In this article, our audit partner firm in Netherlands, Nijssen & Partners dives deeper into the mandatory audit thresholds in the Netherlands. These thresholds are of significant importance as they set out which entities are subjected to a mandatory audit and which are not.
Why does a legal obligation exist to have your company’s financial statements audited?
That is a question we often receive as an accounting firm. The answer is simple: stakeholders of your company need to be able to rely on the financial statements as providing a fair and reliable view of the financial position, financial resources, and results of the company. That is why a statutory audit obligation exists for the annual financial statements of legal entities.
Therefore it is of great importance to understand when the mandatory audit requirement in the Netherlands is triggered and when not, since have the legal obligation to having your financial statements audited can bring quite substantial consequences with it.
When are you required to have the financial statements audited?
This depends on the size of your company. If your company is considered “medium-sized” or “large,” you are required to have the financial statements audited. This obligation applies to all legal entities in the Netherlands, such as associations, cooperatives, public limited companies, private limited liability companies, and foundations.
What criteria apply to this obligation?
The criteria are laid down in Title 9, Book 2 of the Civil Code, particularly in Article 2:396 of the Civil Code. As of the 2023 financial year, the statutory audit thresholds for annual accounts, management reports, and separate annual reports have been increased. The increase in the control limits is based on a European directive and has been implemented by the Dutch government. The aim is to reduce the administrative burden on small and medium-sized enterprises (SMEs).
If your company meets two out of the following three criteria for two consecutive financial years, you are required to have the financial statements audited:
- The value of assets according to the balance sheet exceeds EUR 7,500,000.
- The net turnover for the financial year exceeds EUR 15,000,000; and
- The average number of employees during the financial year is less than 50.
This assessment is performed on a consolidated basis and in accordance with the commercial principles prescribed in the Guidelines for Annual Reporting.
However, there are also exceptions to these rules. For example, consider the group exemption, the so-called “403 statement or exemption”. This statement is issued by a parent company to assure debts of its subsidiaries. It allows subsidiaries to avoid filing separate financial statements with the Chamber of Commerce, hence exempting it from the mandatory audit requirement, as their data is already consolidated in the parent company’s statements.
Furthermore, there is the so-called intermediate holding exemption. In the Netherlands, an intermediate holding company may be exempt from preparing and subsequently auditing consolidated financial statements under certain conditions, as outlined in Article 2:408 of the Civil Code.
On the other hand, use of the International Financial Reporting Standards, automatically triggers a mandatory audit in the Netherlands, regardless of whether the entity actually qualifies for a mandatory audit on basis of the applicable thresholds.
Who is authorized to engage the accountant for auditing the financial statements?
That authority lies with the legal entity itself, as stipulated in Article 2:393 of the Civil Code. The general meeting, the supervisory board, or the management board of the company is authorized to provide this engagement.
Comparison with Spain
Unlike the Netherlands, where mandatory audit thresholds are relatively high, Spain imposes audit obligations at significantly lower levels. Under Spanish law, companies must undergo a statutory audit if, for two consecutive years, they meet at least two of the following criteria:
- Assets > €2.85 million
- Turnover > €5.7 million
- Average employees > 50
In addition, certain entities are subject to audit regardless of size, such as those receiving public funds above €600,000 or operating in regulated sectors. This means that, in practice, a broader range of companies in Spain are required to be audited, compared to the Netherlands.
Conclusion:
It is crucial for your company to be aware of the legal obligations regarding the audit of the financial statements. It is the companies legal obligation to comply with all the relevant requirements of the Dutch Civil Code, of which fulfilling the mandatory audit requirements is on the key legal obligations. Not meeting this requirement can have strong consequences for the company and it’s directors.
