International Accounting

Professor: Peter Secord

TA: Nguyen Thu Hang

Report on
The Finnish Accounting System and its
development

Group 19:

1. Le Thu Hai (C) -11181430

2. Tran Phuong Thao - 11186003
3. Pham Nguyen Gia Long - 11183107
4. Le Duy Anh - 11186061
5. Pham Duy Minh - 11183371
 Finland’s International Financial Accounting
Standards (IFRS)
I. Factors affect the Finnish accounting system and its development:
There are 6 factors that influences the accounting system in Finland:
1. Culture:
Finnish accounting has a more open and public culture of sharing information to the
public. This results in the fact that Finland is currently ranked 3rd least corrupt country in 2018.
Regarding professionalism and statutory control, Finnish respect professionalism. In annual
reports – intangible assets can either be presented in the balance sheet, or as an expense in the
profit and loss account. The first accounting act in Finland was adopted in 1925 and was based
on German tradition. Early Finnish accounting in the 1920s and 1930s was therefore almost
entirely influenced by Germany and other German-speaking countries. This is because: first,
accounting research was advanced and widely practiced in Germany; second, Finland enjoyed
active business and cultural contacts with Germany and third, German was the first foreign
language taught in Finnish schools. Throughout this era, bookkeeping and calculation were seen
as office techniques or procedures and thus were considered very practical subjects.
2. Economics Development:
Finland is among the world's richest countries. After World War II, the country rapidly
industrialised and developed an advanced economy, resulting in widespread prosperity and a
high per capita income. Throughout the 1950s, the Finnish economy underwent enormous
changes as it diversified and became more export oriented. Also, the Finnish scholar Henrik
Virkkunen had a great influence on Finnish accounting thinking with his main idea that
accounting was to serve business management in planning, control, and information to serve the
needs of managers. Standard cost accounting, budgeting, investment calculations and break-
even analysis were topics that were introduced which indicated a more dynamic way of
thinking. During this period, German influence decreased while influence from the US
increased rapidly. The increasing interaction between business firms and the surrounding
society conveyed new views on accounting, such as social and environmental accounting.
3. Sources of finance:
During the 1800s, the only important stakeholder outside the firm was the lender and
only the owner was usually interested in accounting. The Helsinki Stock Exchange was founded
in 1912. The development of the stock exchange, however, was one of the major factors that
created a demand for accounting regulation. During the 1970s, Virkkunen’s view that more
stakeholders than the management were to be users of the accounting information. The
increasing interaction between business firms and the surrounding society conveyed new views
on accounting, such as social and environmental accounting[CITATION Näs97 \l 1033 ]. 
In Finland, 70% of the Finnish non-financial companies are defined as the family
businesses and 30% of the business sector value added in Finland also attributes to the family
businesses. Therefore, Finnish financing system can be defined as an insider-oriented system.
4. Legal system:
 In many Roman law countries like Finland, also under the effect of Saario's theory, the
financial reports are collected for tax collection purposes, hence, the dominance of tax was over
financial reporting[ CITATION Kar11 \l 1033 ]. Under the EU Directives, the accounting method in
Finland was more focused on protecting the debtors. The accounting system used to be more
conservative with the prudence over accrual.
The balance sheet was not important in Finnish accounting practice. In conformity with
Saario’s theory, the focus was on expenditures and revenues and determinants of the dividend
[ CITATION Vir04 \l 1033 ]. After implementing the EU directives in the 1990s, the purpose of
accounting was to inform all interested parties and to give a correct and sufficient picture. When
IAS and IFRS were implemented, the purpose is to give information to the owners of the
company and the most important financial statement is the balance sheet. The development of
accounting is therefore in favour of the big companies and corporations [CITATION Haser \l 1033 ].
The government approved a proposal to change the current Company Act (2005). The revised
act will be clearer and easier to understand than the former, and the goal is to improve the
situation of companies and the adoption of IAS and IFRS. Some of the main changes include
enhancements of the legal protection of creditors and minority shareholders.
5. Inflation:
First, historical cost depreciation understates the true decline in the value of assets and
thereby overstates reported earnings and income taxes due. Second, the cost-flow method
adopted for inventory valuation affects the reported net income in different ways. The third
distortion is reflected in the impact of reported interest expense on company profits. Because of
inflation, the historical interest expense is overstated, as the value of debt decreases due to
inflation, which results in reported earnings being understated and consequently a decrease in
taxes owed[ CITATION Fin20 \l 1033 ].
6. Economic ties:
The Ministry of Employment and Economy is responsible for accounting legislation in
Finland. The Accounting Act (1620/2015) was amended to transpose the content of the
European Commission Accounting Directive (2013/34/EU) and the Act also mandates the
implementation of EU IAS Regulation (1606/2002) which requires the application of
International Financial Reporting Standards (IFRS) for the consolidated financial statements of
public interest entities. IFRS for SMEs have not been adopted in Finland and there are no
current plans to adopt the standards.
II. How IFRS Standards are set in Finland:
IFRS Standards are issued by the International Accounting Standards Board and IFTS
Foundation. They are used particularly by companies with securities or shares listed on a public
stock exchange and by financial institutions, such as banks. IFRS Standards show how
companies must maintain and report their accounts, identify types of transactions, and other
events with financial impact[ CITATION IFA \l 1033 ].
The Standards follow a thorough, transparent and participatory due process when we
issue an IFRS Standard or an IFRIC Interpretation that helps companies better implement our
Standards. The standard-setting entails:
 Public Board meetings broadcast live from London office
 Agenda papers that inform the Board's deliberations;
 Discussion and decision summaries that are made available after meetings; and
  Comment letters received on our consultation documents.
Steps in the standard-setting process include agenda consultation, research programme,
post-implementation reviews, standard-setting programme and maintenance programme. 
As a member state of the European Union, Finland has already adopted IFRS Standards
for the consolidated financial statements of all companies whose securities trade in a regulated
market from 2002. The differences between IFRSs and traditional Finnish expenditure-revenue
accounting theory are revealed clearly in the calculation of fair value. Additionally, the strict
requirements in IFRS makes an improvement in the preparation of consolidated financial
statements of the Finnish companies. In accordance with the EU Accounting Regulation, IFRS
Standards as adopted by the EU are required for the consolidated financial statements of all
European companies whose debt or equity securities trade in a regulated market in Finland.
Foreign companies whose securities trade in a regulated market in Finland are required to report
under IFRS Standards as adopted by the EU for their consolidated financial statements.
III. The Process of IFRS Adoption in Finland:
In Finland, The Ministry of Employment and the Economy is responsible for
accounting legislation and related guidance in Finland. The application of IFRS Standards is
stipulated in IAS Regulation adopted by the European Union and in the Finnish Accounting
Act. Finland has adopted IFRS in its accounting system since 2004 [ CITATION Fin18 \l 1033 ],
which has had a great reform in the Finnish accounting system. own Finnish old accounting
system, and the differences in the same principles offered by both FAS and IFRS. The following
describes the single steps of the endorsement process:
1. The IASB adopts a new standard, an amendment to an existing standard or an
interpretation of a standard
2. The European Financial Reporting Advisory Group (EFRAG) provides its advice
to the Commission on endorsement
3. If the Commission decides to endorse the new standard, interpretation or
amendment, it prepares a draft regulation and submits it to the Accounting Regulatory
Committee of representatives of EU Member States (ARC)
4. If the ARC’s opinion is positive, the Commission submits the draft regulation to
the European Parliament and the Council of Europe for a 3-month scrutiny period
5. If there are no objections from the European Parliament or the Council of Europe,
the Commission adopts the endorsing regulation
References
Finland IFRS Profile. (2018, October 19). Retrieved from
https://www.ifrs.org/content/dam/ifrs/around-the-world/jurisdiction-profiles/finland-ifrs-
profile.pdf

Finland's inflation rate during 2020-2021. (2020, May 14). Retrieved from https://www.stat.fi/

IFAC: Finland. (n.d.). Retrieved from https://www.ifac.org/about-

ifac/membership/country/finland?fbclid=IwAR1J8eCgh9GtC-Ch6qoa-
WyfivT_59w4n0OnyCJJcN1FczKcSc3SxLzvLJ0

Hassel, L. (2005). Accounting Differences and Its Effects on Accounting in Finland,

Linköping, Sweden.

Karim, M. (2011). Impact of IFRS on accounting quality in Finland: Correlation between Net
Income and Operating Cash Flow after the adoption of IFRS in Finnish companies.
Retrieved from https://core.ac.uk/download/pdf/84798838.pdf

Näsi, S. and Näsi, J. (1997). Accounting and business economics traditions in Finland – from a
practical discipline into a scientific subject and field of research. European Accounting
Review, Vol. 6, No. 2, pp.199–229.

Virtanen, A. (2004). The Finnish Accounting History: The Development from the Early
Accounting Practice to the First Accounting Act.