Under Dutch law legal entities in the Netherlands may prepare their financial report based on Dutch GAAP or IFRS. Further under Dutch law, exemptions are granted for entities or companies with certain size category. The option to choose using Dutch GAAP or IFRS depend on the company size, the type of company, the consolidation and/or group requirements. The exemptions can be granted in relation to presentation, publication and auditing of the management board report and annual accounts. IFRS has become globally favourable for multinational companies, for its simplicity, consistency, and comparability. IFRS sets the standard globally and allow a company or business to become part of the global economy in the most efficient way when it comes to financial reporting. From time to time there has been some changing from Dutch GAAP to IFRS standards, to keep up with global requirements, where there have been some merged between these accounting standards.
Key words: Dutch Civil Code Book 2 title 9, Dutch GAAP, IFRS, Financial Statements, Annual Accounts, Annual Report, Companies size criteria, Exemptions.
At the end of financial year, legal entities compile their annual financial statements to share company financial information to its stakeholders. The information contains mainly the company's finance and business affairs for the period of reporting year (previous year). The basic objective of financial statements is to present financial position, performance in the past and changes in financial positions that are necessary for shareholders and investors.
This annual financial statement is a part of an Annual Report which has a broader scope and includes a report from the Management Board, details about plans and new businesses. The report is required for the public, for a public company (listed and non-listed) and for Tax Authority, for the purpose of the income tax calculation. The report is prepared in a structured way to be easily understood by the investors, the shareholders and by all whom need relevant information from it.
DUTCH GAAP AND IFRS
For reporting purposes, the Dutch legal entities are required to apply the sets of standards in accordance with Book 2 of the Dutch Civil Code, title 9 (DCC Book 2, title 9). DCC Book 2, title 9 contains and regulates the provisions relating to annual reporting and auditing. This title 9 applies to legal entities such as public limited liability companies (NVs), private limited liability companies (BVs) and limited or general partnerships (CVs). Further it provides possibilities for the Dutch legal entities to choose using Dutch GAAP or IFRS for them to prepare their financial statements.
Dutch GAAP (General Accepted Accounting Principles) is a common set of accounting principles, standards, framework, and procedures of the Dutch accounting issued and published by the Dutch Accounting Standards Board (DASB). These commonly accepted ways to record and to report accounting information are meant to improve the clarity, consistency, and comparability in issuing the financial information. This makes it easier for investors to analyse and extract useful information from the company's financial statements1.
IFRS (International Financial Reporting Standards) is the standards issued by International Accounting Standards Board (IASB). IFRS used in the preparation of the financial statements, to make them consistent, transparent, and easily comparable around the world. IFRS is important for transparency and trust in the global financial markets and for the companies that list their shares on them2.
IFRS originated in the European Union with the intention of making business affairs and accounts accessible across the continent. IFRS is currently used over 140 countries, including all the nations in the European Union (IFRS-EU) as well as Canada, India, Russia, South Korea, South Africa, and Chile3 4. IFRS in Europe or EU-IFRS, is adopted by the European Union. When IFRS was just implemented, Dutch GAAP and IFRS were merged fast, as the DASB was rapidly implementing IFRS standards and interpretations into its own guidelines. That made the number of differences between IFRS and Dutch GAAP declined significantly in the beginning. Then at later stage it had changed again, where the DASB guidelines were no longer applicable to listed companies. The DASB guidelines were at that time only focused to unlisted companies. In the recent past years, there have been other updates and changes which created key differences in applying either IFRS or Dutch GAAP.5 Therefore, it is always good to keep updated in the development of similarities and differences between these two reporting standards.
Under Dutch law as prescribed in DCC Book 2 title 9, Dutch entities may choose either according to Dutch GAAP or IFRS in preparing their financial statements. In the notes of the financial statements should be disclosed which accounting standards are used. The option to choose using Dutch GAAP or IFRS depend on the company size, the type of company, the consolidation and/or group requirements. However, there are cases when a company is obliged to prepare their financial statements in IFRS, for example when the company size is categorized as large, while for small and medium companies, IFRS considered as a voluntary option.
4 KPMG, IFRS compared to Dutch GAAP: An overview, February 2019.
5 KPMG, IFRS compared to Dutch GAAP: An overview, February 201
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