Changes in accounting legislation

Bookkeeping Act changed in 1.1.2016 as a result of Financial Statements Directive in 2013. The aim was to reduce especially the administrative burden on small businesses, and to focus on the development of IT equipment in the bookkeeping. Underlying the Directive is the ”small first” –principle whereby on a small business should not be imposed excessive administrative burdens.

Although full use of modern information technology, automation of accounting and electronic data transfer lightens the administrative burden, the law emphasizes still the responsibility of a person with a legal obligation to keep books to the safe handling and storage of the bookkeeping material. Since the aim is also to prevent the grey economy, responsibilities are emphasized on pain of sanctions.

A new requirement is that the calculations and the documents that are the basis of the attachments of financial statements shall be processed and stored like receipts as attachment receipts. This requirement also extends to tax returns and other official reports as well as employer’s and VAT returns.

In Bookkeeping Decree those facts have been defined and listed which has to be included in the final accounts in the future and the decree works for the person with a legal obligation to keep books also as a good checklist. As far as the small- and micro companies are concerned the list is exhaustive. Under certain conditions tradesmen and self-employed persons are released from the obligation of final accounts and balancing the books. Requirement of a paper balance book is waived.

The aim is to ease the burden of smaller businesses in giving the final accounts reports. However, the final account and annual report has to give a true and sufficient view of the results of operations and financial position according to materiality principle. In the law there has now been added the materiality principle which belongs to accepted accounting practice.

The current limit values of small- and micro businesses will be changing a bit. Small business is a business in which at the most one of the following three limit values will be exceeded at the closing date:

1) a balance sheet total of 6 000 000 EUR;
2) has a turnover of 12 000 000 EUR;
3) during the financial period the average number of employees is 50.

As far as micro businesses are concerned the corresponding limit values are:

1) the balance sheet total of 350 000 EUR
2) turnover of 700 000 EUR
3) during the financial period the average number of employees is 10.

Recognition principles according to the directive and the new Bookkeeping Act are based on invoicing and payment. However, previously the recognition principle has been accrual which also the tax administration has required. Accrual basis is, however, still one of the common final accounts principles in the law.

Also the audit trail remaining intact in all circumstances is highly emphasized and bookkeeping needs to be arranged the way that the events and entries are observable in both directions. The same concerns handling and safekeeping the accounting material. The contents of these are, as a rule, not allowed to be altered or deleted after drafting the final accounts. The authorities and auditors need also to have a possibility to examine the material from Finland. Principle of continuity is also essential, different principles should be observed consistently from period to period.

One of the coming changes will also be entering subordinated loans into the balance. In the future it will be allowed to add into the equity capital as separate item such a subordinated loan, which under certain circumstances and conditions has nature of equity capital. Otherwise, the loan has to be entered to liabilities.