Novo Nordisk will be changing its accounting policies in five areas. The four major changes will take effect from 1 January 1998, whereas one change was adopted already from 1 January 1997.
The new policies will bring the Group's financial statements in line with the international development. Therefore, this further harmonisation with international accounting principles will make Novo Nordisk's financial statements more easily comparable with those of other international companies. In addition, it will make Novo Nordisk's financial statements even more userfriendly, for example to investors. Selected financial highlights from previous accounting periods, restated by the new principles, will be published with the financial statements for the first three quarters of 1997.
Over the past few years, international accounting principles have developed tremendously, driven, for example, by the wish of several international organisations and interest groups to see international harmonisation of financial reporting. The five changes, which are described in greater detail elsewhere on this page, should be viewed in the light of a fundamental accounting requirement for including both revenue and the related costs within the same accounting period. In accounting terminology, this is called 'the matching principle'. One example is the change in the treatment of goodwill from the acquisition of businesses. Previously, like most other Danish companies, Novo Nordisk charged goodwill against unappropriated retained earnings. In future, goodwill will be amortised against income over a period Change in Novo Nordisk's accounting policies matching the revenue from the investment.

Variations
By adopting these changes, Novo Nordisk will ensure that, in addition to being adapted to the development in international accounting principles, its policies will be almost identical with US GAAP (United States Generally Accepted Accounting Principles). Beside its Danish financial reporting, Novo Nordisk must also present financial data according to US GAAP, because the shares of the Group are listed on the New York Stock Exchange. Since 1981, therefore, selected key figures from these financial statements have been disclosed in the notes to Novo Nordisk's Danish financial statements.
A company's net income for a given year may vary depending on the accounting principles used. This may be illustrated by a look at Novo Nordisk's financial statements for 1996 and 1995. For 1996, the Group's financial statements, drawn up using Danish accounting policies, showed a net income of DKK 1,799 million, whereas its US GAAP financial statements showed a net income of DKK 1,801 million. Thus, the difference for that year was just DKK 2 million. For 1995 (the year when Novo Nordisk divested several business areas) the Danish financial statements showed a net income of DKK 1,563 million, while the US GAAP net income was DKK 1,206 million, meaning a difference of more than DKK 300 million. In the longer term, the Group's overall fundamental financial position is the same, however, irrespective of the accounting principles used.

Søren Møller Christensen

The five new accounting policies
1 Indirect production costs will be included in the valuation of inventories:
In future, inventory costs will include costs that are an indirect part of manufacturing. These may for example be depreciation of production equipment and salaries of those responsible for operations. This type of cost represents a constantly increasing share of all manufacturing costs. Previously, indirect production costs were expensed in the period in which they were incurred and disclosed in a note to the financial statements.
2 Capitalisation and amortisation of goodwill:
Goodwill from the acquisition of businesses (ie, the difference between purchase price and net assets acquired) will be capitalised in line with buildings, for example. The value will be amortised over the expected useful life of the asset. Under the existing policy, goodwill is charged against unappropriated retained earnings.
3 Deferred tax will be provided for all temporary differences between financial and tax reporting:
In future, deferred tax for all temporary differences will be provided for, no matter whether the tax will become payable within a foreseeable future. Under the existing policy, deferred tax relating to property, plant and equipment is not provided for in the annual accounts but disclosed in a note to the financial statements. Other things being equal, the provision for deferred tax will result in an increase in the Group's effective tax rate.
4 Capitalisation of interest incurred in connection with the financing of major investments in property, plant and equipment:
Interest costs relating to the financing of major investments in property, plant and equipment will be included as an integral part of total capital expenditure and depreciated together with the asset (such as a building or a production line). Currently, such interest costs are stated as financial costs.
5 Listed securities will be stated at market value:
Listed securities will be stated at market value, meaning their listed price as of the balance-sheet date. Previously, such marketable securities were stated at the lower of market value or amortised cost. This change took effect already from 1 January 1997.