Report on financial reporting enforcement activities by the Danish Securities Council, 2009

Introduction

In 2009, the Danish Securities Council continued its financial reporting enforcement activities regarding the annual and interim reports of listed undertakings.

Summary of the results of enforcement activities

In 2009 the Danish Securities Council conducted financial reporting enforcement activities for a total of 41 annual/interim reports. On 31 December 2009, 13 of these cases had yet to be concluded. The reason for this is that a number of the pending cases concern interim reports and annual reports which do not follow the calendar year.

All of the 41 annual/interim reports selected for financial reporting enforcement activities were selected on the basis of a prior risk assessment. This means annual/interim reports in which there were conditions for which experience indicates that there is a higher risk of errors and omissions.

For this reason, the result of the enforcement activities cannot be considered as a general indication of the quality of all annual/interim reports.

The Danish Securities Council found errors and omissions which the Council deemed to have significance for investors’ decision-making in 21 of the annual/interim reports, corresponding to 75.0 per cent of the 28 reports finally concluded at 31 December 2009.

The Danish Securities Council found permissible departures from the regulations, i.e. departures which the Council deemed not to have significance for investors’ decision-making, in four of the annual/interim reports, corresponding to 14.3 per cent of the 28 reports finally concluded at 31 December 2009.

The Danish Securities Council found no departures giving rise to an action towards the undertakings in three of the annual/interim reports, corresponding to 10.7 per cent of the reports finally concluded at 31 December 2009.

The number of inspected annual/interim reports found to have errors has gone up relative to 2008. In 2008, 15 per cent of all the annual/interim reports inspected had errors. However, it should be noted that 30 per cent of the annual/interim reports selected for inspection in 2008 were selected for inspection randomly.  As mentioned above, this was not the case in 2009 when all of the annual/interim reports selected for inspection were selected on the basis of a prior risk assessment, and therefore represent those financial statements where the risk of errors is greatest.

The nature of the errors ascertained and actions by the Danish Securities Council

The 21 cases with errors and omissions include e.g.:

• omitted write-downs on loans as a result of incorrect measurement of collateral; 
• incorrect and misleading recognition of transaction costs in connection with portfolio management by investment associations;
• omitted risk declarations in the statement by management;
• incomplete implementation of new accounting regulations;
• omitted statement of movements in own funds/shareholders' funds;
• comparative figures in interim reports calculated at the wrong dates;
• unaudited voluntary information in the management's review or in the annual/consolidated financial statements.

In 12 of the 21 cases with errors and omissions, undertakings decided to publish corrective/supplementary information themselves following the Danish Securities Council’s consultation with the undertaking. In a single case, the Danish Securities Council ordered an undertaking to prepare an entirely new annual report. In five cases, the Council ordered the management of the undertaking to publish corrective/supplementary information to the annual report, including  one case where the undertaking was ordered to publish the corrective/supplementary information in its next annual report. The remaining three cases were concluded with a reprimand or the undertaking had ceased trading.

Decisions regarding cases from previous years

In addition to the cases mentioned above, in 2009 the Danish Securities Council made decisions on errors and omissions of significance for investors’ decision-making found in three annual/interim reports for which enforcement activities commenced in 2008. Furthermore, one undertaking chose to correct its annual report following consultation with the Danish Securities Council.

Cases brought before the Company Appeals Board

No reporting enforcement cases were brought before the Company Appeals Board in 2009.

Publication of decisions

Cases decided by the Danish Securities Council are published on the Council’s website under material and/or principle decisions (Danish only).