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Dutch accounting and audit requirements

Last updated: 15-05-2012

The obligation to prepare financial statements

Virtually every Dutch corporate entity has the obligation to prepare financial statements. This obligation follows from the law and is usually incorporated in the statutes of the entity.

A foreign company which is obliged to file its annual accounts in its home country is also required to file a copy with the Trade Register of the Chamber of Commerce where the main Dutch office is located. In general a branch is not required to prepare its own financial statements.

The relevance of the financial statements

The financial statements are an essential building stone for the Dutch legal system and form the basis for corporate governance.

The primary function of the financial statements is the reporting to the shareholders. The shareholders are supposed to discharge the board of directors for their performance upon acceptance of the financial statements.

The secondary function, which is no way less relevant, is creditor protection. Virtually every corporate entity has the obligation to register itself in the Trade Register of the Chamber of Commerce and to publish certain financial date on an annual basis. The Trade Register is accessible by the public and is thus an important source of information in the Dutch market place.

The financial statements are also relevant for taxation. Although the tax laws have their own independent rules to determine the taxable basis, the financial statements are basically always the starting point.

The content of the financial statements

The financial statements must contain a balance sheet, a profit and loss account and notes to the accounts.

Dutch GAAP

The Dutch accounting rules are regulated by law. The Dutch Generally Accepted Accounting Principles (Dutch GAAP) are mainly based on EU directives.

Dutch GAAP applies to a BV and a NV as well as other entities, like for example certain forms of partnerships. Special rules apply to stock listed companies, financial institutions and to insurance companies.

Though Dutch GAAP still differs from International Financing Reporting Standards (IFRS), Dutch GAAP is brought in line with IFRS on a continuing basis.  As from 2005, all listed companies in the EU should apply to IFRS. The same applies to Dutch financial institutions and insurance companies.

Whether Dutch B.V.’s, non-listed N.V.’s and other Dutch companies are allowed to apply to IFRS as well is still under discussion.

Accounting principles

The accounting principles require that financial information must be understandable, relevant, reliable and comparable. The financial statements should properly reflect the company’s position in accordance with these principles.

The balance sheet and profit and loss account together with the notes, should present fairly and consistently the shareholders’ equity at the balance sheet date and the profit for the year and if possible should present the company’s solvability and liquidity.

Companies that are part of an international group may prepare their financial statements in accordance with accepted accounting standards in another EU member state, provided that reference thereto is made in the notes.

The accounting principles must be set out in the financial statements. These principles, once implemented, may only be changed if there are good reasons for such a change. In case of a change, the reasons for this change and its effect on the financial position must be disclosed in the notes. Dutch legislation provides for specific valuation and disclosure requirements, which should be complied with.

The Euro is the required currency for reporting, but if justified by the activities of the company or the international structure of its group, a company may report in a foreign currency.

Publication, consolidation and audit requirements

The publication, consolidation and audit requirements vary depending on the size of the company. A company is classified as either small, medium or large, determined by reference to the following criteria:

  • Value of the balance sheet assets
  • Net turnover, and
  • Number of employees.

The parameters for these classifications are summarized in the table below. The value of the assets and net revenue and the number of employees of subsidiaries and group companies that qualify for consolidation should be included as well. In order to qualify for the medium or large categories, at least two of the three criteria must be met in two successive years.

Criterion

Small

Medium

Large

Assets

Up to € 4.40 m to € 17.50m

€ 4.40 m to € 17.50 m

More than € 17.50 m

Turnover

Up to € 8.80 m

€ 8.80 m to € 35.00 m

More than € 35.00 m

Employees

Less than 50

50 to 250

250 or more

Consolidation requirements

In general, parent companies should include the financial data of controlled subsidiaries and other group companies in their consolidated financial statements.

Under Dutch Law, a controlled subsidiary is a legal entity in which the companies can directly or indirectly exercise more than 50% of the voting rights at the shareholders’ meeting or is authorized to appoint or dismiss more than half of the managing and supervisory directors. A partnership in which the company is a full partner also falls within the definition of a subsidiary. A group company is a legal entity or partnership, which is part of a group of companies. The deciding factor in consolidation is the (managerial) control over the entities, irrespective of the proportion of shares held.

The financial data of a subsidiary or group company does not have to be included in the consolidated financial statements if:

Its importance is negligible in comparison to the group as a whole

  • It is rather expensive or time consuming to get its financial information
  • It is only held to alienate

Consolidation may be omitted if the subsidiary or group company to be consolidated:  

  • Satisfies the criteria for being described as a small company for Dutch Statutory purposes (see the criteria set under filing requirements)
  • is not quoted on a stock exchange

Consolidation may also be omitted if: 

  • the company has not been notified in writing of an objection against not consolidating within 6 months after the end of the financial year by at least one-tenth of its members or by holders of at least one-tenth of its issued capital.
  • the financial information which the company should consolidate has been included in the financial statements of its parent company
  • these consolidated financial statements and the annual report have been prepared in accordance with the stipulations of the 7th European Directive
  • the consolidated financial statements, the auditor’s opinion and annual report, insofar as these have not been translated into Dutch, have been prepared or translated into French, German or English and are all in the same language.
  • within 6 months of every balance sheet date or within one month of a permitted later publication, the documents or translations mentioned in the previous paragraph have been filed at the offices of the trade register at which the company is registered or a notice has been filed referring to the offices of the trade register where the same are available.

Audit requirements

Only medium and large companies are required by law to have their annual report audited by independent, qualified and registered Dutch auditors. The auditor is to be appointed by the general shareholders meeting, or in case of default by the supervisory board or the managing board. The auditors’ report must include the following points: 

  • Whether the financial statements provide information in accordance with the accounting principles generally accepted in the Netherlands and are an accurate representation of the financial position and result for the year. A proper judgment can be made as to the solvency and liquidity of the company;
  • Whether the management boards’ report meets the legal requirements; and
  • Whether the adequate additional information has been provided.

The auditor should report to the managing and supervisory boards. Before determining or approving the financials statements, the competent body should have taken notice of the auditors’ report.

If the audit is not obligatory, parties may opt for a voluntary audit.

Publication requirements

The financial statements must be prepared and approved no later than seven months after the end of the financial year. In addition, the company must publish its annual report no later than eight days after the determination or approval of the financial statements by means of fling a copy of the financial statements with the Trade Register at the Chamber of Commerce.

The preparation period for the financial statements may be extended at the shareholders’ meeting. The deadline for publication is however thirteen months after the end of the financial year.

The publication requirements vary depending on the size of the company. They can be summarized as follows:

Document

Small

Medium

Large

Balance sheet and notes

Condensed

Condensed

Full disclosure

Profit and loss account and notes

Not required

Condensed

Full disclosure

Notes and principles of valuation

Full disclosure

Full disclosure

Full disclosure

Management report

Not required

Full disclosure

Full disclosure

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