The Use of Extended Review is Growing in Denmark

22.03.2019, Aihe: Tilintarkastuksen asiantuntijoille

Anders Lau

Anders Lau
Head of Communications
FSR - Danish Auditors


Extended review was introduced in Denmark in 2013. Since then, the new product which is aimed at smaller businesses has been selected by over 30,000 SMEs. Although many companies opt out of auditing these years, audit is still the most popular product of the auditors.

In December 2012, the Danish Parliament decided to introduce a new auditing standard as an alternative to the audit for smaller companies. The new standard, called Extended Review, is originally based on a draft proposal from FSR - Danish Auditors. The idea behind the standard is that smaller businesses that do not have the need of the high level of assurance of an audit can choose to have an extended review of the financial statements instead.

Smaller businesses had long wanted an alternative to the audit. In a questionnaire survey from the business organization The Danish Chamber of Commerce from 2010, more than half of all small businesses responded that they would ask their partners and suppliers to have another form of review of their accounts by the auditor if they opted out of auditing. In another study also from 2010, the credit managers in the country's largest financial institutions also state that extended review could serve as an alternative to full auditing for smaller firms.

Better assurance than the review

The actual Extended Review standard is based on the existing standard on review engagements ISRE 2400 but includes additional actions that help increase the assurance of the auditor's conclusion. These actions include control of tax reporting, ownership rights and mortgage and queries to financial lenders and lawyer relations.

Before 2013, the closest alternative to the audit was the review. However, many companies and users of the audit statements found that the limited assurance in the review was not enough. If they wanted a higher level of assurance, their only option was an audit. With the extended review, companies have been given an alternative that provides a higher level of assurance than the review, although not as high as the audit.

Companies still prefer audit

Anders Lau_blog_kuva

Today approximately 250,000 small businesses have the option of extended review. The audit exemption threshold for small businesses is a turnover of DKK 89 million. About 95 per cent of all Danish companies are small businesses and can thus choose to have an extended review instead of an audit. Although most Danish companies are not required to use the expertise of an auditor to help with the annual accounts, more than 80 per cent of all companies still use an auditor.

Audit remains the most requested audit service, but there have been major changes in the market. Several other services from the accounting industry are rapidly emerging. This appears from a study of the companies' annual accounts.

In 2010, approximately 90 per cent of all companies were audited. In 2017, this number decreased to 37 per cent. Extended review of the accounts has grown steadily over the period. Since the service was launched in 2013, there has almost been a threefold increase in businesses using this service. From just over 13,000 companies in 2013 to 31,000 companies in 2017.

However, the greatest increase has been in the use of compilation. Today, almost every third company receives compilation and thus the service is the second largest business area. The proportion of companies that do not use an auditor has increased from 6 per cent in 2010 to 18 per cent in the 2017 annual accounts.


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