Review of the Danish Financial Statements Act
The new parliamentary year is not being wasted; the day after the opening of the Danish Parliament the Minister of Business and Growth presented a legislative proposal for the change of the Danish Financial Statements Act and the Danish Company Act. The change will e.g. enable companies in Denmark to submit their annual report in solely English and will increase the number of possibilities to use international CSR standards instead of the Danish standards.
In Denmark certain companies are legally obliged to submit an annual report, cf. the Danish Financial Statements Act. The annual report must be submitted according to the Danish Financial Statements Act or International Financial Reporting Standards (IFRS).The Danish Financial Statements Act divides companies into four reporting classes – A, B, C and D so that reporting class A contains the smallest companies and class D contains the larger listed companies. Companies in reporting class C and D are obliged to incorporate a report on their social responsibility (known as Corporate Social Responsibility or CSR) in the annual report.
Annual reports in English
According to the current rules it is not possible for Danish companies to submit their annual report solely in English. This means that if a company prepares their annual report in English they must prepare a Danish version as well.
If the new legislative proposal is enacted as presented, Danish companies in reporting class B, C and D will get the opportunity to submit their annual report solely in English.
If a limited company wishes to exercise this opportunity the shareholders must adopt it at the general meeting and implement it to the company’s articles of association. This is decided by a simple majority of the votes given at the general meeting, i.e. the number of votes for exceeds the number of votes against the proposal.
The fact that listed companies (companies within reporting class D) in the future might be entitled solely to submit an English annual report require that the securities markets NASDAQ OMX Copenhagen and GXG Market change their set of rules too.
Increase in CSR standards
According to the Danish Financial Statements Act larger companies shall supplement their annual report with a report on social responsibility, also known as CSR. This means that companies must annually give a statement on their politics and practice on social responsibility. These rules apply to companies in reporting class C and D.
Companies participating in UN’s Global Compact or signatories to the UN’s Principles for Responsible Investment can be exempted from the CSR rules in the Danish Financial Statements Act. However, companies reporting on the basis of other international recognized CSR standards cannot be exempted. Global Reporting Initiative (GRI) is an example of another international recognized CSR standard.
International recognized CSR standards are under continuous development and other standards may be relevant for Danish companies in the future. Therefore, the legislative proposal contains a change of the Danish Financial Statements Act, which gives the Danish Business Authority the power to increase the possibilities to report in accordance with other international CSR standards than the two under UN. Hereby, the opportunity to use other CSR standards as an alternative to the one provided by the Danish Financial Statements Act will be increased.
The first new approved CSR standard will be the GRI.
The fact that companies in reporting class B, C and D in the future will probably be giving the possibility to choose solely to submit their annual report in English will bring administrative reliefs. Many companies in Denmark already render their report primarily in English to which they enclose a Danish version.
Furthermore, it is an advantage to let companies use the CSR standard they consider most suitable for their business. Thus, the legislative proposal provides for a more flexible system for Danish companies. Thousands of companies already use the GRI CSR standard and the fact that they will be able to use it directly when composing their annual report removes administrative burdens.
IUNO expects the legislative changes come into force on 1 January 2014. This means that the rules take effect on annual reports for the financial year 2013.