Intent Declared Summary
In line with the European Commission Regulation No. 1606/2002, listed companies in the Netherlands are required to use International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) in their consolidated accounts. The 2008 European Commission report on the implementation of IFRSs in EU member states points out that the Netherlands permits IFRSs in the annual accounts for listed companies and annual and consolidated accounts for all other companies. Companies that choose not to apply IFRSs, follow the Dutch Generally Accepted Accounting Practices (GAAP) comprised largely of the Dutch Civil Code and the Guidelines on Annual Reporting issued by the Dutch Accounting Standards Board (DASB). According to a 2006 KPMG publication, between 1998 and 2003, Dutch GAAP were rapidly converging with IFRSs. However, with the implementation of the EU regulation, the focus of the DASB has shifted to establishing requirements for unlisted companies and ensuring consistency with Dutch law and regulations. The KPMG report observes that, as a consequence, the differences between IFRSs and Dutch GAAPs have been growing over the last few years, and they are likely to increase in the future. A 2009 report by Deloitte & Touche Tohmatsu also points out that many differences still exist between the international standards and the Dutch GAAP, and that these differences will widen as IFRSs keep changing. A 2009 Netherlands Institute of Registered Accountants self-assessment notes that the Netherlands will continue to support ongoing convergence of public interest entities' accounting with IFRSs and to develop simplified requirements for private entities. With respect to reporting requirements for small and medium sized enterprises (SME), another November 2009 Deloitte publication points out differences between the Dutch requirements and IFRS for SMEs.
General Overview
AAs described in the 2005 self-assessment by the Netherlands Institute of Registered Accountants (NIVRA), the legal framework for financial reporting in the Netherlands is largely based on the Dutch Civil Code, Registered Accountants Act, Accounting Firms (Supervision) Act, Code of Conduct for Accountants, and Dutch Independency Code. Dutch Generally Accepted Accounting Principles (GAAP) primarily refer to the Dutch Civil Code and the Accounting Guidelines issued by the Dutch Accounting Standards Board (DASB). The DASB is a private, non-governmental organization that sets national accounting standards and issues accounting guidelines. Each year in December, the DASB issues two sets of guidelines – one for large and medium-sized enterprises and one for small entities.
According to a 2006 KPMG publication, between 1998 and 2003, Dutch GAAPs were rapidly converging with International Financial Reporting Standards (IFRSs). However, with the implementation of the European Union (EU) regulation on IFRSs, the focus of the DASB has shifted to establishing requirements for unlisted companies and ensuring consistency with Dutch law and regulations. The KPMG report observed that, as a consequence, in the last few years the differences between IFRSs and Dutch GAAP have been growing and are likely to increase in the future. As explained in the report, "the DASB will first consider whether new IFRSs are appropriate for unlisted companies, whether alternatives should be provided, and whether new IFRSs are consistent or conflict with the Dutch Civil Code" (p. 1). A 2005 Ernst and Young report also pointed out a number of differences between IFRSs and Dutch law and regulations. The report observed that "a large number of changes (as part of the Improvements Project, among other things) became effective under IFRS in 2005, which have not yet been implemented in Dutch law and regulations" (p. 9). Furthermore, the KPMG report explains that, unlike the IFRSs, Dutch GAAP contain many exemptions for small- and medium-sized enterprises (SMEs) and a separate set of GARs exist for small entities. However, the IASB issued an IFRS for SMEs in July 2009 with simplified reporting requirements. According to a November 2009 Deloitte publication it is unclear as to whether Dutch SMEs can apply the international standard yet since the Dutch legal framework does not include IFRS for SMEs. As for the current Dutch requirements, the Deloitte report points out that “it should be noted that there are some provisions in IFRS for SMEs which conflict with specific provisions of Dutch law” (p. 3).
With regard to harmonization of accounting practices, a 2009 report by Deloitte & Touche Tohmatsu reiterates the unchanged Dutch position on convergence. The report points out that differences exist between the international standards and the Dutch GAAP. While the Dutch GAAP by and large remains a stable platform, frequent changes in IFRSs will result in more differences. Overall, a 2009 Netherlands Institute of Registered Accountants (NIVRA) self-assessment notes that the Netherlands will continue to support ongoing convergence of public interest entities' accounting with IFRSs. In due time, the NIVRA maintains that upon reviewing the current requirements it will work on an action plan for amendments where necessary. Being a member of the European Union, the Netherlands has to comply with the European Commission (EC) Regulation No. 1606 of 2002 which was passed by the European Parliament and Council of Ministers requiring the adoption of IFRSs as endorsed by the EC in EU member states. In line with the EC regulation, listed companies in the Netherlands are required to use IFRSs in their consolidated accounts. The 2008 EC report on the implementation of Regulation No. 1606 of 2002 points out that the Netherlands permits IFRSs in the annual accounts for listed companies and annual and consolidated accounts for all other companies. For companies not required to follow IFRSs, the Dutch law gives an option to choose between Dutch GAAP and the international standards.
The Accounting Firms (Supervision) Act (AFSA) came into effect in October 2006 and introduced the shared responsibility for the supervision of the accounting profession by the NIVRA and the Netherlands Authority for Financial Markets (AFM), which under the Act on Financial Supervision (WFT), which came into effect on January 1, 2007, regulates the financial sector in the Netherlands. According to the 2005/06 Annual Report of the NIVRA, "this not only meant a new regime for accounting firms but also a new era for the public profession, with self-regulation now being supplemented by public accountability and external supervision of the statutory audit function" (p. 6). The 2006 NIVRA self-assessment further explains that "under the new law, the AFSA, the audit firm will be subject of the public oversight system, but individual accountants will be monitored as well, if and when their work is reviewed as part of the oversight" (p.4).
According to the 2004 Bebbington and Song report, the Chartered Accountants Act of 1962 created the NIVRA. The NIVRA does not issue accounting standards; however it participates in accounting guidelines through membership in the DASB, previously known as the Council for Annual Reporting (CAR). According to the NIVRA Annual Report of 2005-2006, a new code of ethics was published in August 2006 under the name of Code of Conduct Regulation, known by its Dutch acronym of VCG. The VCG is based on the International Federation of Accountants (IFAC) code of ethics. As explained in the 2006 NIVRA self-assessment, "as a result the proposed code equals the IFAC-code and a few extras" (p. 38). NIVRA is listed as a member on the IFAC website.
The Principles
NCIFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2010)
According to the 2009 Deloitte comparison, no specific standard on the first-time adoption of International Financial Reporting Standards exists in the Dutch accounting framework.
NCIFRS 2: Share-based Payment (effective 2010)
According to the 2009 Deloitte comparison, unlike IFRS, “DASs contain an alternative treatment allowing to measure equity share-based payments with employees at their intrinsic value at the grant date and this value is recognized immediately as an expense” (p. 6).
NCIFRS 3: Business Combinations (effective 2010)
According to the 2009 Deloitte comparison, many differences exist between the international and Dutch accounting framework. For instance, unlike the international framework, “the purchase method is required for combinations classified as acquisitions and the pooling of interests method is required for combinations classified as uniting of interests” (p. 6). The 2006 KPMG report points to other differences, which include, but are not limited to, accounting for a liability for a planned post-acquisition restructuring, contingent liability of acquiree, intangibles, deferred tax assets and liabilities, goodwill, acquisition costs, contingent consideration, goodwill and non controlling interest etc.
NCIFRS 4: Insurance Contracts (effective 2006)
According to the 2009 Deloitte comparison, the DASB has issued a standard on accounting for insurance contracts; however, many differences exist between the international and Dutch standard.
NCIFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2010)
According to the 2009 Deloitte comparison, unlike the international framework, there are “no requirements for non-current assets held for sale (or disposal groups)” (p. 8).
NCIFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)
According to the 2006 KPMG report, there are many differences between IFRS 6 and the equivalent Dutch guidelines. As explained in the report, "unlike IFRSs, no specific guidance is provided for exploration and evaluation expenditure (E&E) expenditure, and the general standards apply" (p. 119). The 2009 Deloitte publication does not address the issue of compliance of the Dutch GAAP with IFRS 6.
NCIFRS 7: Financial Instruments: Disclosures (effective 2009)
According to the 2009 Deloitte comparison, difference exists in the accounting for financial disclosures between the international and Dutch standard.
NCIFRS 8: Operating Segments (effective 2010)
According to the 2009 Deloitte comparison, difference exists in the measurement of segment information between the international and Dutch standard.
NCIAS 1: Presentation of Financial Statements (effective 2010)
According to the 2009 Deloitte comparison, many differences exist between the international and Dutch accounting framework. For instance, unlike IFRS, “prescriptive formats of the balance sheet and profit and loss account are applicable” (p. 8).
NCIAS 2: Inventories (effective 2005)
According to the 2009 Deloitte comparison, differences exist in the measurement of inventory and in the methods of determining cost between the international and Dutch standard.
NCIAS 7: Cash Flow Statements (effective 2010)
According to the 2009 Deloitte comparison, unlike IFRS, only large and medium-sized entities are required to present a cash flow statement under the Dutch framework.
NCIAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)
According to the 2009 Deloitte comparison, differences exist between the international and Dutch framework in the accounting for correcting errors. For instance, the report notes that unlike IFRS, under the Dutch framework “fundamental errors shall be recognized retrospectively in the first set of financial statements authorized for issue after their discovery. Other material errors are recognized in profit or loss” (p. 9).
NCIAS 10: Events after the Reporting Period (effective 2005)
According to the 2009 Deloitte comparison, “the balance sheet should be drawn up before or after the appropriation of profit. If the latter option is used, a difference with IFRSs could arise, because an entity is allowed to present the proposed dividend as a liability at the balance sheet date” (p. 9).
NCIAS 11: Construction Contracts (effective 1995)
According to the 2009 Deloitte comparison, differences exist between the international and Dutch framework with respect to the definition of a construction contract.
ENIAS 12: Income Taxes (effective 2001)
According to the 2009 Deloitte comparison, differences exist between the international and Dutch framework with respect to the definition of a construction contract.
NCIAS 16: Property, Plant and Equipment (revised 2009)
According to the 2009 Deloitte comparison, differences exist between the international and Dutch framework with respect to accounting for costs of decommissioning, restoration and similar liabilities; major inspection and maintenance and; and selling of items held for rental.
NCIAS 17: Leases (effective 2010)
According to the 2006 KPMG publication, there are a few differences between the Dutch GAAP and IAS 17. The 2009 Deloitte publication does not address the issue of compliance of the Dutch GAAP with IAS 17.
NCIAS 18: Revenue (effective 1995)
According to the 2009 Deloitte comparison, unlike the international framework, the Dutch GAAP contain no specific requirements on customer loyalty programs.
NCIAS 19: Employee Benefits (revised 2009)
According to the 2009 Deloitte comparison, differences between the international and Dutch framework exist with respect to accounting for post-employment benefit plans. For instance, as explained in the report, unlike IFRS, “in its profit and loss account, the legal entity must recognize the contribution to be paid to the pension provider as an expense” (p. 10).
NCIAS 20: Accounting for Government Grants and Disclosure of Government Assistance (revised 2009)
According to the 2009 Deloitte comparison, unlike IFRS, the Dutch GAAP do not contain any specific requirements with respect to accounting for non-monetary government grants and government loans at below-market rate.
NCIAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)
According to the 2009 Deloitte comparison, a few differences exist between IAS 21 and the Dutch GAAP with respect to accounting for “goodwill arising as a result of the acquisition of a foreign entity and any fair value adjustments to the carrying amounts of assets and liabilities arising as a result of the acquisition” and “cumulative amount of the exchange differences deferred in a separate component of equity relating to a disposed foreign operation” (p. 11).
NCIAS 23: Borrowing Costs (revised 2009)
According to the 2009 Deloitte report, differences exist between the international requirements and Dutch GAAP mainly because unlike IFRS, where capitalization is mandatory, under the Dutch framework capitalization is an available accounting policy choice.
NCIAS 24: Related Party Disclosures (effective 2005)
According to the 2009 Deloitte comparison, differences exist between the international and Dutch framework with respect to related party disclosures.
IIIAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)
There is insufficient publicly available information addressing this principle
NCIAS 27: Consolidated and Separate Financial Statements (effective 2010)
According to the 2009 Deloitte comparison, differences exist between IAS 27 and the corresponding Dutch requirements. Some of the areas where the Dutch framework differs include (but does not cover all) consolidation requirements for subsidiaries, small-sized groups and intermediate holdings. Differences were also observed in requirements for separate financial statements.
NCIAS 28: Investments in Associates (revised 2009)
According to the 2009 Deloitte comparison, numerous differences were observed between the international and Dutch requirements. Some of these differences include but do not cover all, discrepancies in the definition of an associate, measurements of associates, measurement of non-associates and investment in an associate classified as held for sale etc.
NCIAS 29: Financial Reporting in Hyperinflationary Economies (revised 2009)
According to the 2006 KPMG publication, "like IFRSs, when an entity's functional currency is hyperinflationary its financial statements must be adjusted to state all items in the measuring unit current at the balance sheet date" (p. 19). However, differences do exist. The 2009 Deloitte publication does not address the issue of compliance of the Dutch GAAP with IAS 29
NCIAS 31: Interests in Joint Ventures (revised 2009)
According to the 2009 Deloitte comparison, differences exist between IAS 31 and the corresponding Dutch requirements with respect to consolidation for joint ventures, separate financial statements for joint ventures, and accounting for loss of joint control.
NCIAS 32: Financial Instruments: Disclosure and Presentation (effective 2010)
According to the 2009 Deloitte comparison, differences exist between IAS 32 and the corresponding Dutch requirements with respect to classification of instruments as equity or liability; accounting for preference shares, and accounting for puttable instruments at fair value.
NCIAS 33: Earnings per Share (effective 2005)
According to the 2006 KPMG publication, the Dutch GAAP differs from IAS 33. As explained in the report, "unlike IFRSs, there is no requirement to present EPS for discounting operations" (p. 97). The 2009 Deloitte publication does not address the issue of compliance of the Dutch GAAP with IAS 33.
ENIAS 34: Interim Financial Reporting (effective 1999)
According to the 2006 KPMG publication, the Dutch GAAP and IAS 34 are very similar. The 2009 Deloitte publication does not address the issue of compliance of the Dutch GAAP with IAS 34.
NCIAS 36: Impairment of Assets (revised 2009)
According to the 2009 Deloitte comparison, differences exist between the international and the corresponding Dutch requirements with respect to timing of impairment tests; allocating goodwill for cash-generating units; and reversals of impairment losses for goodwill.
NCIAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)
According to the 2009 Deloitte comparison, numerous differences exist between IAS 37 and the corresponding Dutch requirements with respect to accounting for cost of major maintenance, provision for reorganization, measurements or provisions and accrued interest.
NCIAS 38: Intangible Assets (effective 2010)
According to the 2009 Deloitte comparison, differences exist between IAS 38 and the corresponding Dutch requirements with respect to accounting for useful life of intangibles; advertising and promotional activities; and impairment testing.
NCIAS 39: Financial Instruments: Recognition and Measurement (effective 2010)
According to the 2009 Deloitte comparison, there are numerous differences between the international and corresponding Dutch requirements. Some of the areas of difference include (but do not cover all) classification of financial assets; classification of financial liabilities; measurement of financial assets; measurements of financial assets; and changes due to fair value accounting etc.
NCIAS 40: Investment Property (effective 2009)
According to the 2009 Deloitte comparison, differences between the international and corresponding Dutch requirements with respect to accounting for fair value changes of investment property valued at fair value.
NCIAS 41: Agriculture (effective 2009)
According to the 2009 Deloitte comparison, the Dutch framework does not have any specific requirements with regards to accounting for agricultural activity.
