In 2006, companies that met a number of statutory requirements were allowed to opt out of an audit. Before the law came into effect, all companies in Denmark were required to have their annual reports audited.

That is no longer the case, which has reduced administrative burdens for small companies in the country and provided an opportunity to save a penny or two and focus energy on areas that provide greater value to the company.

In this blog post, we will take a deep dive into opting out of an audit. Once you have read the post, you will be able to answer the following questions:

What is an audit opt-out?

An audit opt-out means that a company's financial statements are not reviewed or verified by a registered or state-authorized public accountant. When an auditor reviews financial statements, they must assess whether the statements provide a true and fair view of the company's finances and meet the requirements set out in the Danish Financial Statements Act. You must still prepare an annual report, even if you have opted out of an audit.

Does this mean that my annual report will be of poor quality from now on?

No, it does not. An auditor's most important service is not necessarily the audit itself. You can easily get help with accurate financial statements from an accountant, even if they do not need to be audited. This also applies if you wish to prepare your financial statements yourself using Reportability.

Who can opt out of an audit?

All companies in reporting class B, C, and D are generally required to have an audit. However, for many companies in reporting class B, it is possible to opt out of an audit if they meet the requirements we have listed below.

The requirements were set in 2006 and have since been adjusted to fit the reality we are in today.

A company can opt out of an audit if, for two consecutive years, it does not exceed two out of the three following requirements on the balance sheet date. This refers to the day the financial year ends.

The requirements come from the Danish Business Authority, and you can see them below:

• A balance sheet total of DKK 4 million.
• Net revenue of DKK 8 million.
• An average of 12 full-time employees during the financial year

How do you ensure accurate financial statements when you have opted out of an audit?

Opting out of an audit does not mean that you avoid the requirement to prepare an annual report for the Danish Business Authority or a corporate tax return for the Danish Tax Agency. You cannot avoid the obligation to report to the Danish Business Authority and the Danish Tax Agency.

If you have opted out of an audit, you must still prepare an annual report to be submitted to the Danish Business Authority. The annual report must still be accurate, because if the Danish Business Authority finds significant errors or omissions, they will mandate that the financial statements be audited. Therefore, it is still important to have a firm grasp of your accounting.

You have likely opted out of an audit because you want to save money on your financial statements. However, saving money now should not come at the expense of your finances later, as errors can lead to unfortunate back taxes or penalties.

But how do you get started with preparing accurate financial statements if they are not going to be reviewed by an auditor? We described above how opting out of an audit does not necessarily mean that your accounts will be full of errors.

You can still get an accounting professional to help you with your annual financial statements.

As something new and different, you can also do it yourself. You can do this, for example, by using Reportability. We have created a tool that makes you your own auditor.

If you follow the process in our tool, you automatically comply with all the requirements of the Companies Act and the Financial Statements Act. When you are finished, you will have a completed annual report that you can submit to the Danish Business Authority. You will also get your taxes sorted, as we provide an overview that tells you exactly which boxes and figures to enter on skat.dk.

Whenever you have questions or are in doubt about anything, you can get in touch with us by writing to us in our support chat. You will find it in the bottom right corner of this page, and you are also welcome to write to us now. By the way, Reportability is not just for companies that have opted out of an audit. So, if you need to have your company's annual report audited, we can accommodate that too, so that the auditor's comments and conclusions become part of the annual report.

What should you consider before opting out of an audit?

Before you make the choice to opt out of an audit, there are some factors you should take into consideration. We have listed them for you here:

Do you need a loan?

If you need to borrow money from the bank for a major project in the company, it may in some cases be a requirement from the lender that you provide audited financial statements. The lender uses the audited financial statements as assurance that your company's finances are in order. If that is the case, it may be easier for you to borrow money.

Do you have no financing needs?

If you run a small business with simple accounts and do not need to borrow money in the near future, you can opt out of having your accounts audited and potentially use the money saved elsewhere.

Other considerations

It is not only when it comes to loans and investors that opting out of an audit can have an impact. If there is an overlap between management and ownership, the need for an audit may be lower. Conversely, the need may arise if ownership and management are separate.

How do you opt out of an audit?

To opt out of an audit, the decision must be made at an annual general meeting. This is the general meeting where the annual report for the previous financial year is reviewed and approved. When you opt out of an audit, the articles of association must be amended so that it is no longer stated that the accounts must be audited.

The decision to opt out of an audit only applies to the coming year. It is therefore not possible to adopt it at the annual general meeting to avoid an audit for the accounts you are currently gathered to review and approve.

Opting out of an audit and the company's annual report

Opting out of an audit does not mean that an annual report does not need to be prepared for your company. An audit is a review of the annual report by an auditor, who then assesses how accurate the accounts are.

Regardless of whether you need an audit of your annual report or not, you can use Reportability. There are also several different levels of audit. The different levels are called compilation, review, extended review and audit.

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