Iceland is an island nation in the North Atlantic Ocean, not yet a member of the European Union, but part of the European Economic Area. Iceland is a country not only with a unique climate, but also with a uniquely highly developed economy. Every company in Iceland is obliged to submit its financial statements to the Register of Annual Reports maintained by the Icelandic Revenue Service and the Icelandic Customs. Mandatory auditing of financial statements exists for a number of companies (depending on the size and activities of the company).
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Iceland is a member of the European Economic Area (EEA) and applies European ISA and IFRS (International Standards on Auditing and International Financial Reporting Standards).
Financial reporting and accounting in Iceland are regulated by the Act on Annual Accounts No. 3/2006.
Annual financial statements must include:
Financial statements must be in Icelandic, Danish or English and in Icelandic krona (ISK). Companies incorporated in Iceland whose income comes from foreign sources can provide financial statements in a foreign currency and in another language.
Annual financial statements must be prepared and sent to the Register of Annual Accounts kept by the Iceland Revenue and Customs.
Books of account and accounting records (including source documents), incoming and outgoing correspondence must be kept in Iceland for at least 7 years, and annual financial statements for at least 25 years.
Micro companies can prepare annual financial statements in a condensed form and present to state authorities only a balance sheet, profit and loss statement and brief explanations. Audit is also not required for such companies.
A company is considered a micro company in the first financial year if it meets at least two of the following three conditions in that year:
Annual financial statements of small, medium-sized and large companies must include a report of the board of directors, and annual financial statements of medium-sized and large companies must also include a cash flow statement.
A company is considered small in the first financial year if it meets at least two of the following three conditions in that year:
A company is considered medium-sized in the first financial year if it meets at least two of the following three conditions in that year:
A company is considered large in the first financial year if it exceeds criteria stated for medium-sized companies.
A company’s classification does not change if the company does not exceed the above values for the current financial year and previous financial year.
Audit of financial statements in Iceland is regulated by the Auditing Act No. 94/2019 and the International Standards on Auditing (ISA).
The following companies are required to be audited:
Public companies must elect two auditors, one of which must be authorized to audit on behalf of the state.
Annual financial statements must be prepared for most companies and consolidated groups of companies within 8 months after the date of the end of the financial year and filed with the Register of Annual Accounts.
Public companies must file their financial statements not later than 4 months after the date of the end of the financial year.
The official deadline for filing a tax return is the end of May, but if the filing is done by a professional service (audit) company, the deadline is extended to September.
Companies that fail to present financial statements within the period prescribed by article 109 of the Act on Annual Accounts No. 3/2006 are imposed with administrative penalties.
The administrative penalty is 600 000 ISK, but there are the following concessions:
In the case of failure to present a tax return, the tax inspectorate will itself make an assessment and charge the payable tax. If a tax return is presented but the tax is not paid, a late payment interest is charged on the unpaid amount.
A parent company must prepare and present consolidated financial statements that must comply with requirements analogous to those applied to usual financial statements, i.e. requirements of the Act on Annual Accounts No. 3/2006.
Companies that exceed a certain size, are traded on an exchange and have subsidiaries must prepare consolidated financial statements.
Companies that are in the same consolidated group must have the same financial year, except for special cases. In cases when financial years do not coincide, notes to financial statements must contain information on this discrepancy.
A parent company that must make consolidated financial statements shall elect one or several auditors or an audit firm that must also audit subsidiaries of the group.
Annual financial statements of consolidated groups are classified into categories depending on the size of the group: small, medium-sized and large. Thresholds for determining the category of a consolidated group of companies are the same as for companies that are not in a group (stated above).
Depending on the size of the consolidated group, different requirements apply to consolidated financial statements: annual financial statements of small, medium-sized and large groups must include a report of the board of directors, and annual financial statements of medium-sized and large groups must also include a cash flow statement.
A parent company is not required to make consolidated financial statements if the consolidated group as a whole does not exceed size limits of a small group.