Change of audit requirements in Norway

[Norwegian version here]

Summary

On the 17 December 2010, the Norwegian government formally proposed an amendment to Norwegian law which will remove the audit requirement for small Norwegian AS (limited liability) companies.

Companies that will be affected

Under the proposal, the audit requirement will be removed for AS companies that meet the following criteria:

  • Less than NOK 5 million in annual turnover
  • Total assets/liabilities of less than NOK 20 million
  • Average of less than 10 full time positions

Important limitations

In addition to the limitations above on the size of the company and its activities, there are several other situations where an audit will be required of an AS company.

A very important limitation on the proposed removal of the audit requirement is that parent companies are not exempt from the audit. This includes subsidiaries in groups of companies that themselves are parent companies for other companies. The Norwegian Union of Auditors have also made it clear that their members will find it very difficult to audit the accounts of parent companies without proper audited accounts of all the subsidiaries). Using an AS company as a holding company thus may lead to all the companies in a group de facto requiring a full audit.
Another important exception, is the government enforced audits. Under the new law, the government may require a full audit from any AS company or NUF where the annual accounts appears to violate accounting law or good accounting practice.

Finally, any shareholder(s) representing more than 10% of the share capital of an AS company may demand a limited audit of the company.

Background for the change

The change is partly motivated by the Norwegian government’s pledge to simplify the reporting obligations and lessen the administrative cost and burden of smaller companies, in line with the EU Lisbon strategy.

The change is further motivated by the fact that the current audit requirement for small companies has been viewed as to give an undue competitive advantage to branches of foreign companies (NUFs).

Will the bill pass the parliament?

As the bill is still merely a proposal by the government, it must be passed as a law by the parliament before it takes effect. However, this seems at the present to be a formality. The Norwegian sosialist coalition government holds a parliamentary majority, and in addition the strongest opposition to a limitation to the audit requirement has been from parties in the government coalition. The conservative opposition is fully in support of a reduction of the audit requirements, and it is therefore presumed that the bill will be passed unanimously.

When will the change take place

It is unlikely that the law fill be passed until late in the spring session or early in the fall session. It will then likely have immediate effect, meaning that the accounts of 2011 will not need to be audited. That means that the actual effect on the company accounts will be from 1 January 2011.

However, pending the passing and implementation of the new law, new AS companies formed will still require their opening balance approved by an auditor until probably early fall.