Starting a Cooperative in Finland

Financial year, financial statements and auditing

Content

Financial year and financial statements (COA Chapter 8, Sections 3 to 12, and Accounting Act, Chapter 1, Section 4, and Chapters 3 to 6)

The financial year can be specified either in the incorporation instrument or the rules. The decision to modify the financial year is always done by the cooperative’s general meeting, irrespective of where the stipulation is included.

According to the Accounting Act, the financial year is a 12 month period, usually the calendar year. When starting or unwinding the operations or after the amendment of the financial statement date, the financial year can be shorter or longer but not exceeding 18 months. The first and the last financial year can be as short as required.

In case the first financial year of the cooperative is shorter than six months, it is worthwhile to stipulate in the rules the first date of the cooperative’s financial statements. In this case, the first financial year will be long enough. In practice, the first financial year start from the signing date of the incorporation act.

§ Financial year and financial statement

The financial year of the cooperative is the calendar year. For each financial year, an annual statement has to be prepared. It is to be delivered to the auditor at least one month before the general meeting, where the loss-and-profit account and the balance sheet are to be presented for approval.

Financial auditor and performance auditor (COA, chapter 7 and the Audit Act)

Choice of financial auditor:

The cooperative’s obligation to elect a financial auditor and to execute a financial audit is included in the Audit Act. The default rule is that the choice of the auditor and the execution of an audit are compulsory. The Audit Act has provisions for the qualification of the financial auditor to be chosen. The financial auditor has to satisfy the formal requirements of the Audit Act and have the diploma certifying his professional competence (authorized by Finland Chamber of Commerce, “KHT-tilintarkastaja”, or by a local Chamber of Commerce, “HTM-tilintarkastaja”) ), or it has to be an authorized audit firm (KHT or HTM) (Audit Act, Chapter 6, Sections 30 to 34).

According to the Audit Act, small entities, amongst which cooperatives, are exempted from the obligation to have their accounts audited and to elect an auditor, if during the financial year currently ended and during one immediately preceding only if one of the minimum criteria of the Audit Act is fulfilled:

  1. the annual balance sheet exceeds € 100,000;
  2. the turnover or the corresponding revenue exceeds € 200,000;
  3. more than three persons are employed on average.

Even if the Audit Act does not require any auditor, the cooperative’s rules can stipulate that one must be chosen. In this case, the internal rule is mandatory, and the cooperative is required to have one.

The choice of the financial auditor belongs to the general meeting. If an auditor is chosen, there has to be one financial auditor and a second alternate auditor. The auditors remain in office until further notice unless the rules have stipulations for a definite term of office.

Choice of a performance auditor:

The Audit Act requires cooperatives to appoint a performance auditor for the cooperatives exempted from the requirement to appoint a financial auditor without stipulating the rules concerning the obligation to appoint one. If only one performance auditor is chosen, there has to at least one alternate performance auditor. However, this does not mean that the cooperative can derogate from the Cooperatives Act and stipulate that it will not select any performance auditor. The general meeting always elects the performance auditors.

Concerning the performance auditor, there is no professional qualification required, unlike for the financial auditors. This does not mean that any layman could be designated as the performance auditor. The Finnish Cooperatives Act assumes the performance auditor has the necessary knowledge and experience of financial and legal affairs proportionally to the nature and the extensiveness of the cooperative’s operations in question. Also, the performance auditor has to independent of the cooperative and its administration. According to the Cooperatives Act, the performance auditor is not allowed to be, amongst others, a member of the board of directors, the managing director, a near relative of these, or a person employed by the cooperative. Members of the cooperative are not unable to act as performance auditors. (Eligibility and independence of a performance auditor, cf. COA Chapter 7, Section 9).

Options for the choice of a financial auditor or a performance auditor

1 ) Stipulation in the rules with only a reference to the Audit Act:

The cooperative’s general meeting is required to elect at least one financial auditor, and an alternate financial auditor or, the financial auditor has to be an audit firm. If, according to the Audit Act, the cooperative is not required to choose a financial auditor, the general meeting is required to choose at least one performance auditor and one alternate performance auditor. Both the financial auditor and the performance auditor will be in office until further notice. The rules can stipulate otherwise for their office.

The preceding stipulation in the rules is mainly informative; it is not compulsory to include it if the cooperative is to confirm itself to the provisions of the laws (Cooperatives Act and Audit Act) for the financial and performance auditors.

§ Financial auditor and performance auditor

“One financial auditor and one alternate financial auditor must be elected for the cooperative if the Audit Act so requires. The financial auditor will be in office under further notice./ OPTION The financial auditor’s office will begin from their choice and end the year / the second year / the third year after their choice when choosing a new one.

The cooperative must have a financial auditor and an alternate financial auditor elected by its general meeting unless the cooperative has a financial auditor.”

2) The rules have an unconditional stipulation for the choice of a financial auditor:

The financial auditor and the alternate financial auditor must always be chosen, even if the Audit Act does not require a financial auditor’s election for a cooperative.

§ Financial auditor and alternate financial auditor
“A financial auditor and an alternate financial auditor have to be chosen for the cooperative. The auditor will be in office until further notice. / OPTION The office of the financial auditor will begin from their choice and end the year / the second year / the third year after their choice when choosing a new one.”

3) Stipulation in the rules excluding the choice of a performance auditor:

§ Financial auditor and alternate financial auditor

”A financial auditor and an alternate financial auditor must be chosen for the cooperative if the Audit Act so requires. The financial auditor will be in office under further notice. / OPTION The office of the financial auditor and the alternate financial auditor will begin from their choice and end the year / the second year / the third year after their choice when choosing a new one.

No performance auditor will not be chosen for the cooperatives.”