Dutch Accounting Firms Look to Improve Tarnished Rep

While accounting scandals in the Netherlands have not been making a whole lot of headlines in the U.S., they have been generating plenty of controversy at home.

Now, major firm leaders are hoping to revive the audit profession’s reputation and relevance. A recent survey of senior Dutch decision-makers by International Accounting Bulletin examined some of the measures they are taking to address both culture and behavior at Dutch firms, along with some of the big challenges faced by the profession.

Some audit firm leaders see positive signs after the recent publication of a report, “In the Public Interest: Measures to improve the quality and independence of the audit in the Netherlands.” A group of seven young partners from major firms in the Netherlands compiled the report at the request of the Dutch accounting institute, Nederlandse Beroepsorganisatie van Accountants, after a parliamentary debate in which the Dutch Minister of Finance delivered an ultimatum to the audit profession that they needed to improve their business practices.

Some of the most important proposals relate to the governance of accounting firms, including the creation of a supervisory board for firms with a Public Interest Entities audit license. The measure is reminiscent of the creation of the Public Company Accounting Oversight Board in the U.S. as a result of the Sarbanes-Oxley Act of 2002, which came in response to the accounting scandals of the early 2000s at companies like Enron and WorldCom. Similarly, the accounting scandal at the Dutch retailer Royal Ahold in 2003 has been referred to by The Economist as "Europe's Enron."

Another measure that has received attention relates to the remuneration system at firms, which is likely to be the most difficult to implement, according to one practitioner.

“Remuneration needs to be based on quality; it needs to be proven that the commercial contribution by partners in bringing clients and new work is not the most important part of their remuneration; rather that the independence, quality of their work and firm is far more important in setting their compensation,” he told IAB.

Firms are currently implementing the 53 measures called for in the report. A number of firm leaders anticipate mild yet positive market growth, notably in HR services, corporate finance and accounting services.

Alongside the challenges of dealing with a slow market and an increased oversight, Dutch firms—like those in the rest of the European Union—have been affected by the implementation of the EU audit market reforms passed in Brussels last year (see European Parliament Moves Ahead on Audit Firm Rotations).

The Netherlands had adopted the changes in regulation ahead of the deadline set by the EU, so Dutch firms have a few years of experience now when it comes to audit firm rotation. Most Dutch-listed companies have already rotated their auditing firms. However, the reforms have not yet achieved one of their main purposes, at least in the Netherlands—to provide an opportunity to mid-tier firms to offer audit services to public companies. According to a number of firm leaders surveyed by IAB, audit rotation turns out to be “a game of musical chairs with four chairs and four players.”