Sweden: Doing Business In Sweden - Significant Accounting Practices

Last Updated: 28 February 1996
Consolidated Accounts

Companies are required to consolidate all entities including partnerships in which they control, directly or indirectly, more than 50% of the votes.

Acquisitions of subsidiaries are generally accounted for by the purchase method. The great majority of Swedish consolidated accounts are prepared on this basis, but other methods are occasionally used. Under certain specific circumstances, the pooling-of-interests method is acceptable.

The Financial Accounting Standards Council's first recommendation pertain to the following consolidated accounting issues:

- Goodwill must be computed using the market value of all assets in the acquired company. It should be amortised against operating income either on a straight-line or a declining-balance method, preferably over 10 but no more than 20 years.
- Untaxed reserves should be divided into the deferred tax portion, which is treated as a tax liability, and the balance, which is recorded as non-distributable equity in the consolidated _nancial statements.
- Trademarks that are not recorded by a subsidiary may be reported separately from other goodwill, provided they are subject to the same amortisation rules.

Associated Companies

In the separate financial statements, income from associated companies is reflected only to the extent that it has actually been distributed in the form of dividends. Undistributed earnings are not reflected because the equity method of accounting is not recognised in separate financial statements in Sweden. For consolidated financial statements, the Swedish Institute of Authorized Public Accountants has proposed that associated companies are accounted for either by the cost method or the equity method. An associated company is normally defined as an investment representing more than 20% of the investee's voting stock.

In computing earnings per share, any undistributed earnings of the investee must be included.

Foreign-Currency Translation

Receivables and payables denominated in foreign currencies should be converted to Swedish kronor (SEK) at the exchange rates on the balance sheet date. The resulting unrealised gain or loss on current (short-term) receivables and payables is included in earnings for the period. An amount equal to unrealised profits on non-current receivables and liabilities shall be provided for under untaxed reserves in the balance sheet and as tax appropriations in the income statement.

If balances in foreign currency have been covered by forward contracts or hedged, the contracted rate of exchange should be used in the balance sheet.

The net profit or loss on receivables from customers and payables to suppliers is included in operating income in the statement of earnings. The net profit or loss on amounts loaned or borrowed is accounted for as a financial item.

Deferred Taxes

Deferred taxes are normally only accounted for in consolidated accounts, and then normally only related to the tax liabilities in untaxed reserves and tax receivables and liabilities determined after allowing for the tax effect of restating identifiable assets and liabilities in acquired companies to their fair values.

Property, Plant and Equipment

Property, plant and equipment are normally capitalised at original cost. The Company Act allows revaluation of these assets with certain restrictions. Land and buildings may not be revalued above their tax assessment value, which shall approximate 75% of current market value. Plant and equipment may not be revalued over their current value to operation, and for real estate not over the tax assessment value.

The revaluation of fixed assets may be accounted for as write-downs of other fixed assets. It may also, for limited companies, be used for a bonus issue of capital stock or alternatively be deferred to a revaluation reserve as part of restricted equity.


Depreciation for financial statement purposes is determined according to plan, that is, based on rates related to the assets' economic lives. Any difference between depreciation based on economic lives and depreciation allowed for tax purposes is accounted for as an allocation to untaxed reserves. Tax depreciation and depreciation based on economic lives on buildings and land improvements are approximately the same, but for plant and equipment is tax depreciation often more liberal than depreciation based on economic lives.


Inventories are normally stated at the lower of first-in, first-out (FIFO) cost and market. Market is usually the net realisable value, but replacement cost, if lower, is also permissible for raw material and purchased semi-finished products.

A standard provision of 3% of actual acquisition value of total inventory is allowed for tax purposes if inventory has been valued at the lower of cost or market. Combinations of replacement valuation and the 3% standard provision format are not permissible for tax purposes.

Long-term projects are usually accounted for on the completed contract basis, but the percentage-of-completion method is permissible.

Whether the completed contract or the percentage-of-completion method is applied, any estimated loss at completion should be fully recognised when determined and any costs should be accrued up to that point of time.

Intangible Assets

Goodwill may be capitalised only if acquired through acquisition of assets or operations and must be amortised over a period of preferably 10 but no more than 20 years.

Expenditures for technical assistance, research and development, pilot operations, marketing research and similar activities may be capitalised if they represent important future benefits for the company. Such expenditures must be amortised over a period of no more than five years, unless a longer period can be justified.


Operating lease accounting is generally used to account for leases. However, the Financial Accounting Standards Council has recently issued a recommendation on accounting for lease agreements, which will be effective from January 1, 1997. The recommendation is in all material respects similar to IAS statement 17 "Accounting for Leases".

Related-Party Transactions

Year-end balances with parent company and subsidiaries as well as the identity of the parent company, and if applicable the parent's parent company, must be disclosed in the financial statements. Investments in shares of other members of a company group, as well as sales and purchases to and from such companies, must also be disclosed. Remuneration and loans to board members are also required to be disclosed.

Earnings Per Share

Public companies are encouraged to disclose earnings per share. To be meaningful, however, earnings per share must be calculated on the basis of income before allocations to untaxed reserves, less an assumed tax amount, based on the statutory tax rates and the estimated amount of tax credits available to the company.

Untaxed Reserves

The most common appropriations to untaxed reserves are:

-depreciation in excess of plan and
-the Profit allocation reserve (Periodiseringsfond)

The tax law requires that these appropriations are recorded in the companies' separate financial statements as tax appropriations in the income statement and as untaxed reserves in the balance sheet, in order to qualify for tax deduction. See also Tax reserves, and Consolidated accounts in 'Significant Accounting Practices'.

Pension Commitments

The Swedish Institute of Authorized Public Accountants has recommended that unfunded pension liabilities be accounted for as liabilities. The Accounting Act however, also admits that unfunded pension commitments are accounted for as contingent liabilities.

The contents of this article are intended as a general guide to the subject matter. Specialist advice should be sought for your specific circumstances.

For further information contact Per Snellman on Tel: +468 613 9000 0r Fax: +468 791 7511; or enter a text search 'Ernst & Young' and 'Business Monitor'.

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