1. Extended review
– an alternative for
your business?
Presentation of reporting
class B enterprises’ option to
choose an extended review
rather than an audit
kpmg.dk

2. An extended review rather
than an audit?
On 6 December 2012, the Danish Parliament adopted a
relaxation of the audit obligation of reporting class B
enterprises under the Danish Financial Statements Act. The
purpose of the amendment is to ease the administrative
burdens of small enterprises.
If your enterprise is a reporting class B enterprise, you may
choose between an extended review and an audit.
Moreover, the relaxation of the audit obligation means that
small holding companies will qualify for an audit exemption
in the future.
KPMG supports the idea of a number of enterprises now
having the option to choose an alternative to the audit,
which in some cases will be more in line with the financial
statement users’ actual needs.
When do the new rules take effect?
An extended review can be chosen by reporting class B
enterprises at the next annual general meeting.
Subsequently, the choice is valid for the current financial
year. There are no other formal requirements.
Who may choose an extended review?
Reporting class B enterprises comprise enterprises which in
two consecutive years do not exceed two of the following
three limits:
• Revenue of DKK 72 million.
• Balance sheet total of DKK 36 million.
• 50 full-time employees on average during the financial year.
In Denmark, the majority of enterprises are reporting class B
enterprises, and consequently, the new rules are relevant to
the majority of the enterprises in Denmark.
Small enterprises and holding companies
Small enterprises and holding companies may qualify for an
audit exemption and an extended review exemption if the
enterprise or the holding company, including group
enterprises, does not exceed the following two limits in two
consecutive years:
• Balance sheet total of DKK 4 million.
• Revenue of DKK 8 million.
• 12 full-time employees on average during the financial year.
What is an extended review?
An extended review is what auditors refer to as a review plus additional procedures which enhance the level
of assurance of the auditors’ opinion. An extended review can be illustrated as follows:
Review in accordance with
international review standards
• Analyses and queries
Additional procedures
• Obtaining and examining
– statements of account from banks
– attorney’s letter
– Land Registry and the Registry of Persons
and Motor Vehicles
• Reconciliation to bookkeeping records
­regarding reported salaries and wages,
duties, VAT and tax
Extended review
© 2013 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

3. Basically, the difference between an audit and an extended
review is that the auditor will perform fewer audit
procedures in connection with an extended review than in
connection with an audit, and consequently, the auditors’
report on the financial statements provides less assurance
to the financial statement users.
In connection with an audit, all significant financial
statement items and the completeness of the financial
statements are examined. Information received is verified by
obtaining strong audit evidence which documents and
confirms the disclosures in the financial statements. For
example, an extended review does not comprise:
• testing of business procedures and internal control to
obtain audit evidence of the completeness of
transactions,
• testing of matters associated with a risk of material
misstatement, for instance physical control of inventories
and circularisation of debtors regarding receivables and
payables,
• unannounced examination of cash at bank and in hand,
• preparation of a long-form audit report.
Audit
Analyses
Queries
Verification of
information received
on all significant
items in the financial
statements
Extended
review
Analyses
Queries
Additional
procedures
Review
Analyses
Queries
Limited
assurance
Reasonable
assurance
Degree of assurance
The difference between an audit, an extended review and a review
What is the difference between an
audit and an extended review?
© 2013 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

4. The right choice for your enterprise will among other things
depend on the enterprise’s complexity, ownership structure,
governance and plans for the future as well as the needs of
the users of the financial statements. The choice therefore
depends on an individual assessment based on the
enterprise’s circumstances. If users of the financial
statements have special needs in this respect, KPMG
recommends that the decision not to choose an audit be
made in consultation with these users.
The enterprise’s Management should consider the following
matters when choosing between an audit and an extended
review.
Examples of three types of enterprices and their
choices
The following examples of three types of enterprises show
what the enterprise’s Management should take into
consideration and what they typically choose. The
enterprises include:
• an owner-managed enterprise,
• an enterprise with many owners,
• a subsidiary of a large group.
Area Circumstances in favour of an audit Circumstances in favour of an
extended review
Ownership structure Several owners and/or a professional
Board of Directors.
Principal shareholder companies and/or
overlap between the Board of Directors
and the Executive Board.
Management An audit will help improve the quality of
the ongoing management reporting and/
or Management uses the long-form audit
report to assess and approve the financial
statements.
The ongoing management reporting
provides a reliable basis for making
managerial decisions.
Financing structure Enterprises with large bank loans and
other credit facilities secured by company
charges.
Enterprises with limited or no debt.
Internal control and
monitoring
Weak internal control and/or no
monitoring by the Management and the
owners.
Strong internal control and a Management
and/or owners that monitor all significant
matters in the enterprise.
Complexity Complex financial statement items
involving many estimates.
Simple enterprises with no complex
accounting issues.
Plans for the future Enterprises in which a sale or succession
is planned and/or entreprises which are to
raise capital in the near future.
Enterprises which do not expect
significant additional capital contributions
or loan financing.
Financial statement users Owners/parent company or suppliers and
customers require/expect that an audit is
maintained.
Financial statement users do not require/
expect that an audit is maintained.
An active choice between an audit
and an extended review
© 2013 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

5. Owner-managed enterprise
• An owner-managed enterprise is typically characterised by the owner being
deeply involved in the day-to-day operations of the enterprise. Often there is no
Board of Directors, or the Board of Directors consists of family members and
sometimes an attorney.
• The owner-manager usually does not need a financial statement audit, but in
some cases, the banks may have conflicting interests and require an audit.
• An audit may be relevant to enterprises with complex financial statement items
involving many estimates and maybe combined with plans of a sale or
succession and/or a need to raise capital in the near future.
Enterprise with many owners
• This type of enterprise is characterised by having a Board of Directors with
external members and many owners. Not all shareholders participate in the day-
to-day operations. The enterprise often aspires to grow.
• In this type of enterprise, the many owners and the Board of Directors with
external members will often mean that an audit of the financial statements will
provide more value than an extended review. An audit will help ensure a more
solid platform for growth and raising of capital.
Subsidiary of a large group
• The parent company in international groups often does not require an audit of the
reporting that a minor Danish subsidiary is to submit to the parent company. This
allows the enterprise to choose an extended review of the external financial
statements.
• If there are no special circumstances in the group, it will often be relevant to
choose an extended review as an alternative to an audit. Special circumstances
may include expected strong growth, possible divestment within the next few
years or weak internal control and monitoring by the Management or the group.
Typical choice:
Depends
on a specific
assessment
Typical choice:
Audit
Typical choice:
Extended
review
Examples of three types of
enterprises and their choices
© 2013 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

6. © 2013 KPMG Statsautoriseret Revisionspartnerselskab, a Danish limited liability company
and a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The
KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks
of KPMG International.
Ask your local KPMG auditors if you want to know more about extended review
P13019
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