The financial statements in the Dutch law
We are coming in the period of year-end, most of the companies will come to the end of the fiscal year and prepare the financial results for the year in their annual financial report. Over the years, and due to European Directives, the regulations and legislation with respect to the annual accounts in the Netherlands have increased significantly, in this regard the Netherlands offers a highly regulated environment for corporations, partnerships and privately owned businesses. The legal requirements relating to the annual accounts are included in Title 9 Book 2 of the Dutch Civil Code.
Title 9, Book 2 of the Dutch Civil Code provides rules on the drawing up and publication of annual accounts. These provisions are the result of the implementation of the Fourth and Seventh Company Law Directives (Directive 78/660/EEC of 25 July 1978, OJ 1978 L 222, and Directive 83/349/EEC of 13 June 1983, OJ 1983 L 193) into Dutch company law.
The annual accounts or the financial statements are part of the three foundations of the Dutch corporate regime, the other two are the audit and the publication of the accounts itself.
The obligation to prepare financial statements practically applies to every Dutch corporation, and this obligation is usually stated in the statutes of the corporate entity. The financial statements are an essential building stone for the Dutch legal system and form the basis for corporate governance.
The financial statements offer transparency into the company business activities and mainly serve as a report to the shareholders and to protect the creditors. It generally consists of a balance sheet, a profit and loss account and notes to the accounts.
In addition, the company is obliged to publish its annual report after the determination or approval of the financial statements by the shareholders within 8 days. This means filing a copy of the financial statements with the Dutch Chamber of Commerce (Article 2:394).
Audit requirements in the Netherlands
The audited annual accounts are required by law in the Netherlands, only for medium and large companies. Also, for companies that apply IFRS fall in this category and have the obligation to have their accounts audited. An exemption may be granted for a Dutch company to have the audit performed at Dutch level when it can apply for the “Group Exemption” in accordance with article 2:403 and article 2:408 Dutch Civil Code.
The law requires that companies in those categories must create an annual financial report audited by an independent, qualified and registered auditor, from a Dutch accounting firm. This auditor also needs to be appointed by the general meeting of shareholders of the company, or the managing or supervisory board.
Micro and small companies, they are not required to be audited. A branch of a parent company is generally exempted from an audit. If the audit is not obligatory, they may have the option for a voluntary audit.
The size classifications are based on 3 (three) criteria, the value of the assets, the net revenue and the number of employees (Article 2:396 and Article 2:397). The parameters for these classifications are summarized in the table below. 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 | Micro | Small | Medium | Large |
| Assets | < € 350,000 | € 350,000 - € 6mio | € 6mio - € 20mio | > € 20mio |
| Turnover | < € 700,000 | € 700,000 - € 12mio | € 12mio - € 40mio | > € 40mio |
| Employees | < 10 | 10 - 50 | 50 - 250 | > 250 |
Corona pandemic and the year-end financial process
The corona pandemic can have an impact on the quality of financial processes and for the timely completion of the financial statements. For auditors, remote monitoring and interim adjustments in the risk analysis will lead to additional work. This is mentioned in the recent handout issued by the NBA (Koninklijke Nederlandse Beroepsorganisatie van Accountants or Royal Dutch Association of Accountants).
The concerned aspects include the Continuity (assurance and risks valuation), the Processes (remote work leads to increase risk/fraud), the Accounting work (change of approach/no physical encounter), and the Timeliness (care is more important than speed). The Stakeholders should be proactively informed of the potential risks of delays in processes which lead in delaying the delivery of the audited financial statements. The advance planning and good coordination should be set among all parties involved, in order to reduce this risk.
References:
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NAZALI TAX & LEGAL |