In line with the European Commission's (EC) Regulation No. 1606 of 2002, listed companies in Denmark are required to use International Financial Reporting Standards (IFRSs) as endorsed by the European Union for preparation of consolidated accounts. The 2008 EC report on the implementation of Regulation No. 1606 notes that starting 2009, all non-financial listed companies will also be required to use IFRSs in preparation of annual accounts. All other entities will be permitted to prepare annual and consolidated accounts in accordance with IFRSs. Entities that do not apply international standards follow national Generally Accepted Accounting Principles (GAAP) primarily comprised of the Financial Statements Act, the Danish Accounting Standards (DKASs), and Ministerial Orders issued by the Ministry of Business and Industry in Denmark. A 2004 report by Bebbington and Song notes that although the Financial Statements Act is based on the International Accounting Standards Board framework, differences exist largely due to the incorporation of the requirements laid out in the EC directives. Similarly, the DKASs, which are applicable to listed entities, are based on IFRSs, although there are differences with the equivalent international standard, the report adds. As far as the financial reporting requirements for small and medium-size enterprise (SMEs) are concerned, a presentation by Jan-Christian Nielsen of the Danish Commerce and Companies Agency notes that starting 2009, the international standard on SMEs may be allowed but not required in Denmark.

General Overview

A 2004 report by Bebbington and Song explains that accounting rules in Denmark have traditionally been influenced by the Anglo-Saxon tradition which is based on a legislation containing general requirements supplemented by more detailed implementation rules, and the separation of accounting from taxation requirements. The Danish Generally Accepted Accounting Principles (GAAP) are primarily comprised of the Financial Statements Act, Danish Accounting Standards (DKASs), International Financial Reporting Standards (IFRSs), opinions issued by the accounting profession, and Ministerial Orders issued by the Ministry of Business and Industry in Denmark. The Financial Statements Act was originally adopted in 1981 and later amended in 1990 to incorporate the requirements of the European Union (EU) Fourth and Seventh Directive. In 2001, a new Financial Statements Act was proposed which came into force in 2002 in order to bring Danish legislation more in line with the international accounting standards. However, the report notes, despite the effort, differences between the accounting framework in Denmark and the international framework persist.

The Financial Statements Act applies to public and private limited companies and limited partnerships which have a public limited company as the general partner. The Act does not apply to banks, insurance companies or stock-broking companies. Further, per the Bebbington and Song report, the DKASs, which are mandatory for listed companies, "are generally based on the equivalent IFRS with some minor differences" (p. 99). The DKASs are issued by the Institute of State Authorized Public Accountants (FSR) and are backed by the Copenhagen Stock Exchange. DKASs, the report emphasizes, do not override the Financial Statements Act. However, in line with the European Commission's (EC) Regulation No. 1606 of 2002, starting January 1, 2005 listed companies in Denmark are required to use IFRSs as endorsed by the European Union for preparation of consolidated accounts. The 2008 EC report on the implementation of IAS regulation notes that starting 2009, all non-financial listed companies will also be required to use IFRSs in preparation of annual accounts. All other entities will be permitted the use of IFRSs in preparation of their annual and consolidated accounts, the EC report states. Entities that do not apply international standards follow national Danish GAAP, which, as pointed out earlier, differ from IFRSs in some respect.

The securities market is regulated by the Danish Financial Supervisory Authority (DFSA), the Securities Council, and the Copenhagen Stock Exchange. These authorities do not set accounting standards for the securities market participants, although listed companies must comply with additional reporting requirements set by the Copenhagen Stock Exchange. As far as the enforcement of the reporting requirements is concerned, the 2004 FSR self-assessment notes that starting 2005, the Securities Council will become responsible for the review of financial statements of listed companies in order to monitor their compliance with the established standards. Further, under the Financial Business Act, banks, financial institutions, non-financial institutions, and insurance companies, the self-assessment points out, are regulated by the DFSA, which has the authority under Section 198 of the Financial Business Act to set accounting requirements and review financial statements of the regulated entities.

As far as the financial reporting requirements for small and medium-size enterprise (SMEs) are concerned, a presentation by Jan-Christian Nilsen of the Danish Commerce and Companies Agency (DCCA) notes that the first Danish standard on small and medium enterprise (SMEs) was implemented in 2001. The presenter made clear that beginning 2009, the international standard on SMEs may be allowed but not required in Denmark. A 2007 FSR self-assessment notes that the FSR has adopted the 2004 International Federation of Accountants (IFAC) code of ethics with certain modifications. The FSR and Institute of Registered Public Accountants (FRR) are listed as members on the IFAC website.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, "[IFRS 1] imposes additional disclosure requirements and requires explanation of the effect from the transition to IFRS on the entity's financial position, results and cash flows" (p. 1). Also, "a number of reconciliations are required to be prepared for amounts under the accounting policies formerly applied and the policies applied in the first IFRS financial statement" (p. 7).

IFRS 2: Share-based Payment (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, under the international framework, share-based payment is measured at fair value and expensed over the vesting period. Other key differences include the fact that "IFRS 2 distinguishes between three types of share-based payment transactions: equity-settled, cash-settled and with cash alternatives" (p. 1).

IFRS 3: Business Combinations (effective 2004)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, under the international framework, assets and liabilities under IFRS 3 are measured at fair value. Among other differences, the report points out that "application of the pooling of interests method is not permitted for business combinations within the scope of IFRS 3 [and] negative goodwill is recognized immediately in profit or loss" (p. 1).

IFRS 4: Insurance Contracts (effective 2006)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, under the international framework, "there are limited rules governing accounting for insurance contracts and significant disclosure requirements compared to Danish GAAP for insurance companies" (p. 2). The report adds that amounts reported from insurance contracts should be explained in the notes to the financial statements and amounts, timing and uncertainties in cash flows also needs to be specified.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs points out differences in the treatment of recognition, measurement and presentation of non-current assets and disposal groups held for sale. Further, the report explains that these assets are not depreciated, and are accounted differently under national GAAP. Unlike Danish GAAP, IFRS 5 also contains disclosure and presentation requirements for discontinued operations.

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs points out that unlike national requirements, "IFRS imposes certain limited accounting requirements for activities within exploration for and evaluation of mineral resources and significant disclosure requirements compared to Danish GAAP (e.g. accounting policy for recognizing and measuring assets, liabilities, revenues, expenses and cash flows from exploration and evaluation activities)" (p. 3).

IFRS 7: Financial Instruments: Disclosures (effective 2007)

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There is insufficient publicly available information as to Denmark's compliance with this principle.

IAS 1: Presentation of Financial Statements (effective 2007)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, under the international framework, "specific minimum disclosure requirements apply to the income statement under IAS 1 [and] IAS 1 does not require disclosure of "Profit or loss from primary activities/operating profit or loss" or "Profit or loss from ordinary activities" (p. 4). The report further explains that unlike Danish requirements, fixed formats or "schedules" do not apply to the income statement. Among the many other differences, the report notes that under IFRSs, presentation as extraordinary items is not permitted in the income statement or in the notes to the financial statements.

IAS 2: Inventories (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "revaluation of inventories at replacement cost is no longer permitted under IFRSs and DKAS" (p. 5). Additionally, IFRS requires disclosure of impairment of inventories as well as cost of sales for the year.

IAS 7: Cash Flow Statements (effective 1994)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, under the international framework, "investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from the cash flow statement (e.g. finance leases)" (p. 3). Further, the report explains that unlike Danish GAAP, "under IFRSs, securities are only regarded as cash and cash equivalents in the cash flow statement if the term to maturity is three months or less at the acquisition date" (p. 4).

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, "IAS 8 contains specific guidance on cases in which it may be regarded as impossible to change accounting policies or to adjust material errors reported in prior financial periods with retrospective effect" (p. 3). Also, under IFRS, "if borrowing costs are capitalized into the cost of own manufactured assets, this accounting policy shall be applied to all qualifying assets under IFRS" (p. 4).

IAS 10: Events after the Reporting Period (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "proposed dividends for the current period shall be disclosed in the notes to the financial statements" (p. 7).

IAS 11: Construction Contracts (effective 1995)

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There is insufficient publicly available information as to Denmark's compliance with this principle.

IAS 12: Income Taxes (effective 2001)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, "deferred tax assets shall under IFRS be presented as non-current assets" (p. 5).

IAS 14: Segment Reporting (effective 1998)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, IFRSs require extended and detailed segment information.

IAS 16: Property, Plant and Equipment (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national GAAP, under the international framework, "property, plant and equipment shall be split into their major components that are depreciated separately (components approach) if their depreciation periods vary significantly" (p. 4). Among the many other differences, the report also points out to the differences in accounting of subsequent costs.

IAS 17: Leases (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, "operating leases of investment property may be classified as finance leases if the property is measured at fair value under IFRSs" (p. 4).

IAS 18: Revenue (effective 1995)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike IAS 18, under Danish Accounting Standard (DKAS) 22, "it is a basic criterion for recognition of income from sale of goods and services that documentation exists of income having been realized" (p. 4). Further, the report also points out that "under DKAS 22, the entity is required to disclose accounting policies applied to each element of multi-element service contracts and to disclose the policy applied to returned assets, if material" (p. 7). However, IAS 18 does not contain these requirements, the report notes.

IAS 19: Employee Benefits (effective 2006)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, the international framework contains "detailed rules, restrictive requirements and comprehensive guidance on pension liabilities, particularly on defined benefit plans, even if they are funded, and application of the "corridor" method" (p. 2). In addition, IFRSs also contain regulations on liabilities relating to anniversary bonuses and post-employment benefits.

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, "IFRS permits government grants related to assets to be presented by offsetting them against the carrying amount of the relevant assets" (p. 4). Further, IFRSs also permit "grants related to the covering of expenses to be presented by offsetting them against the relevant items of the income statement" (p. 4).

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "the entity is required to select a relevant measurement currency (functional currency) [and] another currency may be applied for presentation" (p. 3). For hyperinflationary situations, IFRS provides further guidance on how to adjust the financial statements for inflation. Among other differences, the report also pointed out that unlike national GAAP, "the exchange rate at the balance sheet date shall under IFRS be applied to the translation of goodwill and other fair value adjustments of foreign entities" (p. 3).

IAS 23: Borrowing Costs (effective 1995)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "if borrowing costs are capitalized into the cost of own manufactured assets, this accounting policy shall be applied to all qualifying assets" (p 4).

IAS 24: Related Party Disclosures (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, IFRSs require extended and comprehensive related party disclosures. Among the many other differences, the report also points out that "no exemptions from the disclosure requirements apply to government controlled entities, wholly owned subsidiaries or parents" (p. 8).

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

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There is insufficient publicly available information as to Denmark's compliance with this principle.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, there are differences in the accounting of investments in subsidiaries, associates and joint ventures. Among many other differences, the report also points out that IAS 27, unlike Danish GAAP, requires the elimination of intra-group profits and losses when preparing consolidated financial statements.

IAS 28: Investments in Associates (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish requirements, under the international framework, "in the parent IFRS financial statements, investments in subsidiaries, associates and joint ventures shall be measured either at cost or at fair value under IAS 39" (p. 5).

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "the entity is required to select a relevant measurement currency (functional currency)" (p. 3).

IAS 31: Interests in Joint Ventures (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "in the parent IFRS financial statements, investments in subsidiaries, associates and joint ventures shall be measured either at cost or at fair value under IAS 39" (p. 5). Unlike national requirements, IFRS also allows investments in joint ventures to be presented as separate main groups in the income statement and in the balance sheet.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike national requirements, "there may be differences in the classification of debt and equity and related expenses (interest/dividends) because of comprehensive guidance under IFRSs" (p. 6). Further, the report adds that "certain derivatives linked to treasury shares (compensated for by a fixed amount cash for a fixed number of own shares) shall under IAS 32 be accounted for as equity instruments that are not re-measured subsequent to initial recognition, but remain an element of equity" (p.6). Also, disclosures required for financial instruments differ.

IAS 33: Earnings per Share (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, "IAS 33 requires disclosure of earnings per share and diluted earnings per share and contains specific and comprehensive guidance on the determination thereof" (p. 8).

IAS 34: Interim Financial Reporting (effective 1999)

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There is insufficient publicly available information as to Denmark's compliance with this principle.

IAS 36: Impairment of Assets (effective 2004)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under IAS 36, "assets - including goodwill - shall be written down to their recoverable amount, if lower than the carrying amount" (p. 1). Among other differences the report also points out that "impairment on goodwill cannot be reversed under International Financial Reporting Standards (IFRSs)" (p. 1).

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, contingent assets and reimbursements may not be recognized until realization or receipt is virtually certain" (p. 5). Further, "IAS 37 requires the enactment of a new law to be virtually certain before a change may be recognized to provisions" (p. 6). The report also finds that detailed conditions exist under IFRS for recognizing restructuring provisions.

IAS 38: Intangible Assets (effective 2004)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "intangible assets with indefinite useful lives are not amortized, but are tested at least annually for impairment" (p. 2). Also, under IFRS, "intangible assets may be revalued at fair value through equity under revaluation reserves if the fair value is determined referring to the existence of an active market, as described in IAS 38" (p. 4). In addition, IAS 38 also contains a number of disclosure requirements.

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, the international framework, "contains detailed rules, restrictive requirements and comprehensive guidance on financial assets and financial liabilities, particularly on hedge accounting, derecognition and impairment of financial assets" (p. 2). Also, "previous hedge transactions do not necessarily qualify for the same treatment under IFRSs, since IAS 39 contains explicit requirements for documentation of hedge accounting and measurement of hedge effectiveness" (p. 2). The report adds that under IFRS, a financial asset may be classified as at fair value through profit and loss given specific conditions.

IAS 40: Investment Property (effective 2005)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "investment property may be measured at fair value with changes through profit or loss, even if it is not the entity's primary activity" (p. 5). Also, "operating expenses relating to investment property shall be split by leased and non-leased property" (p. 8).

IAS 41: Agriculture (effective 2003)

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The 2005 Deloitte checklist for transition from Danish GAAP to IFRSs notes that unlike Danish GAAP, under the international framework, "biological assets shall be measured at fair value less point-of-sale costs with changes through profit or loss" (p. 5). The Bebbington and Song report adds that there is no DKAS on agriculture in Denmark.