aliarvioiminen

A special type of Finnish accounting is called aliarvioiminen, which translates to under-valuation. This practice refers to the deliberate setting of a company's asset values at a level lower than their actual market or historical cost. It is a conservative accounting principle that aims to present a more cautious financial picture to stakeholders, such as investors and creditors.

Aliarvioiminen can be applied to various assets, including inventory, property, plant, and equipment, as well as intangible assets. For example, inventory might be valued at its cost or net realizable value, whichever is lower. If market prices fall, the inventory's value on the balance sheet could be reduced below its original cost, creating an under-valuation. Similarly, fixed assets might be depreciated more rapidly than their economic useful life suggests, leading to a lower book value.

The primary reasons for employing aliarvioiminen include building up hidden reserves, which can be used to smooth out earnings in future periods or to absorb unexpected losses. It can also be a strategy to reduce a company's tax liability, as lower asset values can lead to lower reported profits and thus lower taxes. Furthermore, some companies may use it to present a more financially robust position, as actual asset values could be higher than reported, providing a buffer in case of financial distress. However, overdoing aliarvioiminen can lead to misleading financial statements, making it difficult to assess a company's true performance and value. Finnish accounting standards provide guidelines on acceptable levels of conservatism, and extreme under-valuation can be viewed unfavorably by auditors and regulators.