20 percent of equity for corporations and 10 percent for limited liability companies.

The Netherlands

Dutch accounting presents several interesting paradoxes. The Dutch have relatively.

permissive statutory accounting and financial reporting requirements but very high professional

practice standards. The Netherlands is a code law country, yet accounting. is oriented toward fair

presentation. Financial reporting and tax accounting are two. separate activities. Further, the

fairness orientation developed without a strong stock market influence. The United Kingdom and

the United States have influenced Dutch accounting as much (or more) than other continental

European countries. Unlike the norm elsewhere in continental Europe, the accounting profession

has had a significant influence on Dutch accounting standards and regulations

in individual company statements, either the squity panies cost method may be used to

account for associated The idea that the business community is capable of adequate financial

reporting is well ent nhenched in Dutch thinking. The first limited liability companies were

formed in the 17th century without a clear legal framework on the matter. The first commercial

code, introduced in the 19th century, viewed shamholders as responsible for management, which

prompted little need for extensive accounting requirements in the lave. As in the United

Kingdom, the Dutch accounting professionemerged in the 19th century and has had a substan-

tial influence on accounting. By the time an income tax on corporations was introduced (in

1940), financial mporting was already too well developed to be dominated by tax accounting,
See Kees Canfferman, "The History of Financial Reporting in the Netherlands," in European

Financial Reporting: A History, ed. Peter Walton (London: Academic Press, 1995) saruvdaai

Chapter 3 Comparative Accounting: Europe 69

Accounting in the Netherlands is considered a branch of business economics As a result,

much economic thought has been devoted to accounting topics and espe cially to accounting

measurements. Highly respected professional accountants are often part-time professors. Thus,

academic thought has a major influence upon ongoing practice.

Dutch accountants are also willing to consider foreign ideas. The Dutch were among the

earliest proponents of international standards for financial accounting and reporting, and the

statements of the ILASB receive substantial attention in determining acceptable practice. The

Netherlands is also home to several of the world's largest multinational enterprises, including

Philips, Royal Dutch Shell, and Unilever. These enterprises have been internationally listed since

the 1950s and have been influenced by foreign (particularly U.K. and US.) accounting. Through

example, these large multina- tionals have influenced the financial reporting of other Dutch

companies. The influence of the Amsterdam Stock Exchange, however, has been minimal

because it does not pro- vide much new business capital.

ACCOUNTING REGULATION AND ENFORCEMENT Accounting regulations in the

Netherlands remained liberal until the passage of the Act on Annual Financial Statements in
1970. The act was a part of an extensive program of changes in com pany legislation and was

introduced partly to reflect the coming harmonization of company law within the EU. Among the

major provisions of the 1970 act are the following:

Annual financial statements shall show a fair picture of the financial position and results

of the year, and all items therein must be appropriately grouped and described.

Financial statements must be drawn up in accordance with sound business prac tice (Le,

accounting principles acceptable to the business community). The bases of stating assets and

liabilities and determining results of operations must be disclosed.

Financial statements shall be prepared on a consistent basis, and the material effects of

changes in accounting principles must be properly disclosed. Comparative financial information

for the preceding period shall be disclosed in the financial statements and accompanying

footnotes.

The 1970 act introduced the mandatory audit. It also set into motion the formation of the

Tripartite Accounting Study Group and gave birth to the Enterprise Chamber. The act,

incorporated into the civil code in 1975, was amended by legislation in 1983 to incorporate the

EU Fourth Directive, and further amended in 1988 to incorporate the EU Seventh Directive.
 32 Boler to the eapproach to accounting development discussed in Chapter 2.

microeconomic approach to ace 33 Linilever risa binational (British and Dutch) concern. Royal

Dutch Shell is headquartered in d in the Netherlands but incorporated in liritain. The Tripartite

Accounting Study Group was replaced in 1981 by the Council on Annual Reporting (CAR) The

CAR changed its name to the Dutch Accounting Standards Board in 2005.

The Dutch Accounting Standards Board (DASB) issues guidelines on generally

acceptable (not accepted) accounting principles. The board is composed of members from three

different groups:

1. Preparers of financial statements (employers)

2. Users of financial statements (representatives of trade unions and financial analysts)

3. Auditors of financial statements

The DASB is a private organization financed by grants from the business community and

the auditing profession. Its activities are coordinated by the Foundation for Annual Reporting

(FAR) FAR appoints the members of the DASB and ensures adequate funding. Even though the

board's guidelines do not have the force of law, they have traditionally been followed by most

companies and auditors. The guidelines are comprehensive in scope and incorporate as far as

possible the standards of the IASB. (As an aid in drafting new or revised guidelines, the DASB
uses a conceptual framework that is a translation of the IASB framework.) Nevertheless, the only

legally enforceable accounting rules are those specified in the accounting and financial reporting

provisions of the Dutch civil code. Before 2005, the DASB had a strategy to implement changes

in IFRS into its own standards. But this strategy changed as a result of t the EU regulations

requiring IFRS for listed companies. The current strategy of the DASB is to focus on reporting

standards for nonlisted companies. The Netherlands Authority for the Financial Markets (AMF)

supervises the opera tions of the securities markets. Although it falls under the Ministry of

Finance, the AMF is an autonomous administrative authority. Among the responsibilities given it

in 2006 is the oversight of annual reporting and auditing of listed companies. Its Financial

Reporting Supervision Division examines financial statements filed with the AMF to ensure that

they comply with applicable standards and the law. Its Audit Firm Oversight Division ensures

that applicable audit standards are followed. The 2006 Supervision of Auditors'

Organizations Act also provides for AMF oversight of the audit profession.

The Enterprise Chamber, a specialist court connected with the High Court of Amsterdam,

is a unique feature of the Dutch system of enforcing compliance with accounting requirements.

Any interested party may complain to this chamber if it believes that a company's financial

statements do not conform to applicable law. Shareholders, employees, trade unions, and even

the public prosecutor (but not inde pendent auditors) may bring proceedings to the chamber. The

chamber is composed of three judges and two expert accountants, and there is no jury. Chamber
decisions may lead to modifications of financial statements or various penalties. Even though the

rul ings apply only to defendant companies, they sometimes state general rules that may

influence the reporting practices of other companies.

Auditing is a self-regulated profession in the Netherlands. Its governing body is the Netherlands

Institute of Registeraccountants (NIVRA), which has approximately 14,000 members. It is

autonomous in setting auditing standards, and its strong profes sional code of conduct has

statutory status.

The DASB Website is [Link].

Nesther the Amsterdam Stock Exchange nor shareholder representatives participate in the board.

Flowever, auditors can issue an unqualified opinion when there is noncompliance with a

guideline, as long as the financial statements still convey a NIvRA Web site is [Link].

true and fair view,

Chapter 3 Comparative Accounting: Europe

Until 1993, only members of NIvRA could certify financial statements, but changes were made

that year to incorporate the EU Eighth Directive. In the Netherlands there are two kinds of

auditors: registeraccountants (RAs, or chartered accountants) and administrative accountants

additional training. Over time, educational and training qualifications for RAs and AAs will be

standardized, and the code of conduct will be the same in relation to audit work, the auditor's

responsibili ties, and independence. One set of disciplinary rules will apply. However, NIVRA is

likely to continue to dominate auditing and accounting in the Netherlands. NIVRA is involved in

everything that is accounting related in the Netherlands. It participates in the Dutch Accounting

Standards Board and in commissions charged. with revising the accounting statutes of the civil

code. NIVRA members serve on the Enterprise Chamber, as accounting faculty at leading Dutch

universities, on the IASB,

and on committees of the EU, the OECD, the Accountants. UN, and the International Federation

of