Accounting plays a crucial role in enabling firms to establish and sustain their financial health. Furthermore, thanks to the effort and commitment of accounting professionals, firms are able to detect and prevent fraud. Whereas different countries have adopted varying accounting systems and standards, there have been efforts to develop unified accounting systems and processes. Standardization is important as it allows for comparisons of accounting reports from different countries to be conducted. To understand the importance of standardized accounting standards, it is essential to compare different countries with a significant impact on the global economy. The United States and Denmark are ideal for the comparison. As one compares the accounting standards and practices of both countries, what becomes clear is that these countries strive to create an environment that promotes business operations.
History of Denmark and Cultural Heritage
Before exploring the accounting practices and standards that Denmark has adopted, it is helpful to begin with an exploration of the country’s history and cultural heritage. Denmark’s history is as complex as it is intriguing. While there lacks consensus regarding the exact period when Denmark was established, it is believed that the country underwent rapid development during the Iron and Bronze Ages (Hjorth-Andersen, 2004). The Viking period also saw Denmark experience transformation as evidenced by the dozens of sophisticated forts that are found across the country today. 1100 marked a significant shift in the development of this country as Christianity began to play a critical role in determining its identity and the experiences of its people. The Middle Ages saw Denmark come under the rule of kings and nobility (Hjorth-Andersen, 2004). In 1536, the country witnessed yet another significant change. As the wave of Protestantism was sweeping across Europe, Denmark abandoned Catholicism and its people embraced Lutheranism (Hjorth-Andersen, 2004). During this period, representations of Catholicism were replaced with symbols of Protestant beliefs. In 1660, Denmark underwent yet another significant development as the king regained control. As opposed to the violent changes in government experienced in other countries, the re-establishment of a sovereign monarchy in 1660 was a bloodless affair. It was not until 1849 that Denmark became a democracy (Hjorth-Andersen, 2004). As it transitioned to a democratic state, Denmark granted its people a wide range of rights and freedoms that were severely limited in previous years. Today, Denmark has retained its status as a symbol of human rights, freedom and political stability (Kingsley, 2014). While it remains committed to promoting human rights and freedom, Denmark has been embroiled in a scandal concerning Islamization and the need for Muslims to integrate into Danish society (Schmidt,
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Natural Resources
The natural resource with which a country is endowed determines its level of economic prosperity, to a significant extent. Denmark’s natural resources are rather limited. However, the country has managed to leverage these resources for economic gain. Oil and natural gas are the main natural resources that the country possesses (McHarg, Barton & Godden, 2010). In addition to these energy sources, Denmark is also endowed with vast tracts of forests and woodlands (Pateman, 2006). The country also hosts huge reserves of such minerals as salt, limestone and sand, among others. As is clear from the short list of Denmark’s natural resources, the country lags behind other nations as regards endowment with the resources. However, its economic prosperity highlights its capacity to efficiently exploit the natural resources for progress.
Form of Government
For a country to witness economic prosperity, it must establish a stable government that is capable of enforcing the law and creating conditions that enable businesses to thrive. Denmark’s government has managed to execute this mandate. The country is a constitutional monarchy (Davis, 2006). What this means is that the Monarch serves as the head of state and the source of executive and legislative authority. However, Denmark’s constitution stipulates separation of power and authorizes the Executive, headed by the Prime Minister, to run the government. The country also has a legislature and judiciary whose mandates are checking the executive and passing laws, and interpreting laws respectively. Thanks to the constitutional provision stipulating separation of powers, the different branches of Danish government are able to execute their respective mandates independently. Furthermore, the different branches, particularly the judiciary are recognized for their professionalism (Malsch, 2016). It is little wonder that Denmark has enjoyed years of political stability and economic prosperity.
Major Industries
Immense investment in industries is one of the factors that have driven the economic progress of developed nations. The authorities in these countries recognize that in addition to providing opportunities for employment, industries also supply the countries with the equipment, technologies and materials required for sustenance and growth. A review of the major industries in Denmark allows one to understand why this country is among the most powerful economic powerhouses in Europe. Agriculture is among these industries. Since a significant portion of its land is arable, Denmark has dedicated immense effort to agricultural production (Kramme, 2012). Seeds, vegetables and organic products are among the results of Denmark’s investment in agriculture. In addition to being a source of the country’s food and experts, agriculture also employs thousands of Danes. Apart from agriculture, the Danish economy is also driven by the fishing industry (Kramme, 2012). Manufacturing is another industry that plays a vital role in driving the Danish economy. The country has also committed significant investments to the service industry. Tourism, energy and transportation are other industries whose impact on the Danish economy is profoundly significant. It is evident that the Danish economy is diverse as it is made up of a number of industries. One can argue that the design of the economy is deliberate and intended to cushion the country against shocks in one industry. Since its industries are diversified, Denmark has been able to establish a stable and robust economy.
Exports and Imports
The amount of exports and imports from and to a particular country determine its economic strength. Denmark has been able to achieve economic progress as a result of its focus on exports. Some of Denmark’s top exports include pharmaceuticals, electrical machinery, oil and mineral fuels, meat furniture, dairy products and sea food (“Denmark: Trade Statistics”, 2018). Electrical machinery, plastics, furniture, apparel, motor vehicles and parts, and iron articles are among the products that Denmark imports in huge quantities. The following table shows that value of the country’s exports and imports.
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To gain an in-depth understanding of Denmark’s exports and imports, it is important to examine the country’s biggest trading partners. These are Germany, Norway, Sweden, the United States, UK, China, France, Poland and Italy, among others (“Denmark: Trade Statistics”, 2018). In the following table, figures for the amounts of products traded between Denmark and its partners are highlighted. The figures are for the 2017 year.
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Relationship with the U.S.
For any nation to experience sustainable stability and economic growth, it must forge strong and positive relations with its allies and partners. Denmark understands the value of such relations. The United States has historically been one of Denmark’s strongest partners as the two countries have enjoyed positive relations. Through the North Atlantic Treaty Organization (NATO), Denmark has partnered with the United States and other NATO member countries for defense purposes (Wesley, 2017). Denmark has supported a number of US military initiatives. For example, during the 1991 Gulf War, Denmark is one of the countries that offered military support to the US (Wesley, 2017). The US invasion of Iraq in 2003 also received the full support of the Danish government. It is worth noting that the relations between Denmark and the US extend beyond collaboration in military endeavors. The two countries have also established diplomatic relations. Through these relations, Denmark and the US have been able to join forces in matters of common interest and benefit. In the recent past, the relations between the US and the European Union have become strained as the former demands that the countries in the latter increase their defense budget and adopt fairer trade policies. Since it is a member of the European Union, it is reasonable to conclude that Danish-American relations have become strained. However, one should remember that overall and in the long-term, these relations will remain positive as the two nations share common philosophies and interests.
Largest Corporations
It is generally understood that the success of companies determine the general performance of a country. If a nation hosts successful companies, it is able to build a strong economy. The economic growth that Denmark continues to record is partly the result of the operations of the thousands of companies that conduct their business in the country. In the following list, 20 of the largest corporations in Denmark are identified. The list also offers information on the respective turnover for the companies in 2011.
1. A.P. Møller - Mærsk - 323 billion DKK (turnover)
2. Danske Bank - 115 billion DKK (turnover)
3. ISS - 78 billion DKK (turnover)
4. United Shipping & Trading Company - 68 billion DKK
5. Novo Nordisk - 66 billion DKK (turnover)
6. Wrist Group - 65 billion DKK (turnover)
7. Carlsberg - 64 billion DKK (turnover)
8. DONG Energy - 58 billion DKK (turnover)
9. Arla Foods - 55 billion DKK (turnover)
10. Danish Crown - 52 billion DKK (turnover)
11. DSV - 44 billion DKK (turnover)
12. Vestas Wind Systems - 43 billion DKK (turnover)
13. Nykredit - 43 billion DKK (turnover)
14. DLG - 41 billion DKK (turnover)
15. Coop Danmark - 40 billion DKK (turnover)
16. Danfoss - 34 billion DKK (turnover)
17. Nordea Bank Danmark - 31 billion DKK (turnover)
18. Skandinavisk Holding - 27 billion DKK (turnover)
19. TDC - 26 billion DKK (turnover)
20. Statoil Refining Denmark - 25 billion DKK (turnover) (“Top 20 Danish”, 2013).
The firms in the list above are players in a wide range of industries. Some of these industries include banking, cleaning services, shipping, and road transport. As is the case with the larger Danish industry, the country’s business operations are also highly diversified.
Accounting and Taxation Issues
In an effort to promote accountability and to establish a conducive environment for business operations, Denmark has adopted guidelines and laws which govern accounting. In the following section, various aspects of the guidelines and standards that apply in Denmark are highlighted.
Primary Source of the GAAP
In most countries, private organizations develop accounting standards that firms are required to comply with in their accounting processes. In the United States, the Financial Accounting Standards Board (FASB) is charged with the mandate of drawing up the guidelines and challenging companies to comply with them. While the US has adopted the Generally Accepted Accounting Principles (GAAP), Denmark requires companies to use the International Financial Reporting Standards (IFRS). The International Accounting Standards Board (IASB) originally developed the IFRS. However, the European Union took over in 2005 when it required all its members to adopt these standards (“Country by Country”, 2015). While it is responsible for the enforcement of the IFRS standards, the EU cannot be considered as the primary source of these standards. This mandate belongs to the IASB which drew up the standards in the first place.
Denmark vs. USA Accounting Standards and Practices
In the United States, the GAAP standards are commonly applied in the preparation of financial statements. On the other hand and as has been noted in the discussion above, Denmark has adopted the IFRS alongside other members of the European Union. There are various differences between the accounting practices of the two countries. Goodwill is among the issues on which the US and Danish accounting standards differ. On the one hand, the GAAP that the US has adopted prohibits the reversal of goodwill impairment (Berman et al., 2017). On the other hand, under the IFRS, firms may reverse goodwill impairment. However, the reversal may only be undertaken when a certain set of conditions is satisfied. As regards, goodwill, the Danish and the American standards stipulate different impairment tests. Whereas the impairment test under the GAAP is conducted in two-steps, the test for companies using the IFRS in Denmark is a simple-single step process (Berman et al., 2017). In addition to goodwill, the Danish and American standards also stipulate varying guidelines regarding how businesses should translate foreign currency in their statements. On the one hand, firms in Denmark are required to use set indicators to determine the functional currency to adopt for their financial statements (“U.S. GAAP vs. IFRS”, 2012).. On the other hand, the US GAAP standards also mandate companies to use indicators to establish the functional currency to use. However, unlike the indicators under the IFRS which are placed in a hierarchal order, such an ordered structure is lacking under US GAAP (“U.S. GAAP vs. IFRS”, 2012).
Apart from the issues discussed above, the US GAAP and the IFRS deviate on how pension liabilities should be treated. Specifically, the two standards assume varying positions on how to measure the obligation of a company to provide its employees with pension benefits. On its part, the US GAAP provides that to determine if a firm has an obligation, careful consideration must be undertaken. This is not the case in Denmark where firms use the IFRS standards. Here, to determine a firm’s obligation to provide pension benefits, the history of a firm should be examined. If the firm has been increasing the amount of pension benefits that it provides to its employees, there is a basis to contend that the company has an obligation to offer the benefits.
Attitude/Record on Financial Disclosure
Financial disclosure is among the processes that enhance accountability, integrity and transparency. When they make their financial records available to such stakeholders as investors, regulators and the wider public, firms demonstrate their dedication to transparency. Denmark is among the nations that are leading the globe in promoting transparency by requiring firms to disclose details of their financial affairs. In 2009, the Danish authorities introduced a new law that requires companies to include details of their social responsibility initiatives in their reports (Cooper, 2009). While this law does not concern financial disclosure, it highlights the strict approach that Denmark has adopted with regard to disclosure. The country’s authorities maintain the same level of strictness in demanding complete and accurate financial disclosure from companies operating in the country. To better understand Denmark’s attitude and record on disclosure, it is important to explore the activities of some of the country’s largest firms. In their article, Andreas Andrikopoulos and Nikoleta Kriklani (2012) assert that Danish firms have achieved high levels of profitability thanks to the stringent disclosure requirements that the country’s government has instituted. As part of its efforts to encourage firms to be transparent, Denmark has enacted a number of laws which establish disclosure as a standard process. For example, Financial Statements Act require companies to prepare such statements as the balance sheet and the profit and loss account in accordance with the IFRS standards (“Doing Business in Denmark”, 2015). Whereas disclosure is legally mandated in Denmark, it is worth noting that in some cases, firms may disclose information voluntarily. For example, companies involved in initial public offerings (IPO) may choose to reveal information on intellectual capital (Bukh et al., 2005). Overall, the Danish authorities are serious about financial disclosure. They have taken steps to ensure that all firms with a presence in the country comply fully with disclosure requirements.
Disclosure Requirements
As part of its initiative to create an environment suitable for business operations, Denmark has outlined requirements that enterprises should follow in their disclosures. As discussed above, financial information is among the details that firms in Denmark are required to disclose. Apart from this information, Denmark also expects firms to provide details of non-financial affairs. For example, in 2015, Denmark introduced a new policy through which firms would be required to disclose their diversity practices and policies (“Denmark Transposes EU”, 2015). Furthermore, the companies are expected to disclose the impact that their operations are having on the environment and the measures that they are instituting to promote environmental conservation initiatives. It is evident that in addition to being committed to enhancing accountability and transparency, the Danish government also seeks to protect the environment against harmful business practices. Its initiatives should serve as model for other nations that are struggling in their quest to balance business interests and the imperative to safeguard the environment.
Status of Auditing Profession
Auditors are arguably the backbone of the accounting profession. Denmark has taken a number of steps to build its auditing profession. Regulation and training are some of these steps. As part of its campaign to regulate the profession, the country has enacted laws and established bodies charged with the mandate of monitoring and overseeing the work of auditors. For example, Denmark has joined the rest of the European Union in adopting the IFRS standards (IMF & CMD, 2014). It challenges its auditors to adhere to these standards when preparing financial statements for companies. Thanks to these standards, the Danish auditing fraternity has been able to ensure accuracy and the integrity of financial records. Through such laws as the Act on Approved Auditors and Audit Firms, Denmark sees to it that only companies and firms who are qualified and accredited perform audit work (IMF & CMD, 2014). Moreover, the country has set up the Denmark Business Authority whose main responsibility is to verify that the work of auditors is consistent with accounting standards. To further promote accountability, Denmark has established boards which receive complaints regarding shoddy and unacceptable work performed by auditors. (IMF & CMD, 2014) In addition to the government regulations, the Danish audit community is also governed by self-regulatory institutions. The country is also home to dozens of educational institutions which offer world-class training to auditors. There is no doubt that Denmark is serious about building its auditing profession.
Translation of Financial Reports
There are various accounting standards being applied in different countries across the globe. For the purpose of clarity and harmonization, countries usually require firms to translate their reports so as to align them with local standards and guidelines. For example, firms that operate in the United States need to align their financial reports with the US GAAP guidelines. Denmark has also instituted a similar translation requirement. It was noted in an earlier discussion that as is the case with other member states of the European Union, Denmark has adopted the IFRS standards. The implication of this is that firms need to ensure that their financial reports are consistent with these standards. However, it is worth noting that Danish law precedes the IFRS standards with regard to financial reports. Companies need to confirm that their reports are in line with such laws as the Danish Financial Statements Act (Wiborg, 2010). It is after it has been established that the financial reports comply with domestic laws that the IFRS standards are applied.
Conclusion
The health of the economy of any country hinges almost entirely on business operations. Robust operations yield economic growth. Denmark is among the nations that have made remarkable progress in encouraging private enterprises. The country is home to hundreds of companies which are engaged in a wide range of business operations. In addition to the companies, Denmark’s stable government and its political stability have also contributed to its enviable economic progress. In a bid to sustain this progress, the country’s authorities have developed standards and protocols that firms must follow when preparing their financial statements. Unlike the US which has adopted the GAAP standards, Denmark uses the IFRS guidelines. Among other things, these guidelines provide direction to companies on such issues as goodwill and pension benefits. Apart from the IFRS guidelines, Denmark also relies on domestic laws to regulate businesses. The country is aided by its well-developed and tightly regulated audit profession. Denmark’s stable economy is the envy of many nations. If they wish to witness similar economic success, countries should adopt the stringent procedures and laws that Denmark has developed.
References
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2 Retrieved from https://globaledge.msu.edu/countries/denmark/tradestats
