Year: 3 (Visiting Student)

Assignment No.: 1

Accounting in The Netherlands

Name: 

Jens Gehrmann

Introduction 2

Economic backround 2

Politics and institutions involved in setting accounting standards 3

Historical issues of accounting in the 20th century 4

Legal Framework related to accounting 5

Professionals and auditing 5

Principles and practices including unique features 6

Replacement cost accounting and inflation accounting 7

Goodwill 7

Research and development 8

Stock and work in progress 8

Group accounting and consolidation 8

Conclusion and evaluation 9

Introduction

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.

Economic backround

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.

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