Consultation

The Minister of Finance and Minister of Justice presented their vision for the accountancy sector and the supervision of financial reporting in September 2011, and in November 2011 the European Commission published proposals for audit market reforms. These two developments have led the Ministry of Finance to draw up a consultation document in collaboration with the AFM and the Netherlands Institute of Chartered Accountants (NBA). The document sets out a number of policy-related questions relating to the following issues:

  • Independence of external accountants – measures such as 'audit only', compulsory rotation of accountancy firms and an enhanced role for the audit committee
  • Information provided by accountancy firms - a special focus on differences in quality of service between accountancy firms and proposals to extend accountants' involvement in non-financial information such as the managing board's report

Market parties were invited to respond to the consultation document before 1 February 2012. The feedback will be used by the Cabinet to develop its position on the European proposals for the accountancy sector. The Minister has given a preliminary response to the consultation feedback:

  • There is wide support for regulation to increase the independence of accountants, but it is stressed that audit-related services should remain possible. Feedback also shows that separating statutory audit and other services too strictly could have a negative effect on the quality of the audit.
  • The European Commission's proposals for compulsory rotation of accountancy firms are not considered necessary.
  • There appears to be support for making periodic tendering for auditors compulsory for large companies and for giving audit committees or supervisory boards a more prominent role in selecting and evaluating the auditor. 

Drastic amendments to the Accountants Bill

Parallel with the discussions on reforming the accountancy sector, the Second Chamber of the Dutch parliament discussed proposals for a new Accountants Act (Wet op het Accountantsberoep). This Bill was submitted last year and is aimed at merging the professional organisations NIVRA and NOvAA into one professional organisation: the Netherlands Institute of Chartered Accountants (NBA).

The parliamentary discussions about this Bill have also led to amendments to the Audit Firms Supervision Act (Wet toezicht accountantsorganisaties). These amendments, already passed by the Second Chamber, would drastically change the accountancy market.

  • Audit only: accountancy firms auditing organisations of public interest may not also do other types of work for those organisations. These organisations - referred to as "OOBs" - include all listed companies as well as non-listed banks and insurers. Only a very limited number of specified services may be provided by auditors, such as auditing interim financial statements and providing certainty with regard to the managing board's report, the corporate governance report, the risk management report, and the corporate social responsibility report. By way of transitional law, work already commissioned may be carried out until two years after the amended Act comes into force.
  • Compulsory rotation of accountancy firms: OOBs will have to rotate their auditors after eight years. This means not just changing the individual auditor but the actual audit firm. A two-year cooling-off period applies to the firm in charge of the statutory audits. The legislators' aim is to create a transitional period by making this provision operational at a later date – 1 January 2014 - than the other provisions of the amended Act.  Practitioners are not yet certain how this transitional provision is going to impact on auditors statements to be issued after the amendments become law if the accountancy firm has already been performing auditing services for more than eight consecutive years. It is possible that a specific transitional arrangement will be created for compulsory rotation.
  • Compulsory notification to the AFM: OOBs must notify the AFM of an intended selection of auditor.
  • No Chinese walls: the Chinese walls at the AFM between supervision of accountancy firms and supervision of financial reporting will be removed. The AFM will be given additional powers to assist its supervision of financial reporting.

During the debate on the amendments, special interest organisations VEUO, VNO-NCW and Eumedion submitted objections against these radical proposals, but without success. They pointed out that it would be inopportune to introduce these legislative changes while an extensive consultation process (see above) on these issues is still on-going. Moreover, Actal - a government agency that calculates the financial effects of legislation - predicted that the amendments would lead to additional costs of at least EUR 75 million a year.

The amendments are yet to be discussed in the First Chamber of parliament. Meanwhile, the First Chamber has asked the Council of State for its advice, in particular on the impact of the amendments concerning compulsory rotation and separation between audit and non-audit at OOBs on the original bill submitted by the government to the Second Chamber. This is the second time that the First Chamber has exercised the right to directly consult the Council of State about a bill since it was granted this right on 1 September 2010.

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