Finland: Country Review

Introduction

Finland has a long history, with its people having rich cultural heritage, strong economic background, and a relatively stable political environment. The country enjoys a close relationship with the United States, particularly because of its geographical location and history. The country is endowed with numerous natural resources, which have significantly boosted its economy. These resources include fossil fuels, ores, forestry and fish among others. The Finnish form of government is well balanced, with the parliament, executive and the judiciary having distinct powers and roles. Although the country’s accounting system had significantly contrasted with the International Accounting Standards (IAS), several reforms have lessened the gap and increased the level of financial disclosure and audit responsibility (Kinnunen et al., 2000). This report is an analysis of the socio-economic and political, as well as accounting and audit practice in Finland.

Brief history of the country and its cultural heritage

Although the origin of Finnish is not well known; many researchers have suggested that they could have originated from what is presently known as West-Central Siberia. Also, a significant component of the first Swedish settlers in America was composed of the Finns. In 1809, Finland was occupied by the armed forces of Czar Alexander I and subsequently remaining an independent grand duchy linked with the Russian realm until 1917, when Finland got its self-governance status. In 1918, the country went through short-lived, but harsh civil conflict that tainted domestic political affairs for several years. In the course of World War II, Finland came to blows with the Soviet Union for two rounds. This was ensued by the Lapland conflict that took place from 1944 to1945, when Finland came to blows with the Germans as they pulled out their armed forces from Northern Finland. Accords signed in 1947 and 1948 with the Soviet Union incorporated commitment and limitations on Finland with reference to the U.S.S.R., in addition to defensive compromises. Finnish culture draws its richness from traditional lifestyles, environmental realities, egalitarianism heritage and the self-sufficiency ideal that was traditionally prevalent (U.S. Department of State, 2012).

Natural resources

The non renewable natural resources in Finland include fossil fuels, which has caused considerable environmental damage. However, the government of Finland is aiming at ensuring that its natural resources are used sustainably. The country is also popular with ores, which is also a source of non renewable natural resources. Of late, Finland is slowly changing over to renewable natural resources. These include large chunks of land that have been conserved for state-owned forestry as well as those held by private companies. The forests are mainly used for timber and fuelling. The country is also very rich in water resources – it is actually one of the world’s richest country in respect to water resources (U.S. Department of State, 2012).The other common natural resource is fish. One of the most common species that is used for commercial purposes is vendace. There is also Reindeer husbandry, which forms a small part of the national economy, but with a vast ecological, economic and cultural significance in the Northern parts.

Form of government

The present system of government in Finland was established in 1919. Since then, the country has enjoyed a democratic government. This government, which was skillfully built, enables its people to manage their own affairs with all the social groups being involved, albeit some inter war lapses from time to time. This government is composed of strong checks and balances, which are built upon a system of adapted separation of powers that facilitate democracy and protection of basic rights for everybody. The Finnish people are represented by a 200-member parliament, which is elected through a popular vote. The president determines the foreign policy and exerts supreme executive powers. However, the president is not politically responsible to the parliament and can conduct multiple functions through the cabinet, which is reliant on the support from the parliament. The judiciary is independent and is backed by two legal officials with extensive sovereign powers; these includes the parliamentary ombudsman and chancellor of justice charged with ensuring that the institutions of government adhere to the rule of law.

Major industries

Some of the major industries that make up the Finnish economy include food processing and manufacture of steel, iron, electronic and electric equipment such as mobile phones, ships, scientific instruments, machinery, clothing, textiles, chemicals, and pulp and paper. The country is also popular with design of ceramics, glass, and stainless steel cutlery. Towards the end of the 20th century, services, manufacturing, and transport and trade were the chief components of the economy. Agriculture, which mainly composed of fishing and forestry, took some small share of the economy (U.S. Department of State, 2012).

Exports and imports

Finland’s main exports include machinery, Paper and pulp, Electrical and optical equipment, Chemicals, Timber, and basic metals. Recently, electronics have dominated the country’s exports; they account for approximately 23.3% of the total export, followed by chemical industry products and then machinery and equipment. On the other hand, chief imports include grains, chemicals, foodstuffs, transport equipment, fabrics, iron and steel, and petroleum. Among these imports, electronic commodities dominated the trade at about 17%, followed by chemical products (U.S. Department of State, 2012).

General relationship with the U.S.

Finland and United States shares a warm relationship. Every year, more than 200,000 U.S. citizens tour Finland, and approximately 5,000 U.S. citizens reside in Finland. Russia, which is a former Soviet Union member, is neighboring Finland on its east – this country was of much interest to the U.S. during the cold war and thereafter. United States supported Finland, before the former U.S.S.R disintegrated in 1991, on areas such as culture, history and its economic ties with the West. Following the disintegration of U.S.S.R, Finland has gradually absorbed institutions of the Western. Finland joined NATO’s peace partnership in 1994; this is besides adhering to the North Atlantic Cooperation Council. The country also shares investments interest with the U.S. especially on areas concerned with high-tech investments and companies. United States is particularly interested with these investments because of Finland’s location as an entry to the Baltic countries and Russia (U.S. Department of State, 2012).

Accounting and taxation issues

What is the country’s primary source of GAAP

Finland’s local GAAP are drawn from a private standard setter and are closely associated with tax regulation.

The country’s attitude/record on corporate financial disclosure

Some of the major adjustments of corporate governance in Finland are concerned with auditing, accounting as well as rules of disclosure. From early 1980s, the Finnish accounting legal framework, which was build on distinctive cost-income theory, contrasted from the international standards. An investigation into the financial performance by IASC on 54 nations across the world revealed that the accounting systems from Finland had the least agreement with the IAS. Consequently, the companies from Finland commenced dual financial statements’ disclosure in 1980s. These practices were aimed at attracting the international investors (Kinnunen et al., 2000). As opposed to the U.S. companies, the Finnish companies were incapable of playing down their taxable income without changing the pre-tax profits, which they reported. Also, the accounting rules allowed profits derived from dividends to be managed; these accounting practices were widespread in Finland before 1989 (Kasanen, Kinnunen & Niskanen, 1996). The variation of Finnish accounting rules from IAS narrowed down, following a series of reforms in the 1990s. Following these reforms, Finland has come up with a disclosure regulation that is almost harmonized to the principles in other EU member countries. Its objective is to safeguard small investors by ensuring they have access to equal information.

Social, employment, or environmental disclosures that Finland requires

Finland should impose a mandatory disclosure of annual sustainability reports for the companies with more than 300 employees. These reports should adhere to the Global Reporting Initiative G3 plan. Also, there should be a legislation requiring the country’s top companies to disclose their corporate responsibility policies. The stock exchange can also work in conjunction with the government to make it mandatory for companies to disclose their environmental and social information before they are listed.

What is the status of the auditing profession in the country?

In Finland, the major audits are limited to only those practitioners who have expressed audit-precise competencies. The auditors who serve issuers should be listed on public auditors’ record and possess licenses of operation. The audit firms that serve the securities issuers should be listed on the records. The auditors are required to undergo an extensive training to prepare them discharge their duties with competence. There is a new Auditing Act that has increased requirements, qualification, monitoring and reporting for auditors. The Act has put more emphasis on the independence of auditors.

Conclusion

This analysis has depicted Finland as having a strong economic background and a stable political environment, as well as a rich cultural heritage. Apparently, the country’s accounting system is slowly adopting the International Accounting Standards, mainly with the aim of improving financial disclosure and investors’ protection (Kinnunen et al., 2000).

References

Kasanen, E., Kinnunen, J., & Niskanen, J. (1996). Dividend-based earnings management: Empirical evidence from Finland. Journal of Accounting and Economics, 22, 282-312.

Kinnunen, J., Niskanen, J., & Kasanen, E. (2000). To whom are IAS earnings informative? Domestic versus foreign shareholders perspectives. European Accounting Review, 9, 499-517.

U.S. Department of State. (2012). Web.

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