Financial statement is an unified document that explains the business activities and what events/details made up company profit/loss during an accounting period. A company must compile a financial statement within 4 months from the end of an accounting period. Generally the length of an accounting period is a calendar year or other suitable 12 month period. In some exceptions, accounting period can be longer than 12 months, up to a maximum of 18 months. (Finnish Accounting act 1 chapter 4§)

Financial statement provides information on companies’ profit/loss and its financial situation at the end of an accounting period, company wealth should not be exaggerated nor should company liabilities be underestimated. A financial statement should give true and fair view on companies’ financial situation. There are multiple directives and format demands for compiling a financial statement. Examples of these are; the presentation method for profit & loss account and balance sheet is not to be changed, without a specific reason, and accrual method of accounting should be utilized when compiling a financial statement. (Items’ or services’ disposition date settles on which accounting period the item is marked).

Financial statement consists of profit & loss account, balance sheet, report of activities and required attachments. In addition to these, a proper balance sheet book and balance sheet specifications must be compiled and in some cases a funds statement must be created. An company that is liable for bookkeeping must include a funds statement in its financial statement, if the company is a public- or a private limited liability company or cooperation and, from both previous and ended accounting periods, has exceeded at least two of the 9§ 2nd clause limitations. (Finnish Accounting act 3 chapter 1§)

Financial statement must be accepted by the board of directors, and after it has been accepted, it must be signed and dated. Financial statement is considered ready when profit & loss account, balance sheet, attachments and report of activities has been compiled and financial statement and report of activities has been signed.      

Common principals



While compiling a financial statement and report of activities, a set of common principals should be followed:

  • Assumption that business activities carry on to foreseeable future.
  • Coherence in used compiling methods and procedures from one accounting period to another.
  • Putting emphasis on the actual content of business activities and not entirely on the judicial form (content focus).
  • Caution regardless of the accounting period result.
  • Opening of books based on the balance sheet of the previous accounting period.
  • Using the accrual method for revenue and expenses during accounting
  • Separate valuation of balance sheet items.

(Finncham bookkeeping folder 2015, principals of financial statement)


Contents of financial statement


Profit & loss account

In profit & loss account, the accounting period revenue gets deducted by the accounting period expenses that went into making the revenue. From this deduction the accounting period profit or loss is calculated. Profit & loss account must be compiled in the form described in accounting act, and entries should be done in the accrual method of accounting.

Balance sheet

Balance sheet is a report on company wealth and liabilities, aka. a report on companies financial status at the end of accounting period. Balance sheet is made out of two sides, assets and equity & liabilities. Assets side provides information on company wealth and what it consists of. Equity & liabilities side provides information on how much owner and foreign equity the company has, for example the amount of share capital and bank loans.

Assets and Equity & liabilities must always match, meaning that company wealth should equal the amount of capital it has. This is due to the fact that a company cannot, in any circumstance, have more wealth than it has capital to spend.

Funds statement

Is a report of acquired company wealth and how it was spent during an accounting period. Funds statement is not compulsory for everyone, but it must be included in a financial statement if:

1) Company liable for bookkeeping is a public limited liability company; or

2) A private limited liability company or a cooperative and, from both previous and ended accounting periods, has exceeded at least two of the 9§ 2nd clause limitations. (Finnish accounting act 3 chapter 1§)

According to the accounting act, following matters must be presented in a funds statement:

1.  Cash flow of business activities, which shows how the bookkeeping liable has managed, during an accounting period, to generate revenue by business activities to sustain prerequisites for operation, paying yield for shareholders, making investments and repaying loans, without relying on outside financial support.

2.  Cash flow of investments, which shows the use of cash flow that the bookkeeping liable has used for generating future cash flow.

3.  Finance cash flow, which shows the changes in owner and foreign equity during an accounting period.

Balance sheet book

Balance sheet book is a bound paper book that has its pages numbered and it holds the financial statement and all the relevant documents. Balance sheet book is no longer forced to be archived in paper form, from the start of 2016, and in future it can be archived in electronic format. Balance sheet book consists of:

  • Profit & loss account
  • Balance sheet
  • Funds statement (not for small companies liable for bookkeeping)
  • Attachments
  • Report of business activities (not for small companies liable for bookkeeping)
  • Signature and date
  • Catalog of used bookkeeping material and their preservation method
  • Catalog of document types and information on their preservation
  • Auditor of accounts, auditing marking (not required from private entrepreneur and small companies).


Balance sheet specifications

Balance sheet specification is one of the most important parts of the financial statement. Balance sheet specification is a detailed explanation of the balance sheet accounts content, not including the owner equity which is specified in attachments. Balance sheet specifications confirms the information provided in financial statement and report of business activities, proving their truthfulness.  

Report of activities

Report of activities is a written report on how the business activities have developed during an accounting period. Report of activities must be included in a financial statement if:

1) Securities released by a bookkeeping liable company are, according to Securities Markets Act, under a public trade or equivalent trade in a country, and its legislated stock trade, that is part of the European commercial zone; or

2.) Bookkeeping liable company has exceeded at least two of the values, presented in accounting act 3 chapter 9§ 2nd clause, in previous and ended accounting periods.

A company that is not liable for compiling a report of activities, must provide necessary information on the attachments, to ensure that the true and fair view principle is achieved.      

Attachments

Is the section that supplements and clarifies the information provided in financial statement. The information that is required to be presented here varies between different company forms and – sizes, but the main principle is that the information provided is done according to the true and fair view principle. The information on principles and methods used in financial statement, and how they affect it, must be provided in attachments.

Attachments in a financial statement according to the accounting act:

1.   Valuation principals and methods and accrual principals and methods complied with in the financial statement.

2.   Justification, if there has been deviation in the presentation method for profit & loss account or balance sheet, and its effects.

3.   Corrections, that have been made to the information presented from previous accounting periods.

4.   Clarification, if the information provided from previous accounting period is not comparable with the ended accounting period.

5.   Corrections made to the previous accounting periods revenue and expenses, if they are not considerably minor.

6.   If it is essential, the parts included in a single balance sheet item, that are part of multiple balance sheet items.

7.   Clarification on what exchange rate has been used when changing the receivables and liabilities and other obligations, from foreign currency to the currency used in Finland, if the exchange rate at the end of accounting period is not used.

Additionally, every individual part of a financial statement has its own attachment requirements, you can read more about these in the accounting act 2 chapter 3§.

Audit of the accounts


The auditor checks the companies or other bookkeeping liable entities financial statement, accounting and management, and provides the necessary reports to authorities, as described in the accounting act or other relevant act. Audit of accounts is a compulsory part of every bookkeeping liable company’s financial statement.

 Audit of accounts also concerns organizations and foundations; these include, limited liability companies, cooperative, general partnership, limited partnership, condominium and foundations. Auditing of accounts does not concern shopkeepers or practitioners.    

Auditing obligation according to the upcoming 1.1.2016 legislation:


Organizations and foundations must choose an auditor and provide an audit of accounts according to this act or other related act.

Unless specified in another act, an organization can choose not to select an auditor, if the organization has not exceeded more than one of the following requirements, from previous and recent accounting period:

1.   Balance sheet total amount exceeds 100 000 euros;

2.   Revenue or equivalent profit exceeds 200 000 euros; or

3.   Organization has approx. over 3 employees.

Auditor can also not be chosen in an organization that has just started operating, and does not have accounting periods described in 2nd clause, unless it is apparent that there are no prerequisites for not choosing an auditor.

An auditor must always be chosen in organizations which primary function is the owning and controlling of securities and has considerable influence on managing another companies business activities or financing, as described in accounting act 1 chapter 8§.

If an organization does not have the obligation to choose an auditor according to clauses 1, 2 and 3; in the articles of association, memorandum of association or other rules can assign the audit of accounts and choosing of multiple auditors.

Registration of financial statement and report of activities


A companies’ financial statement and report of activities must be reported to be registered in Finnish Patent and Registration office, if the bookkeeping liable is:

  • Limited liability company
  • General or limited partnership, which responsible partner is an limited liability company
  •  -//-, which responsible partner is the above mentioned partnership
  • Cooperative
  • General mutual insurance company
  • Insurance foundation


Other bookkeeping liable companies are obligated for registration if they exceed at least two of the limits given in accounting act chapter 3 9§, from both previous and ended accounting periods. Registration must be done within six months after the accounting period has ended. For limited liability companies and cooperatives, the registration period is two months, after the financial statement has been confirmed.


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