New Danish Bookkeeping Act

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What do the new bookkeeping rules mean for you and your company?

If you are one of those companies that has not yet digitalised the management of your accounts and finances, you need to get ready to reorganise your work processes. In line with the new Danish Bookkeeping Act, most work processes related to the company’s accounts will have to be digitalised, and if your company does not comply with the legislation, you could risk fines of up to DKK 1.5 million.

In this article, we consider what the new Danish Bookkeeping Act means for Danish companies and what work processes are required to satisfy the requirements of the new legislation (assuming it is adopted in its current draft form). Finally, we consider the amendments to the Danish Financial Statements Act, which, together with the new Danish Bookkeeping Act, have been agreed as part of a reform package for the Danish economy and are also expected to enter into force with effect for the financial year beginning 1 January 2023 and thereafter.

Why are there new rules?

In 2021, a broad political majority entered into a political agreement on a reform package for the Danish economy. The purpose of the reform package is to strengthen efforts to combat fraud, while at the same time making it easier for companies to comply with their bookkeeping duty.

Generally, the new reform package includes two initiatives of which companies need to be especially aware:

• A new Danish Bookkeeping Act
• An amended Danish Financial Statements Act incorporating changes to the auditing requirement

The new Danish Bookkeeping Act

The new Danish Bookkeeping Act is expected to enter into force on 1 July this year. It applies to companies with revenue of more than DKK 300,000. This means that companies with this level of revenue will be required, from 1 January 2023, to store their accounting records digitally.

A number of companies have already implemented digital systems for handling accounting records, and for them the transition will be easier. However, it is expected that a significant proportion of the country’s 300,000+ companies will now have to start digitalising their processes, or check that their systems and processes are in compliance with the upcoming rules.

What changes will the new Danish Bookkeeping Act entail?

If you do not already manage receipts, vouchers and accounting records digitally, the new Danish Bookkeeping Act will have a significant impact on your everyday work processes. Overall, the most significant changes are as follows:

• All accounting records must be stored digitally. The storage must comply with the applicable rules of GDPR, and companies are obliged to ensure a backup copy of the records. The frequency with which the backup copy has to be updated depends on the complexity of the business, as well as the number of transactions and their size. However, the legislation stipulates that companies with numerous daily transactions must make a backup copy daily.
• The definition of accounting records is being expanded to include documentation of factual information given in the management’s report in the company’s annual report.
• Simplified requirements for the company’s description of its procedure for recording transactions and storing accounting records.
• The Danish Business Authority has the power to carry out a bookkeeping audit of companies that have not submitted their first annual report and companies that have opted out of auditing.
• Introduction of a significantly higher fine.

What has to be stored digitally?

From 1 January 2023, it will be mandatory to store all accounting records digitally. The following must therefore be stored digitally:

• Vouchers/receipts
• Records, among other things, the transaction trail
• Description of the company’s bookkeeping procedures
• All information essential to the audit trail
• Documentation for information given in the notes and management’s report in the annual report, and for estimates and assessments made in connection with the preparation of the company’s annual report
• Accounts that are required to be prepared in accordance with legislation
• Any auditor’s records or equivalent reporting

Fine of up to DKK 1.5 million for non-compliance

The new Danish Bookkeeping Act will have stricter rules and larger fines for non-compliance. The Danish Business Authority has the power to demand to see the records and to carry out an inspection of companies that have not submitted their first annual report or have opted out of auditing. If the given company is not able to present the original digital accounting records or make the digital backup copy available to the authorities, there is a higher level of fines. You can therefore be fined up to DKK 1.5 million for non-compliance.

Amendments to the Danish Financial Statements Act

As mentioned in the introduction, the new legislative package also provides for amendments to the Danish Financial Statements Act. The biggest changes are the requirements for an auditing requirement, as well as the specific addition of money laundering legislation.

The changes are relevant for companies that are considered to be in high-risk sectors.

Requirement for an auditor’s statementfor companies in 11 high-risk sectors with annual net revenue of more than DKK 5 million in two consecutive years. Companies can choose between an audit report, an extended audit report, a review statement or a statement on assistance with the preparation of the financial statements. The 11 high-risk industries are:

• Road freight transport
• Removal services
• Restaurants
• Pizzerias, take away outlets, ice cream parlours, etc.
• Event catering
• Other catering business
• Cafes, pubs, nightclubs, etc.
• Data processing, web hosting and similar services
• Web portals
• Wholesale trade of cars, vans and minibuses
• Retail trade of cars, vans and minibuses

According to the legal comments, the list of high-risk sectors should be revised every two years based on experience and knowledge of the effect on regulatory compliance in the sectors.

The other biggest changes are:

• Auditing requirement for companies with a balance sheet total of more than DKK 50 million in two consecutive years, regardless of net revenue. Here you can choose between an audit report or an extended audit report.
• The number of employees must be stated, even if there are 0 employees.
• The deadline for submitting annual reports is extended from five to six months for companies in class B and C. The deadline remains four months for class D.
• Addition of money laundering legislation in the provision that opting out of auditing is not possible if the decision-maker in the company accepts a fine or, as part of criminal proceedings, is convicted of violation of company legislation, accounting legislation or tax and excise legislation. Furthermore, it is not possible to opt out of auditing if a member of the management team has been entered in the bankruptcy quarantine register within the past two years.
• Possibility to administratively order an auditif significant errors or deficiencies are found in the company’s bookkeeping.

The new legislative package is expected to enter into force on 1 July 2022 and to take effect from 1 January 2023. Digital recording and storage of accounting records must be carried out for transactions made for financial years from 1 January 2023 and thereafter.

Do you need help or advice?

Having new requirements imposed is rarely desirable. However, the amended legislation may contribute to an acceleration in new practices and work processes that will free up time from manual processes. Once the new work processes are embedded, it is our belief that your working day will be easier, with greater overview, more systematisation and fewer challenges in finding and handling your accounting records.