Accounting and auditing
Legal Basis
Accounting and bookkeeping obligations are determined by two separate acts, the Accounting Act and the Bookkeeping Act. In simple terms the former states the types of business entities that are required to produce annual accounts and the obligatory contents of these accounts. The latter states the bookkeeping duties and records. All business entities regulated by the Accounting Act are also obliged to bookkeeping pursuant to the Bookkeeping Act. In fact, all legal entities carrying out business activities or participating in such activities in Norway are obliged to bookkeeping.
Note that accounting and bookkeeping are addressed in a separate guide found in Bedin: The Accounting Guide.
Accounting
The Accounting Act states that foreign enterprises carrying out business activities or participating in such activities in Norway, and who are subject to Norwegian taxation according to domestic legislation, are obliged to keep accounts pursuant to the Accounting Act.
This implies, among other things, that enterprises must register transactions that are of importance to the size and composition of their assets, liabilities, income and expenses in an accounting system.
The registration must comprise all information that is of importance to the preparation of the annual accounts and other financial reports that are required by acts and regulations (statutory reporting).
The accounting system must itemise all registered information that forms the basis for the amounts stated in statutory reporting.
Accounting records, including annual accounts, the board of directors’ report, auditor’s report, vouchers, time sheets, business agreements, correspondence etc. must be stored for either 10 or 3.5 years, depending on the nature of the document..
Many businesses use external accountants. The accountant must have the required authorization or be a registered accountant.
Apart from the bookkeeping and the yearly financial statement (balance sheet), the accountant may also assist with filling in and transfer of the periodic VAT returns, PAYE9 and payroll taxes.
The actual legal basis is found in the Accounting Act and corresponding regulations.
According to the Act,
When so requested by the tax authorities, the books shall be made available for control.
Required documentation
All businesses with a statutory obligation to keep accounts pursuant to the Accounting Act also have a bookkeeping obligation pursuant to the Bookkeeping Act. The purpose of the bookkeeping regulations is to ensure the preparation of reliable and punctual financial statements and enable subsequent control of these statements. External control requirements are thus a primary concern of the bookkeeping regulations, however,
The minimum requirement consists of the following:
Outgoing invoices
Incoming invoices and completed documentation of expenses
Cash register for registration of cash sales
Ledger for cash payments
Ledger for personal usage of goods and/or sales to the shareholders
Register appointments (e.g. if you run a studio or medical centre)
Register orders
Register time spent on assignments or projects
Register changes in the stock
Register transactions with respect to project/assignment
Perform the annual stock counting and produce the stock overview
Registration of transactions can be done abroad, but documentation must be kept in Norway after the financial year statements have been prepared.
Accounting principles
The Norwegian Bookkeeping Act is harmonized with the accounting directives of the European Union. The expressed and governing principle is that the financial statements shall be in accordance with generally accepted accounting principles.
The standards are issued by the Norwegian Accounting Standards Board (Norsk RegnskapsStiftelse).
The bookkeeping requires that all income and expense be entered in the books when it occurs. In most instances, the date on the invoice is the date used.
It is important that the bookkeeping is carried out continuously, making the books up to date at all times. Cash income and withdrawals are entered on a daily basis, and all the books should be revised and updated at least every second month.
All transfers between customer and supplier, including cash buys and sales between businesses are entered in the debtors’ and creditors’ ledger.
Documentation of expenses and income
All records in the income statement must be documented by receipts (vouchers). It is recommended that the file be organised as follows:
Note that all expenses and buys must be documented by receipts in their original.
When goods are sold to other business enterprises, the documentation consists of a numbered and dated sales document (invoice).
The Act is strict with respect to both the contents and format of the invoice. It must include the following:
A
The date of the issue of the document
Name and address of the seller
The business registration number
Name, address and registration number (if existing) of the buyer
The nature and volume of the services provided
Time and place for the delivery
Payments and date of maturity
Taxes connected to the transaction
For sales between VAT registered companies the sales document shall indicate the price excluding VAT and the amount of VAT.
Companies selling primary to private customers may choose to specify the price including VAT in the sales document, but the VAT shall be specified separately.
If some of the services or goods are exempted from VAT, in accordance with the regulations of the VAT Act, each of these categories must be specified and added separately in the document. The same applies to sales where the VAT rates vary.
An invoice is always issued in at least two copies, where one is kept by the seller.
The cash sales receipts must, on a daily basis, be checked against the actual contents of the cash register. The result is dated and signed before it is filed.
Should you withdraw cash or goods for your own or your family’s personal use or for gifts, all withdrawals must be recorded at the standard price. The record must be dated and contain a description of the goods.
Making your business documents valid
All organizations registered in the Register of Business Enterprises must enter their registration number on the stationary and business documents. The number on the documents will authenticate the seller and add credibility between the business partners and in relation to the authorities.
If you are running a business and are registered in the VAT register, the letters MVA must be added at the end of the business register number on all documents. This will indicate that your business is obliged to include VAT to the sales price. If these identification letters or the business register number are missing on the sales document, your customer may not get deduction for the VAT.
Limited liability companies, public limited liability companies and departments of foreign companies must in addition add the word “Foretaksregisteret” in connection to the business register number to indicate that the business is registered in the Register of Business Enterprises. Other businesses registered may do the same, but are not obliged to do so.
The purpose of this requirement is simply to provide information on which register the enterprise is registered in.
There are additional requirements for limited liability and public limited liability companies regarding the business documents. The company entity and the head office address must be added, and it must be notified if the company is under liquidation.
Annual report
The financial year follows the calendar year. Based on the recorded transactions as described and the stock counting, the enterprise shall produce an annual report consisting of profit and loss statement, balance sheet and cash flow statement. The annual report and financial statement must be produced in Norwegian language. Contact the local tax office for explanation of the rules governing the stock counting and assessment of the value of the stock.
Storage of records
As mentioned, the records must be filed in Norway for a period of 10 years or 3.5 years after the end of the financial year.
The 10 years obligation include all transactions documenting the business, such as annual accounts, directors’ report, auditor’s report, business agreements, correspondence etc.
Time sheets and vouchers must be kept for 3.5 years.
Auditing
You are obliged to appoint a Norwegian auditor if the operating income from your business entity’s overall activities in Norway exceed NOK 5 million. If the annual accounts show operating income exceeding this threshold, the obligation to appoint a Norwegian auditor comes into effect for the subsequent accounting year. If the operating income in the following two accounting years falls below this threshold, the obligation to appoint a Norwegian auditor ceases from and including the third accounting year.
Sole proprietorships and unlimited liability companies with up to five employees that are required to follow the Accounting Act are exempted from the obligation to appoint an auditor if the annual turnover is NOK 5 million or less.
Limited liability companies must always appoint auditors.
