E3: Annual report

The annual report shows the company’s achievements. It is made annual and contains analyzes an assessment of the developments over the past year. It is submitted to the Danish Business Authority (erhvervsstyrelsen) and is determined by the Danish Financial Statements Act (årsregnskabsloven).

The annual report, including the annual accounts must be kept in the company for 5 years however, it may be electronic.

The annual report consists of several parts.

  1. Company’s financial Accounting.
  2. The develop of the company.
  3. Information about events that have affected the company’s financial Accounting.

In the annual report, there are several basic preconditions that must be met to be able to prepare the annual report in accordance with the provisions of the Danish Financial Statements Act, these are mandatory requirements.

  1. Clarity – There must be no ambiguous and misleading statements in the report, and the report must be clear.
  2. Substance – The report must consider the timeliness of the situation rather than formalities without real content.
  3. Materiality – All material matters must be included in the report. Insignificant or insignificant details may be omitted unless they together are significant.
  4. Going concern – Must include an assessment of whether the company is expected to continue operations for at least one year from the balance sheet date.
  5. Neutrality – Must disclose correct conditions, statements, and changes in value without manipulation and optimistic estimates from the management. The management’s wishes for development must not affect the report.
  6. Real continuity – Means that the report must be the same from year to year, it must be the same period, set-up, etc. this is done to provide better conditions for carrying out analysis and assessment of the company’s development.

In addition, there are several requirements that can be deviated from if this provides a more accurate picture of the financial accountings.

  1. Accrual – The period the financial accountings are divided according to, this can ex. Be January 1 to December 31.
  2. Consistency – The methods and basis used for the report must be uniform throughout the report.
  3. Gross principle – Means that you separate expenses and income and calculate them separately. This also applies to the valuation of assets and liabilities.
  4. Formal continuity – Means that the initial balance sheet for the financial year must correspond to the balance sheet for the previous year. However, this does not apply to ex. Merger of companies.

The annual report provides an insight into how the finances of your company are doing. They also form the basis for the company’s creditors and possibly partners can follow the developments. It also provides an overview of the areas that are profitable, or which are deficit. It is important that the annual report appears credible.

Financial statements

An annual financial statement explains the company’s finances and is prepared once a year. It shows how the company’s funds have been used and financial status. As previously mentioned, the annual financial accountings are prepared for a given period, usually January 1 to December 31. The Danish Tax authorities (SKAT) must be able to see from the financial accounting how the company’s profit is calculated. If your company is a sole proprietorship, you must pay income tax on the profit.

The annual financial statement must contain.

  1. Income statement
  2. Balance sheet
  3. Notes

The financial statements must be prepared in accordance with the Danish Financial statement act.

To make the financial statement you need.

  1. Bank statements for the year
  2. Annual statement from the bank
  3. Cash and cash reports
  4. Appendix of the year

The annual financial statement must be made according to the accounting class to which the company belongs. The accounting classes are divided into A, B C and D.

Class A is the lowest and simplest class and class D is the upper most complicated class. The company must comply with the rules of the class to which they belong as well as the rules of the underlying classes.

Class A are the small companies. It will often be personal companies, partnerships, and companies with limited liability. There are no size requirements in class A, however, the owner of the company must be personally liable. They are not obligated to turn in an annual report to the Danish Business Authority

Class B are companies with limited liability such as private limited companies (ApS), public limited companies (A/S), commercial funds, etc. Class B is further divided into two subcategories. They are obligated to turn in an annual report to the Danish Business Authority.

A company in accounting class B may not at the date of the balance sheet exceed the following size limits for two consecutive financial years.

  1. Micro B with a balance sheet total ≤ DKK 2.7 million, a net turnover ≤ DKK 5.4 million and ≤ 10 employees.
  2. Small B with a balance sheet total ≤ DKK 44 million, a net turnover ≤ DKK 89 million and ≤ 50 employees.

Class C are those companies that are not classified as A or B, but not companies that are listed or state-owned. Class C is also divided into two subcategories. They are obligated to turn in an annual report to the Danish Business Authority.

A company in accounting class C may not at the date of the balance sheet exceed the following size limits for two consecutive financial years.

  1. Medium-sized C with a balance sheet total ≤ DKK 156 million, a net turnover ≤ DKK 313 million and ≤ 250 employees.
  2. Big-sized C with a balance sheet total ≤ DKK 156 million, a net turnover ≤ DKK 313 million and ≥ 250 employees.

Class D are listed companies and public limited companies. There are no requirements for the size of these companies. They are obligated to turn in an annual report to the Danish Business Authority.

If an approved accountant has signed an endorsement or declaration for the annual report, it must be included in the report.

The annual report must be in Danish or English. However, branches of foreign companies or parent companies can submit the annual report or consolidated financial statements in another language.

Income statement

The income statement gives an overview of the company’s income and expenses in each period. Furthermore, it shows changes in the equity. The income statement is the company’s operation accounting. It is there for all the company’s income and expenses for the accounting period there must be included.

For the income and expenses there come before the accounting period must be included in the current period, even if they have not been paid.

The income statement must be made in accordance with section 23 in the Danish Financial statement act and must be presented schematically.  

Balance sheet

The balance sheet is a statement of the company’s assets and liabilities for a given date or period. It aims to provide an overview of the value of assets and liabilities and it is always part of the company’s annual accounting. It must be presented in schematic form accordance with section 23 of the Danish Financial Statement Act.

In the balance sheet, assets and liabilities are arranged on separate sides and must therefore balance each other, hence the name balance.

Assets can be:

  1. Fixed assets
  2. Inventory/stock
  3. Debtors

Fixed assets are a value that is long-term and can be a building, trademark etc. There are three groups of fixed assets, tangible, intangible and financial.

Tangible fixed assets are the most common type of fixed assets. This is about a car, copier, computer etc. These must be depreciated with what suits the life of the asset. Therefore, there will be different length of depreciation, depending on what this is.

You can depreciate assets in three ways. The straight-line depreciation is the most used, where you depreciate in equal parts over several periods or years. Degressive depreciation which means that you depreciate in decreasing smaller parts over the period. Progressive depreciation is the opposite of degressive where the size of depreciation increases over the period.

Intangible fixed assets are the assets that are in the company without them being physical or financial, it can be values such as goodwill, patents, trademarks etc.

Financial fixed assets are the last type of fixed assets, these are securities, loans to subsidiaries, investments etc. These assets usually have a maturity of at least 1 year.

Inventories/stocks are the goods that are physically in stock, it can be raw materials for production, goods that are under production, building materials, finished goods etc. The value of the inventory must correspond to the actual value if there are goods there are damaged or otherwise impaired, the value of these must be corrected.

Debtors are the money customers owes the company and is therefore opposite a creditor to whom the company owes money.

Assets can be:

  1. Equity
  2. Long-term debt
  3. Short-term debt

Equity is the owner’s share of the company’s financing and an expression of the company’s value.

Long-term debt is the debt where the remaining term is more than one year. It can be priority and start-up loans. Long-term debt usually arises in connection with the purchase of assets such as machinery, cars, furniture etc.

Short-term debt is debt that must be paid within a year. It can be debt to suppliers, VAT, overdraft etc.