Opting Out of an Audit in Denmark
- 2 minute read
- Finance & Accounting
Opting out of an audit can be a good option for smaller companies and holding companies in Denmark that want to reduce the expenses and resources used for a full audit.
What is it to opt out of audit?
As a starting point, all Danish companies in accounting classes B, C and D are subject to audit requirements. But for some companies in accounting class B, audit can be opted out of under certain conditions.
Opting out means that the annual accounts will not be reviewed or checked by a registered or state-authorised auditor, who must assess whether the annual accounts give a true and fair view and whether the company and its finances meet the requirements of the Accounting Act.
If you still want some kind of auditor’s statement as a quality seal of your accounts, it is still possible to have it audited or choose an extended audit review. Only state-authorised and registered accountants can make declarations on annual reports.
Alternatively, you can make use of an accountant (who does not need to be registered or state authorised) or bookkeeper for e.g. preparing the annual accounts and reports correctly. The audit itself is not necessarily the only thing an auditor offers, nor is ‘auditor’ a protected title.
The Annual Accounts Act and thresholds for opting out of audit
In order to be eligible for audit opt-out, the company must not exceed two of these three limits on the balance sheet date for two consecutive years:
1. Balance of DKK 4 million.
2. Net turnover of DKK 8 million.
3. Average number of full-time employees of 12.
However, companies which for two consecutive financial years on the balance sheet date exceed a total balance of DKK 50 million cannot opt out of audit (regardless of the other limits). This will typically apply to investment companies that have a high total balance, but low turnover and few employees.
If the company meets these requirements and is not otherwise subject to audit, it can choose to opt out of audit, which must be agreed upon and documented at the annual general meeting.
Holding companies and opting out of audit
For holding companies, the same basic rules for opting out of audit apply as for other smaller companies.
However, holding companies can only opt out of audit if they meet the following criteria:
The holding company AND the companies over which it exercises significant influence in totals do not exceed two of the following three limits on the balance sheet date for two consecutive years:
- Balance of DKK 4 million.
- Net turnover of DKK 8 million.
- Average number of full-time employees of 12.
Here it is also important to be aware of whether there are intercompany transactions between the holding company and its connected companies (§110 subsections 2 and 3)
Who cannot opt out of audit?
Commercial foundations and employee investment companies cannot opt out of audit.
Companies in accounting class B that operate within special 11 risk industries are subject to having an auditor’s statement if these exceed a net turnover of DKK 5 million in 2 consecutive financial years at the time of the balance sheet. DKK.
This means that these companies must have an auditor’s statement on the annual accounts, prepared by a state authorized or registered auditor who is independent of the company. This can be in the form of an audit report, extended audit review, or assistance.
How can you opt out of audit?
In order to opt out of audit, the decision must be made at an annual general meeting with prospective effect. It is the general meeting where the annual report from the last financial year must be presented and approved. By ‘prospective effect’ it is meant that you cannot opt out of the audit for the annual report that the general meeting in question is about to approve.
Also remember that it must be stated in your articles of association that audit is opted out. And opting out of audit does not affect whether you have to prepare an annual report or not.
Pros of opting out of audit
Opting out of audit can provide several benefits, especially for smaller companies and holding companies:
Lower costs:
Without requiring an audit, the company can reduce its accounting costs.
More simple accounting process:
Fewer requirements for the annual accounts mean that the company can report with fewer administrative burdens.
Flexibility:
To a greater extent, the company can choose for itself how they want to handle their annual accounts, without having to meet the requirements that apply to the audit.
When should audit opt-out be reconsidered?
Opting out of audit can in many cases be a good solution for smaller companies.
But there are also cases where smaller companies will still benefit from getting their annual accounts audited or in some other way getting an auditor’s report. This applies, for example, if external investors or financing are needed, or if the company needs a loan from the bank.
At mighty admins we can assist you with: Services related to intercompany loans and transactions. Reconciliations and documentation for external audit. Preparation of annual report. Preparation and holding of the annual general meeting.
