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May 24, 2011

Netherlands report: Dutch courage

A planned merger between the Netherlands’ two professional accountancy bodies is still in the pipeline. In the meantime both are keen to present a vision for the profession to address the shortcomings highlighted by the financial crisis. Paul Golden investigates.


Line graph showing membership growth in the Netherlands, 2006-2010Speaking to The Accountant in June last year, Ruud Dekkers, president of The Royal Dutch Institute of Accountants, Koninklijk Nederlands Instituut Van Registeraccountants (NIVRA), said the earliest the law defining the new, single organisation for accountants in the Netherlands would pass would be July 2011, but warned it might not happen until January 2012.

Fast forward a year and even the latter date is looking a little optimistic, although Anne-Marike Van Arkel – former head of the Nederlandse Orde Van Accountants-Administratieconsulenten (NOvAA) and now chief executive of the merged entity NBA or Nederlandse Beroepsorganisatie van Accountants – is confident the legal aspects of the merger will be completed in 2012.

While the majority of members of both NIVRA and NOvAA voted for the change, both are public organisations based on separate laws that will be replaced by a new law that will define the new organisation. In the meantime, the Netherlands has been emerging from recession.

According to the central economic plan 2011 published by the CPB Netherlands Bureau for Economic Policy Analysis, the Dutch economy is projected to grow by 1.75% this year and 1.5% in 2012.

Deutsche Bank is a little more conservative, forecasting GDP growth of 1.5% and 1.6% respectively compared to a predicted euro zone average of 1.5%, in both 2011 and 2012. CPB reports household consumption and business investments have risen and the labour market continues to exhibit positive trends, with unemployment projected to decline to 4% in 2012.

The forecasted budget deficit will fall from 5.2% in 2010 to 2.2% next year. These developments further highlight the need for the profession to put its best foot forward. Economic growth will inevitably increase demand for its services and van Arkel outlined some of the key developments that have taken place over the last 12 months and will shape the profession over the coming years.

“Last year we had the De Wit Commission report, which covered the activities of accountants and auditors working in the financial sector,” she said.

Pie chart showing gender split NOvAA and NIVRA in the Netherlands, 2011“In November we presented our action plan, which referred to the formation of a code of conduct for accountants and more informative reports, both financial and non-financial. The idea is that this plan will impact behaviour throughout the industry and provide an obligated course for accountants.”

The credit crunch prompted Dutch legislators and regulators to review the actions of various parties that were involved and the accountancy sector became the subject of review in this process. Although the profession is not perceived to have caused the credit crunch, the question of whether auditors did enough to live up to their designated role was asked.

At the same time, concerns were expressed about the quality of audits. The Netherlands Authority for the Financial Markets (AFM) launched several investigations and concluded that there was room for improvement in a number of respects.

The regulator was particularly critical of the lack of professional skepticism on the part of those in charge of and performing audit work.

In May 2010, the Parliamentary Inquiry Committee on the Credit Crisis (the De Wit Committee) published its first report, which also contained specific recommendations for the accountancy profession, such as raising the quality requirements for financial statements and the related audit opinion.

In a meeting about the report, members of the Dutch parliament made an urgent appeal to the accountancy profession to adopt a more robust interpretation of its gatekeeper’s role. Their message was if you feel laws need to be changed, let us know now, not when it is too late.

The European Commission is also seeking to boost the effectiveness of audits. In its Green Paper, entitled Audit Policy: Lessons from the Crisis, the commission scrutinised the quality and scope of audits in their current form.

The NBA transformed the recommendations of the De Wit Committee and the appeal by the Dutch parliament into a plan of action for the profession. The plan focuses heavily on the gatekeeper’s role, which will be given effect by further improvements to the quality of auditors, in which context professional conduct and ethics are crucial. It will also implement better safeguards for independence, more effective identification of business risks and greater transparency of audit firms.

The organisation concluded that the plan should focus on the audits of listed companies and financial institutions because of their public interest. Audit quality improvement is the only aspect to relate to SMEs as well, which the NBA hopes will prevent the small business sector from being bogged down by unnecessary extra burdens.

The NBA’s agenda for the coming year is designed to be a proactive response to the issues raised by the De Wit Commission as well as the European Commission paper and reports from AFM with the ultimate objective of raising standards within the profession. The AFM’s reports include several examples of gaps in audit quality.

In the regulator’s opinion, many weaknesses are the result of a lack of professional scepticism, both on the part of lead audit partners and the management of the audit firms in question.

The professional bodies have repeatedly pressed for professional scepticism as a fundamental attitude among auditors and are committed to using their powers to see the implementation of a stricter policy in respect of quality control at audit firms and the continuing education requirements for individual auditors.

While the Nederlandse Beroepsorganisatie van Accountants is now the effective single body for the accountancy profession in The Netherlands, the merger of NIVRA and NOvAA has not yet been officially completed.

The CEO of the NBA says there are a number of obvious benefits to having a single representative body for the profession.

“Because it is a bigger group and the profession will be speaking with one voice, we will have stronger influence at political level and will be better placed to maintain the quality of the profession.

“We expect members will receive more value for money – approximately 70% of the NOvAA members are public accountants, so sometimes our other members did not get so many services. That will change in the NBA,” van Arkel says.

Click on the following table to view a large PDF:

Table showing a survey of accounting institutes 2011 in the Netherlands

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