Dutch Audit and Accounting
Holland has a well developed regulatory framework for private businesses, partnerships and corporations. The main elements of the framework consist of: clear rules on financial statements, auditing, and the publication of audits.
Because of the clarity and relative simplicity of the regulations, corporations are able to have a stable base of operations where they can plan for the long term. In this article, we lay out a summary of the requirements for accounting, auditing and publication in the Netherlands. If you would like to receive more detailed information, please contact us.
Mandatory preparation of financial statements
Practically all corporate entities registered in Holland are obliged to present financial statements. The requirement is statutory and often included in the entity’s Articles of Association (AoA).
Foreign companies are obliged to submit their yearly accounts in their home countries and provide a copy to the Dutch Commercial Chamber. Branches are an exception to this rule as they are not obliged to prepare separate financial statements.
Importance of the financial reports for Dutch businesses
Financial statements constitute the foundation of corporate governance and, as such, are a vital element of the legal system in Holland.
Their main purpose is to report to shareholders. Once the shareholders accept the statements, they discharge the directors’ board for its performance. Their equally important secondary purpose is to protect creditors. Practically all corporate entities are obliged to register at the Trade Registry of the Commercial Chamber and publish annually particular financial data. The Registry is publically accessible and represents an important information source with regard to the national market.
Financial statements also have to do with taxation. Even though the tax law provides independent rules for determining the tax basis, the first step of the process is to consider the statements.
Contents of Dutch financial statements
As a minimum, the statements contain a profit/loss account, balance sheet and notes on the accounts.
Generally Accepted Principles in Accounting (GAAP) in Holland
The Dutch rules for accounting are regulated. The accounting principles are primarily based on European directives.
The GAAP apply to private and public companies with limited liability and to other entities, e.g. some partnership forms. Companies listed on the stock market, insurance companies and financial institutions are subject to special rules.
The Dutch accounting principles differ from the international standards for financial reporting (IFRS) but they are continuously harmonized. As of 2005 all companies listed in the European Union are obliged to follow the IFRS. This rule also applies to the Dutch insurance companies and financial institutions. The question whether private limited liability companies (BVs), non-listed public limited liability companies (NVs) and other local business entities can follow the IFRS is still being discussed.
The Dutch accounting principles
According to the principles of accounting all financial information has to be understandable, reliable, relevant and comparable. All financial statements have to reflect realistically the position of the company in line with the principles.
The profit & loss account, balance sheet and notes must present truthfully and dependably the equity of the shareholders on the date of the balance sheet, the annual profit and, if at all possible, the liquidity and solvability of the company
Companies participating in international groups may choose to prepare their statements in compliance with accounting standards accepted in another member of the EU, if a reference to these standards is included in the attached notes.
The principles of accounting need to be presented in the statement. Once implemented, these principles can be changed only if the change is well justified. The reason for the change must be explained in the respective notes, together with its consequences with respect to the company’s financial position. The Dutch legislation lays out specific requirements for disclosure and valuation that must be respected.
The official reporting currency is the Euro, but depending on the specific company activities or its group structure, the report may involve another currency.
Consolidation, audit and publication requirements in Holland
The consolidation, audit and publication requirements depend on company size: large, medium, small or micro. The size is determined using the criteria below:
- number of staff
- asset value in the balance, and
- net turnover.
The following table summarizes the parameters used for classification. The asset values, staff and net turnover of group companies and subsidiaries qualifying for consolidation must also be included. Companies qualifying for the large or medium category must meet at least 2 of the 3 criteria in two consecutive years.
|Turnover||> 20 M Euro||6 – 20 M Euro||350 K – 6 M Euro||< 350 K Euro|
|Assets||> 40 M Euro||12 – 40 M Euro||700 K – 12 M Euro||< 700 K Euro|
|Employees||> 250||50 - 250||10 – 50||< 10|
Dutch requirements for consolidation
In principle, corporations must include the data of any subsidiaries and companies in their group in their financial statements in order to present a consolidated report.
According to the law in Holland controlled subsidiaries are legal entities in which companies can exercise indirectly or directly >50 percent of the rights to vote at the meeting of shareholders or are authorised to dismiss or appoint >50 percent of the supervisory and managing directors. Partnerships where companies are full partners also fall within the scope of the subsidiary definition. Group companies are legal entities or partnerships in the structure of company groups. The decisive consolidation factor is the control (managerial) over the subsidiaries, regardless of the percentage of held shares.
The financial information of subsidiaries or group companies does not need to be presented in the financial statements (consolidated) if:
1. It is insignificant compared to the whole group:
- it takes too much time or resources to obtain the subsidiary’s / group company’s financial data;
- the company is held with the intention to be transferred to a different owner.
2. Consolidation can be excluded if the group company or subsidiary:
- meets the criteria for a small business from statutory point of view (these criteria are presented in the point on publication conditions);
- is not listed on the stock market.
3. Consolidation can also be excluded under the following circumstances:
- the company hasn’t been informed in a written form of any objections to the lack of consolidation within six months following the financial year’s end by a minimum of 10 percent of the members or holders of ≥ 10 percent of the capital issued;
- the financial data pending consolidation has already been presented in the statements of the parent corporation;
- the consolidated statements and yearly report meet the requirements of the 7th EU Directive;
- the consolidated statements, the yearly report and the audit report, if not already translated to Dutch, were translated to or prepared in German, English or French and all documents are in one and the same language;
- within six months of the date of the balance sheets or within 1 month of permitted postponed publication, the papers or their translations mentioned above were submitted at the Trade Registry office where the company was registered or, alternatively, a notification was made with reference to the Trade Registry office where these papers are available.
Requirements for audit in Holland
The law in Holland requires that large and medium companies have their yearly reports audited by qualified, registered and independent local auditors. Auditors are appointed by shareholders, members of the general meeting, or, alternatively by the managing or supervisory board. In principle, audit reports should include points clarifying whether:
- the statements give information in line with the generally accepted principles of accounting in Holland and represent accurately the company’s yearly result and financial position. The company’s liquidity and solvency may be assessed;
- the report of the Managing Board fulfils the statutory requirements; and
- the necessary additional information is provided.
The appointed auditor reports to the supervisory and managing boards. The competent institution should first consider the audit report and then approve or determine the financial statements.
If it is not mandatory to carry out an audit, the parties may do so voluntarily.
The Dutch publication requirements
All financial statements should be finalized and accepted by the members of the managing board within 5 months following the financial year’s end. After that the shareholders have two months to adopt the statements after their approval by the management directors. Also, the company has to publish its yearly report within 8 days of the shareholders’ approval or determination of the statements. Publication means submission of a copy at the Trade Registry, Commercial Chamber.
The period for preparation of the statements can be extended by up to five months by the shareholders. Therefore the publication deadline is 12 month following the financial year’s end.
If the entity’s shareholders also act in the capacity of managing directors, then the date of approval of the documents by the Management Board would also be the date of adoption by the meeting of shareholders. Under such circumstances, the publication deadline is five months (or ten months, if an extension of five months has been given) following the financial year’s end.
The requirements for publication depend on the company size. They are summarized in the table below.
|Balance sheet, notes||Fully disclosed||Condensed||Condensed||Limited|
|Profit & loss accounts, notes||Fully disclosed||Condensed||Not necessary||Not necessary|
|Valuation principles, notes||Fully disclosed||Fully disclosed||Fully disclosed||Not necessary|
|Management report||Fully disclosed||Fully disclosed||Not necessary||Not necessary|
|Statements on cash flow||Fully disclosed||Fully disclosed||Not necessary||Not necessary|
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