity is required by all the divisions or an extra cost will always incur
to make a uniform report of the entire unit working under the parent company.
Other few benefits are tax planning become easier as the uniform
financial reporting as the established system provides reports at any point in
time. Budgeting become fairly easier with IFRS implementation as this is
consistent financial report process. Also it provides competitive advantage
over other companies which are not using IFRS as the reporting time is reduced.
LIMITATION FOR IFRS IMPLEMENTATION
IN DENMARK
Cost factor of implementation is quite high and not many companies have
financial muscles to implement such a high cost project. Although the benefits
are quite big but the financial health of all the companies are not equal hence
this is the biggest limitation. IFRS is no doubt a complex process which needs
big team of trained people hence an additional cost and this is quite a lengthy
process hence time consumption therefore many companies are not in favor of
implementing IFRS in their companies. (Vieru and Schadewitz, 2010)
The 2nd biggest setback is that all the historical reports
which the company has been creating since the inception has to be converted
into IFRS standard format which is tiring job. This also consumes extra time
and effort and hence real cost towards the new IFRS adaptation. Once the
process is implemented, all the employees who will be deployed to use IFRS,
will be trained and hence an additional task in hand, hence any other drawback
or limitation. (Wieczynska, 2012)
Computer Software Change or Up gradation, operational changes are
addition set back which population of Finland feel are limitation towards
implementation of IFRS in Finland.
Removing the old system putting a new software change up and
during this extra efforts are required and sometime it is reported in many
firms that during the implementation of IFRS rules in the system they loss
their precious data and people in Denmark think that it is a big set-back
because once they loss their data is it very hard for them to retrieve and the
company future plans and working secrets if get in some other hands so it will
be a great loss for them.
CONCLUSION
This thing is not hidden from anyone that nowadays many
countries are trying to diverge from the GAAP system to harmonized IFRS (
International financial reporting standard ) but should never forget that there
are some certain limitation which each country face & hence abiding by the
standard which is existing. Because the basic purpose of the implementation of
IFRS is for the betterment of the company financial status because if it will
easy for the customer to understand the financial rule that sure he will invest
his investment & it is only be done if there is IFRS rules are implemented
successfully in this analysis, the pros
& cons of implementation of IFRS in Denmark it is better to for the country
to try to implement more & more the IFRS rules and spread and try to grow
this system because it will definitely help the economic activities in the
country and it is reported on the media and forecasted that the government of
Denmark will pass an act to spread uniformly or apply IFRS in all the companies
working in Denmark and if this will happen as soon the speed & graph of prosperity
of Denmark will soon touch the skies.
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