This essay is meant to give a brief overview of accounting in The Netherlands. Accounting is examined under its background in the economy, politics, auditing, legal framework and institutions involved in accounting regulations. In times of globalisation and harmonisation accounting has to be taken in consideration as an important factor. The Netherlands as a founder of the IAS and the EU was always interested in moving towards harmonisation. The Netherlands accounting system, which is unique and difficult to classify, has a good reputation world-wide.
The Netherlands is a highly industrialised country, but small in terms of population (15 Million) and size of its open economy. The relatively small home market is liberated and deregulated. A conspicuous characteristic of the economy is its international orientation. There are just a few but very large multinational enterprises such as Royal Dutch Shell (petroleum and refining industry), Unilever (food and personnel products), Philips (electronic and electrical equipment) and ING Group (insurance/banking). The percentage of exports and imports of goods and services of the G.N.P. are almost equal, but the FDI grew dramatically about 650 % from 1975 until 1994. The Netherlands is the second largest outward investor in terms of FDI per capita and the sixth largest absolutely (von Hoesel, Narula, 1999, p. 6-10). There are several reasons for the international orientation of the economy. The small size of the home market limits the opportunities to expand for the companies and the openness of the economy is attractive for foreign companies to invest in the country. Its geographical location in the centre of Western Europe is a remarkable advantage and companies often use it as a distribution centre (von Hoesel, Narula, 1999, p. 51-53). Another significant characteristic of the economy is the distribution of the GDP over the sectors. The primary sector (agriculture and natural gas) is relatively large with 4% of the GDP in comparison to Germany (1,3%) or the UK (2,2%) for example.
The banking sector in The Netherlands is quite important. The Amsterdam Stock Exchange in contrast is not of great importance for companies to raise capital. In 1995 there have been only about 2000 companies with public ownership compared with 156.000 private owned companies that are not traded at the stock exchange (Nobes, Parker, 1998, p. 153-54). The Amsterdam Stock Exchange is also relatively small. In 1995 the market capitalisation was only 20% of the market capitalisation of the London Stock exchange.
Politics and institutions involved in setting accounting standards
The political system in The Netherlands is a constitutional monarchy with the Legislative, the Executive and the Judiciary. The First Chamber and the Second Chamber represent the Legislative (Parliament). The Second Chamber has more rights and the bills are treated there first. The Executive (Crown) comprises the Queen, who has a representative position without political influence and the Cabinet of Ministers. The Prime Minister presides over Parliament. Cabinet members are not members of Parliament, but they are responsible to it. The Netherlands is a founding member of the EU.
The Council of State advises Legislation in several different fields. The Social Economic Council is the most important Council and it supervises the work of the Council for Annual Reporting. The Council for Annual Reporting consists of representatives of employers, financial analysts, professional accountants and employees. The fact that employees are rulers of accounting standards is quite unusual and a unique feature of Dutch Accounting. Guidance to what are general acceptable principles is provided by published guidelines. The influence of the council is weaker than the FASB in the USA or the ASB in the UK. In 1975 the Enterprise Chamber, a section of Court Justice, was set up to judge cases in accordance to requirements of the law. It has had an important influence on accounting since (Nobes, Parker, 1988, p. 155-156).
Historical issues of accounting in the 20th century
In 1895 the Nederlands Instituut van Register Accountants (NIVRA) was founded as a professional body for Dutch accountants.
The first phase of the theoretical accounting and accounting principles was reached with inspiration coming mainly from the educational establishment. Professor Theodore Limperg of the Amsterdam School began to attract wide attention between 1922 and 1950 and dominated the development of Dutch accountancy for many years. Accounting has had only an insignificant position in company law. There has been almost an absence of legislation on accounting. After the Second World War the government remained passive. General principles of accounting had developed from empirical rules instead of legislative influence. In 1962 a law on accounting qualifications passed that defined the role of NIVRA as an auditor. After a five-year Act on Annual Financial Statements, statutory accounting laws were incorporated in Civil Code 1975, prepared by a committee of the Ministry of Justice. Most of the standards had already existed through the development of practice. More detailed rules about form on form and content of annual reporting were laid down, but they still were as basic rules in comparison with other countries.