The purpose of this paper is to supply information about the development of accounting in Norway over the old ages. Before International Financial Reporting Standards or IFRS were introduced, Norway used Continental European method of accounting but due to the demand of a common accounting linguistic communication ensuing from the globalisation of commercial and fiscal exchanges and the demand of a more comparable accounting between companies in different states, Norway accounting changed from a Continental-European creditor and revenue enhancement oriented theoretical account of accounting statute law to a theoretical account closer to an Anglo-American investor oriented theoretical account. The states that traditionally belonged to the Anglo-Saxon accounting tradition are the companies in which their capital is built up by a capital-based fiscal market with single investors and stockholders. On the other manus, the states that traditionally belonged to the Continental accounting tradition, it is the authorities and the credit-market who have financed the long-termed investings. Today, the funding market is being more and more globalized. This will connote that companies in different states need to harmonise their methods of fiscal coverage. To farther understand the differences between of the two methods being Continental and Anglo-Saxon, this paper provides short descriptions on these two traditional attacks. The paper besides provides the current status of the Norse Accounting today and the different ordinances it follows. It besides covers information about how Norway is get bying with the fiscal crisis today and the different accounting alterations they will implement to reply to the current jobs ensuing from the crisis at manus.
The Development of Accounting in Norway
Norway traditionally had little equity markets and Germanic accounting traditions. A calculated effort to harmonise accounting was made in the 1970s, taking to similar Accounting and Companies Acts in each state in the late seventiess ( Nobes & A ; Parker, 2000 ) .
As old ages passed, the fiscal coverage of Norway developed in a velocity with which the Germanic traditions have been abandoned. One factor is that Norway joined the European Economic Area ( EEA ) . Another factor is the grade of difference to which professional comptrollers have been in control of accounting regulation devising ( Nobes & A ; Parker, 2000 ) .
Norse professional accounting organic structures ‘ ages and sizes are shown to be lower than those of the tantamount organic structures in the comparatively immature states of Australia and Canada which is to be expected for states that had Germanic tradition. However it is said that Norse states such as Norway in recent old ages have become involved in formal standard-setting ( Nobes & A ; Parker, 2000 ) . And besides harmonizing to Nobes & A ; Parker ( 2000 ) ,
The 1970s Nordic harmonisation undertaking led to Torahs as follows:
Danmark: Companies Acts 1973 ( separate Acts for private and public companies ) ;
Norway: Companies Act 1976, Accounting Act 1977 ;
Sverige: Companies Act 1975, Accounting Act 1976.
For Continental Europe, the regulations were advanced for the first clip. For illustration they allowed reappraisal of fixed assets, and they required readying of amalgamate fiscal statements ( and, in Norway and Sweden, financess floe statements ) . Another common characteristic was mandatory audit, although smaller companies were allowed to hold scrutinizing by members of a second-tier professional organic structure. The fiscal statements were required to conform to an vague ‘good accounting pattern ‘ .
In each instance, before the execution of EU Directives ( the 2nd Directive ) , the states had merely ‘companies ‘ as opposed to public and private companies. This has now changed. As in the United Kingdom and the Netherlands, the execution of the Directives has seen a significant addition in the legal coverage of accounting. The 4th and 7th Directives were implemented in Torahs in the undermentioned old ages:
Danmark: 4th, 1981 ; seventh, 1990 ;
Norge: both in 1998 ;
Sverige: both in 1995.
The scene of excess legal accounting criterions has been a characteristic of Anglo-Saxon states, which bit by bit arrived in Scandinavia.
Anglo-American and Continental European Model
In this type of legal system, close ties between parties are non needed before come ining long-run minutess. Because of this, common-law states tend to pull widespread investing from the populace at big. In this group, common jurisprudence has greater impact on accounting than statute jurisprudence. Accounting regulations in Anglo-American group have been determined mostly in private sector and have been oriented towards revelation across an arm’s-length market to interested parties. These parties are presumed by the tribunals and by bureaus such as the SEC to trust wholly on publicly-disclosed information because they have no close ties to the corporation ( Ball, 1995 ) .
This group comprises a assortment of states including Norway before wherein the legal system and the accounting regulations are codified by authorities ministries. This type of system works with major participants that must be few in Numberss, so corporate capital is mostly supplied by Bankss and other institutional investors. Transaction in such state tend to be based more on private information and less on public information than in common-law states ( Ball, 1995 )
History of Changes in Norse Accounting
The Norse accounting system has well changed during the last period of decennaries. Over the 40 old ages from 1965 to 2004, Norse accounting statute law has changed from a Continental-European creditor and revenue enhancement oriented theoretical account of accounting statute law to a theoretical account closer to an Anglo-American investor oriented theoretical account. Harmonizing to the research of Oystein Gjerde & A ; Frode ( 2010 ) ,
Four major accounting events or ‘revolutions ‘ have shaped the way of NGAAP
since 1965.They are the Accounting Act of 1977, the debut of unfastened plus militias in 1984, the debut of deferred revenue enhancements in 1992 and the Accounting Act of 1998. In add-on, NGAAP have besides been bit by bit influenced by national criterion scene and some minor legislative alterations. These alterations have often harmonized NGAAP toward IFRS/IAS or USGAAP.
Sub period of 1965-1976
During this period, fiscal coverage was based on measuring at cost combined with the rule of utilizing the lower of the cost and the market. Estimates, for case of the economic life and residuary value of depreciable fixed assets, were based on careful appraisals because of revenue enhancement considerations, thereby taking to conceal plus militias. This was regulated by Chapter 9 of the Company Act of 1957 for the accounting of limited companies in Norway ( Oystein Gjerde & A ; Frode, 2010, p.5 )
Sub period of 1977-1984
In this period, fiscal coverage was regulated by Chapter 11 in the Company Act of 1976 for limited companies and by the Accounting Act of 1977 for others. Although the tradition of measuring at cost combined with prudence continued, a revenue enhancement linked theoretical account was introduced as an effort to show fiscal statements more in line with the information demands of investors and creditors every bit good as those of the revenue enhancement governments. This theoretical account made a nexus at the terminal of the income statement, where the difference between accounting income and nonexempt income was reported. In the balance sheet, these differences are known as tax-exempt militias or tax-exempt equity, a combination of debt and equity. Consequently, the alteration in tax-exempt militias over the twelvemonth was reported as an accommodation to accounting income, instantly predating the bottom line in the income statement. This format was bit by bit adopted for assorted clocking differences between accounting and revenue enhancement values. With bit by bit reduced revenue enhancement inducements, the extent of prudent appraisals was reduced over this period. Accounting criterions were issued by the Association of Certified Public Accountants. ( Oystein Gjerde & A ; Frode, 2010, p. 6 )
Sub period of 1984-1991
The readying of fiscal statements was regulated by the Accounting Act of 1977. Following a major alteration in the revenue enhancement regulations for depreciation in 1984, clocking differences in the accounting rating of fixed assets were besides addressed by the revenue enhancement nexus format, taking to more accounting based estimations for the utile life of these assets as opposed to the conservative 1s that follow from pure revenue enhancement considerations. Previous concealed plus militias due to tax-motivated depreciation now became unfastened plus militias, called tax-exempt equity on the capital side of the balance sheet. More information about revenue enhancement induced militias was besides disclosed in the footers to fiscal statements. However, for a long period of clip, minimisation of revenue enhancements continued to play an of import consideration in mensurating accounting income. In this period, the Norse Accounting Standards Board, NASB, was established with the aim of go oning the work of certified public comptrollers publishing accounting criterions ( Oystein Gjerde & A ; Frode, 2010, p. 6 ) .
Sub period of 1992-1998
Fiscal accounting was regulated by the Accounting Act of 1977. In 1990, nevertheless, an Accounting Act Committee was appointed by the Ministry of Finance in order to outline proposals to revise bing accounting statute law. In 1992, this Committee submitted a study on accounting for income revenue enhancements. As a effect of the Tax Reform of 1992, the Norse accounting statute law was changed by presenting deferred revenue enhancement liabilities and assets, get downing in 1992. Harmonizing to Hoogendoorn ‘s survey ( as cited in the research of Oystein Gjerde & A ; Frode, 2010 ) , he concludes that Norway since so belongs to the group of European states with the highest grade of independency between accounting and revenue enhancement. ( Oystein Gjerde & A ; Frode, 2010, p. 6-7 ) .
Sub period of 1999-2004
Fiscal coverage was regulated by the Accounting Act of 1998, following the proposals from the Accounting Act Committee of 1990. As noted by Johnsen and Eilifsen ( cited in the research of Oystein Gjerde & A ; Frode, 2010 ) , this jurisprudence represents continued attachment to a legal model of ordinance. It is principle-based with specific regulations derived from the stated basic rules, e.g. regulations for fixed and intangible assets and for current assets like stock lists. The chief rule is transactional historic cost with separate rules for gross and cost acknowledgment, such that grosss should be earned and costs matched with earned grosss in the period. In add-on, prudence is a basic rule such that all losingss should be recognized. Fair value for liquid short term fiscal instruments was introduced. The general demand that one-year histories should be in conformity with good accounting pattern implies that standard puting by the NASB is recognized by statute law. It could be argued that the chief alteration introduced by the Accounting Act of 1998 is to necessitate indifferent accounting estimations, which contribute to end concealed cost militias. ( Gjerde & A ; S?ttem, 2010, p. 7 )
Over the whole period, Norse accounting ordinance changed from a Continental-European theoretical account toward a theoretical account near to an Anglo-American theoretical account.
Norway Accounting Today
It was in June 2002 that the European Union adopted the International Accounting Standards IAS / IFRS necessitating European companies listed in an EU securities market, including Bankss and insurance companies, to fix their amalgamate fiscal statements in conformity with IFRSs get downing with fiscal statements for fiscal twelvemonth 2005 onwards. The chief intent of this was to reply the demand of a common accounting linguistic communication ensuing from the globalisation of commercial and fiscal exchanges. Harmonizing to Deloitte ( 2010 ) ,
EU states are given the option to:
Require or license IFRSs for unlisted companies.
Require or license IFRSs in parent company ( unconsolidated ) fiscal statements.
License companies whose merely listed securities are debt securities to detain IFRS acceptance until 2007.
License companies that are listed on exchanges outside of the EU and that presently prepare their primary fiscal statements utilizing a non-EU GAAP ( in most instances this would be US GAAP ) to detain IFRS acceptance until 2007.
Norway is an EEA Member therefore Norse companies listed in an EU/EEA securities market follow IFRSs since 2005.
The European Commission has besides implemented the following phrasing for usage in the notes to the histories and in the audit studies of companies subject to EU Regulation 1606/2002/EC:
“ in conformity with International Financial Reporting Standards as adopted by the EU ” or
“ in conformity with IFRSs as adopted by the EU ” .
Companies may besides province, in a footer, conformity with IFRSs as adopted by the IASB, if that is the instance. ( Deloitte Touche Tohmatsu, 2010 )
In a 2009 study of IFRS acceptance around the universe, PricewaterhouseCoopers ( PwC ) notes that harmonizing to the Accounting Act, basic IFRSs are permitted for little and average endeavors. PwC besides clarifies that amalgamate fiscal statements of listed companies are required to utilize IFRSs if it resides in Norway or the EU, while foreign corporations outside the EU listed on a Norse exchange are required to utilize Norse Accounting Standards ( NASs ) set by the NASB. Supplementary foreign companies may utilize either local NASs or IFRSs. PwC besides pointed out that accounting criterions in Norway are comparable to IFRSs, and it is predicted that local NASs will go on to meet towards IFRS ( eStandardsForum, May 2009 ) .
As respects to Norway ‘s criterion conformity, Norway really achieves a high overall conformity with international criterions and codifications. Norway fulfills all the demands for effectual payment systems as a member of the European Economic Area. Norway is besides following the European Union ‘s attack on international auditing and accounting criterions. Further, Norway ‘s conformity in the insolvency model country besides lacks an independent appraisal.
The Norse Institute of Public Accountants
The Norse Institute of Public Accountants is the professional organic structure for registered public comptrollers and province authorized public comptrollers in Norway. Harmonizing to the website revisorforeningen.no ( 2010 ) ,
The aims of The Norse Institute of Public Accountants are to raise the professional criterions of its members, to guarantee that its members observe the ethical criterions, to stand for its members ‘ involvements in relation to the governments and to the general populace, to show sentiments on professional affairs, and to advance the instruction of prospective hearers. As one of the agencies to accomplish this, The Norse Institute of Public Accountants has developed a professional codification of moralss for its members. The professional codification provides criterions on professional behavior and hearers ‘ independency, and regulates the hearer ‘s relationship to his or her clients, to other comptrollers, and to the general populace.
Here are the undermentioned services provided by Public Accountants in Norway:
External audit work and related work as statutory hearer
Attestation of fiscal statements
Attestations to the Tax Governments
Attestation of paid in portion capital and alterations in capital
Other specific attestations
Tax advice – Representing clients in revenue enhancement affairs
Public Sector Audits.
Den norske Revisorforening ( DnR )
Den norske Revisorforening is the legal model for accounting patterns in Norway which comprises the Accounting Act, Auditing and Auditors Act, Private Companies Act, Public Companies Act, and Partnerships and Limited Liability Partnerships Act. The International Monetary Fund ‘s ( IMF ) 2005 Financial Systems Stability Assessment ( FSSA ) for Norway notes that accounting, scrutinizing, and actuarial criterions are “ good developed ” and are in line with European Union ( EU ) directives and international best patterns.
The Norse Institute of Public Accountants ( DnR ) besides develops the professional codification of moralss which are based on the International Federation of Accountants ( IFAC ) codification of moralss issued prior to 2004. However, as of 2006, the DnR was planned to integrate the latest version of the IFAC Code into national demands.
Financial Supervisory Authority of Norway ( FSAN )
The FSAN was established in 1986 as an incorporate supervisor for the above mentioned sectors, and is responsible for supervising conformity with the fiscal coverage demands for listed companies. The regulative duty for Bankss, insurance houses, and the securities market falls under this. The FSAN is besides the licensing authorization for hearers and comptrollers. The 2008 FSAN publication “ The Financial Market in Norway 2007: Hazard Outlook ” states that since March 31, 2007 Bankss, finance companies and mortgage companies have been permitted to utilize IFRSs. Listed fiscal establishments which are a portion of a group have been required to use either IFRSs or the basic IFRSs for the readying of their separate histories. Other Bankss and finance companies are allowed to take between IFRS, simplified IFRS, and the NASs. Further, it was noted that the Annual Accounts Regulations for insurance companies were amended to allow non-life insurance companies to acknowledge investing belongingss at just value and to account for reinsurance in conformance with IFRS.
This Act states that foreign endeavors transporting out activities or take parting in activities within Norway, and who are capable to Norse revenue enhancement harmonizing to domestic statute law, are obliged to maintain histories pursuant to the Accounting Act ( Bedin.no, 2010 ) . The following are included in this Act:
Enterprises must register minutess that are of importance to the magnitude and composing of their assets, liabilities, income and disbursals in an accounting system.
The enrollment must consist all information that is of substance to the readying of the one-year histories and other fiscal coverage that follows from Acts of the Apostless and ordinances.
Accounting records must be stored in Norway for 10 old ages subsequent to the terminal of the fiscal twelvemonth.
Many concerns use external comptrollers. The comptroller must hold the needed mandate or be a registered comptroller.
Accountants may besides help with filling in and transportation of the periodic VAT returns, PAYE and paysheet revenue enhancements.
Harmonizing to the Act, freelance businesses/sole owners ( holding a balance sheet sum of up to NOK 20 million and up to 20 employees ) and apt companies ( holding a turnover of up to NOK 5 million and less than 5 employees ) do non hold to bring forth a fiscal statement as defined in the Act.
When so requested by the revenue enhancement governments, the books shall be made available for control.
Norway: Coping with the Financial Crisis
Effectss of crisis in Norway
The fiscal crisis in 2008 and 2009 has thrown the universe economic system into the worst recession since the 1930s. The Norse economic system has been hit less difficult by the fiscal crisis than other states. This is non merely due to factors in the economic system and the concern sector and in the fiscal system, but besides to ordinance and supervising. Industrial production has weakened internationally. Norway ‘s fabrication sector is little, natural stuffs based and exports mostly to emerging states with comparatively higher growing rates. Deliveries to the oil sector have besides made a positive part. The governments have much economic freedom of action and the rapid, brawny involvement rate decrease combined with significant financial policy stimulation has kept unemployment low and stimulated family ingestion. Furthermore, all subdivisions of the Norse fiscal market are capable to ordinance, capital demands and supervising. The negative tendency in the international stock markets besides spread to Norway. From fall 2007 to February 2009 the value of companies on the Oslo Stock Exchange more than halved, conveying a big decrease in non-financial houses ‘ and families ‘ fiscal wealth and impaired consequences for life insurance companies and pension financess. The upset in the money and bond markets brought a crisp addition in hazard premiums and significant liquidness jobs for the Bankss, which were resolved by resolute intercession on the portion of the governments. Bankruptcies are still on the rise, although at a somewhat lower gait ( Finanstilsynet, 2009 ) .
Improvements to Accounting Rules
The accounting regulations were in centre of attending in the early phase of the crisis. Use of the market value rule increased the significant fluctuations and falls in the value of Bankss ‘ assets. The International Accounting Standards Board ( IASB ) has a figure of undertakings under manner to reflect on alterations to the International Financial Reporting Standards ( IFRS ) . Changes are being considered in accounting for fiscal instruments, peculiarly for loans. The present event-based incurred loss theoretical account in IAS 39 has been criticized that it delays accounting for expected loss since it requires nonsubjective grounds that a loss event has occurred before write down is allowed. A concluding criterion is considered for completion by the terminal of 2010, with compulsory application as from 2013 and optional application for companies before that point. The new criterion will be reviewed by the EU for possible application to European Companies, and for when, in the event, it should take consequence. The EU Commission has indicated that it will see the demand for particular regulations on dynamic loss provisioning in the capital adequateness model as a consequence of any amendments to the accounting regulations ( Finanstilsynet, 2009 ) .
EU Commission besides wants to see amendments made to the capital demands framework as respects demands on security for derivative contracts. In line with a declaration by the G-20 leaders in September and with support from the EU Council, the purpose is to present compulsory glade of standardised derived functions contracts through a cardinal counterparty and compulsory coverage to a contract registry of derived functions contracts that are non cleared wherein the aim of this ordinance is to cut down counterparty and operational hazard and to increase system transparence.
The alterations in accounting in Norway over the old ages has proven t Os have positive consequences. The outstanding overall value relevancy recognized to accounting quality is well increasing over clip, meaning public regulative success in carry throughing more relevant fiscal coverage over clip. The most indispensable event doing the positive clip tendency is the Accounting Act of 1998, which included the demand of the usage of indifferent accounting estimations within a model of chiefly transactional cost accounting, where matching of disbursals with fiting grosss is an of import issue. But as was given in the studies of Finanstilsynet ( 2009 ) , there are still alterations and amendments to be done in the accounting ordinances as it is apparent that there are defects in them.