When doing business in Finland you might face a question whether to do financial reporting according to FAS or according to IFRS.
What is FAS?
FAS – Finnish Accounting Standards – is the local accounting regulation in Finland. The Finnish accounting rules are laid down in the Accounting Act and Accounting Decree. The Accounting Board, that operates under the auspices of the Ministry of Economic Affairs and Employment, gives guidelines and opinions on the application of the Accounting Act and Accounting Decree.
When do you need FAS?
In Finland, separate companies prepare their financial statements mostly according to FAS. Compliance with IFRS is possible, but very few individual companies do. The reason can be found in taxation: there are links between FAS accounting and taxation. IFRS financial statements therefore may not be valid for the taxation purposes and even though you prepared your official financial statement according to IFRS you must be able to detail all FAS adjustments and attach a detailed clarification of these adjustments to the annual tax return.
When do you need IFRS?
The preparation of financial statements in accordance with IFRS is mandatory for publicly listed companies whose shares or bonds are subject to public trading. Other than listed companies can comply with IFRS standards voluntarily and the reasons for voluntary compliance may include for example:
- A company plans to list on the stock exchange
- A company has become international and there is a need to report financial statement information in an internationally comparable manner
- A company's plans include obtaining financing from international investors and it wants to report the financial statements are in an internationally comprehensible manner
- A company's foreign parent company requires that the financial statements of subsidiaries are prepared in compliance with IFRS
IFRS financial statements are almost always prepared on a consolidated level as consolidated group financial statements are not subject to taxation.
Examples of differences between IFRS and FAS
Extensive and detailed notes to the financial statements
Financial statements prepared in accordance with IFRS are considerably broader and regulated in more detail than FAS financial statements. An IFRS financial statement with very detailed notes is many times more extensive than a reasonably simple FAS financial statement.
Business acquisitions according to IFRS 3 differ from purchase price/goodwill calculations according to FAS. According to IFRS transaction costs and transfer tax related to business acquisitions are expensed in the income statement, while according to FAS they are treated as part of the acquisition price. According to IFRS goodwill is tested for impairment, while in FAS goodwill is amortized. Additionally, with business acquisitions according to IFRS3, new intangible assets are identified, recorded in the balance sheet, and depreciated later in the income statement.
Almost all companies have rental agreements. According to IFRS16, rental agreements and leases are treated quite differently from FAS. IFRS16 standard requires that practically all leases are capitalized on the lessee's assets, and the lease liability is recognized on the liability side of the balance sheet.
FAS allows (but the Finnish taxation does not) the same kind of capitalization of leased assets, but normally in Finland, leases are presented in operating expenses in income statement. IFRS16 calculations is an area that requires a lot of work, especially if there are many lease agreements.
Transaction costs of financial arrangements
IFRS requires that transaction costs of loans reduce the loan capital and are amortized based on the effective interest rate over the loan period. In FAS, transaction costs of loans are usually expensed in income statement and the effective interest rate method is not used.
When should you ask for help?
Whether your company needs to change reporting from IFRS to FAS or from the local GAAP to IFRS, our experts can help. We can also assist you in application of new IFRS standards.
Examples of provided IFRS services may include:
- IFRS financial statements
- IFRS reporting routines
- Application of new IFRS standards
- IFRS 16 leasing calculations
- Other IFRS calculations
- Bridges between the local GAAP and IFRS or vice versa