Annual reporting in the Netherlands: Insights for 2023 

In the ever-changing business environment of 2023, having a grasp of annual reporting guidelines is vital for stakeholders in large and medium-sized companies in the Netherlands. Even if you are not a financial expert. The annual report continues to serve as a fundamental instrument for gaining insights into a company’s financial well-being and performance. This article reviews the latest details of annual reporting in the Netherlands, emphasizing regulatory adherence and the clear presentation of information to investors and other stakeholders. Want to jump ahead to a specific topic? Simply use the menu bar on the right. 

Guidelines for annual reporting in the Netherlands

The Dutch Accounting Standards Board (RJ) is the organization responsible for establishing guidelines and recommendations for annual reporting in the Netherlands. The RJ’s main objective is to develop a consistent and transparent framework for preparing financial statements and annual reports, ensuring that financial information is presented in an understandable and comparable manner. 

The RJ creates and publishes the Guidelines for Annual Reporting (Richtlijnen voor de jaarverslaggeving hereinafter the “RJ guidelines”), which serve as the foundation for financial reporting in the Netherlands. These guidelines encompass a wide range of topics, including accounting policies, financial statement presentation, the consolidation of financial data, and other pertinent aspects of annual reporting. If you are seeking more detailed information on consolidation, you can explore this article. 

One of the key objectives of the RJ is to harmonize annual reporting practices in the Netherlands with international standards, such as the International Financial Reporting Standards (IFRS), all while considering the specific Dutch laws, regulations, and circumstances. Each year, the RJ releases bundles of the RJ guidelines, tailored for both large and medium-sized legal entities and micro and small legal entities. These updated bundles become available in September for the upcoming financial year. Each edition commences with a “preface” that outlines the modifications from the previous edition. In this article, we will delve into the significant changes from prior editions. 

Size criteria: which category does your organization belong to?

In the Netherlands, so-called “size criteria” are pivotal in determining the rules that apply to a legal entity’s financial statements. These criteria are outlined in Article 2:397 of the Dutch Civil Code (BW) and comprise three key elements: the balance sheet total, net turnover, and the average number of employees during the financial year. Below, you will find the thresholds for these criteria: 

On Oct. 17, 2023, the European Commission decided to increase the thresholds by 25%. The adjusted thresholds will be as follows: 

It is now up to the Dutch ministry of law & justice to start implementing the amended EC directive. The higher threshold values will start to apply for the financial year 2024 at the latest. The Dutch legislator can also elect to use the member state option to apply the higher threshold values as from the 2023 financial year. Read more about the changes in the monetary size criteria per financial year 2022 and 2023. At this moment it is not clear whether the legislator wants to apply this member state option. 

Here are some vital points to consider regarding the application of these size criteria: 

• These values pertain to the most recent financial year. 
• If a company meets two out of the three criteria for a particular category for two consecutive years, that category applies. 
• The criteria are determined on a consolidated basis, unless the company opts for the exemption for intermediate holding companies specified in Article 2:408 of the Civil Code. 
• The above criteria are not applicable to listed companies, PIEs (Public Interest Entities) and companies who report in accordance with IFRS. Irrespective of their actual size, they always fall under the “large” category. 

Total assets

This is also referred to as the “value of the total assets as per the balance sheet date with accompanying notes.” For this criterion, the accounting principles are used as disclosed in its financial statements. Usually this will be based on acquisition and manufacturing cost, but this can also be based on other accounting principles (e.g., fair value). 

Revenues

Article 2:377, paragraph 6 of the Dutch Civil Code (BW), defines revenues as follows: “Revenues means the proceeds from the delivery of goods and services arising from the legal entity’s operations, after deducting discounts, taxes levied on turnover, and similar items.” Revenues are recognized for each financial year. 

In certain situations, a financial year may extend beyond or be shorter than 12 months. For instance, when establishing a new company during the financial year or changing the financial year to a different balance sheet date. In such cases, the RJ recommends that revenues are calculated proportionally over 12 months. In the case of an extended financial year, it is also permissible to base revenue on the last 12 months as the starting point. 

Number of employees 

The number of employees is expressed as the average number of full-time equivalents/employees (FTEs) with whom the company has (had) an employment contract during the financial year. 

Main changes in annual reporting requirements from financial year 2022 for medium and large companies

Guideline 221 Construction Contracts in Progress and Guideline 270 

In response to industry demands for additional guidance on revenue accounting under the Accounting Standards, the RJ considered aligning with IFRS 15 “Revenue from Contracts with Customers.” After an extensive analysis, the RJ concluded that a full adoption of IFRS 15 rules in the guidelines was suboptimal due to the guidelines’ specific target audience and associated implementation costs. Consequently, the RJ opted for specific adjustments to revenue recognition in the guidelines, accompanied by detailed explanations and examples. 

Notably, when IFRS 15 was introduced in 2018, the RJ offered companies using the RJ Guidelines the option to fully apply IFRS 15 when reporting revenue and related expenses, and this option remains unchanged. The RJ’s choice to retain much of the existing guidance while supplementing it with specific direction and examples offers transparency regarding the exact modifications. To facilitate the implementation of these changes, the new revenue recognition provisions are applicable only to agreements entered into or modified at the outset of the financial year in which the changes are first applied (prospective).

Summary of Changes

Additional commentary on some key elements of these amended RJ Guidelines

Revenue recognition

Revenue recognition involves a comprehensive five-step process: 

• Entering and combining agreements. 
• Identifying performance obligations. 
• Determining the transaction price. 
• Attributing the transaction price to performance obligations. 
• Determining when to recognize revenue. 

The identification of performance obligations within a sales transaction, a relatively new and intricate element in RJ 270, is particularly important. The legal entity must discern whether the goods and services promised to constitute separate performance obligations. 

Performance obligations 

A performance obligation is defined as follows: 

A commitment in a contract for the supply of: 

• A distinguishable good or service or a combination of goods or services that are collectively distinguishable; or 
• A set of distinguishable services that are largely the same. 

A promised good or service is considered distinguishable if the following criteria are met: 

• The purchaser can independently benefit from the goods or services, whether jointly with resources the purchaser possesses or can obtain. 
• The commitment to provide goods or services is distinguishable from other recorded commitments in a contract (see RJ 270.109). 

Appendix 1 to RJ 270 provides examples for separately identifying performance obligations. 

Special performance obligations: licenses 

The determination revolves around whether the license involves providing a service or selling a good. This determination considers whether the nature of the promise consists of: 

• Granting a right to use the legal entity’s intellectual property as it exists at the time of license issuance. In this case, the legal entity does not need to incur costs to maintain or enhance the intellectual property. Revenue from the license is recognized as the sale of an asset, and the revenue is recognized at the time of the “sale.” 

OR 

• Granting a right to have access to the legal entity’s intellectual property throughout the license term. In this case, the legal entity will incur costs to maintain or enhance the intellectual property. The revenue from the license is treated as the provision of a service, and it is recognized over the term during which the customer uses it. 

Special performance obligations: guarantees 

The warranty provided is a separate performance obligation if the warranty (or part of the warranty) entails the buyer receiving a service in addition to the warranty to ensure that the product complies with the agreed specifications. Alternatively, the warranty must be separately purchasable from the delivered product. A standard warranty designed to assure the buyer that a delivered good complies with the agreed specifications does not qualify as a separate performance obligation. 

Determining the transaction price 

When determining the transaction price, the company must consider the effects of: 

• Variable fees. 
• Key funding components. 

• Non-monetary fees. 
• Fees to customers. 

The company should estimate the amount of variable consideration to be recognized with a reasonable degree of prudence to prevent recognizing revenue that may need to be reversed. At the end of the period, the estimate should be updated. 

If a financing component is included in the sales agreement, the transaction price should be adjusted for the time value of money. A financing component may be considered immaterial if the company expects the period between when it transfers a promised good or service to the buyer and when the buyer pays for that good or service to be no more than one year. 

Fees to customers are deducted from the transaction price unless the fee constitutes a distinguishable good or service. For example, a provided fee that requires the customer to place a product sold by the company on a specific shelf in the store. 

When are revenues recognized? 

• Sale of goods: When selling goods, if only an insignificant portion of the rights to economic benefits and risks remain with the company, revenue is recognized if other conditions are met. If there is a sale where the customer receives a refund if dissatisfied with the product, revenue is recognized if the company can reliably estimate the amount of returns. No revenue is recognized at the time of goods delivery for amounts received (or receivable) to which the company does not expect to be entitled. These amounts are recognized as refund liabilities at the best estimate. 
• Sale of services: If the outcome of a performance obligation related to a service can be estimated reliably, revenue related to that service is recognized proportionally to the services performed. 

Changes in presentation of construction contracts (RJ 221) 

It is no longer allowed to present project revenue as a change in construction contracts in the income statement. The previous guidelines permitted presenting the balance of all construction contracts as a total in the balance sheet. This method of presentation is no longer permitted because it does not offer sufficient insight into balance sheet positions and does not align with the general provisions regarding the netting of balance sheet items.  

If the balance of a construction contract is in debit, the net amount is treated as an asset. If it shows a credit balance, the net amount is treated as a liability. Netting is no longer allowed. 

Alternative treatment of income before intended use of property, plant, and equipment (RJ 212 – property, plant, and equipment) 

As per Guideline 212, the initial accounting for property, plant, and equipment involves recognizing the cost of the asset, encompassing its acquisition or manufacturing cost and any additional expenses required to prepare the asset for its intended use. In some cases, income can be generated through the sale of materials produced, even if the asset is not yet fully prepared for its intended use at its intended location. For example, when samples are sold during the asset testing phase. Previously, the RJ advised deducting such revenues from the assets’ cost. 

In RJ 212, this approach is still permissible. However, the IASB has introduced changes regarding this income treatment. According to IAS 16, this income should now be recognized in the income statement. Consequently, the RJ has decided to accept this new accounting method as an alternative option. The RJ allows for both the traditional and the new accounting methods. When opting for the alternative method, both the revenues and the associated expenses related to the sale of equipment that is not yet fully ready for its intended use and location should be disclosed in the notes within the income statement. Transitioning to the alternative method represents a change in accounting policy, and it is to be applied retrospectively from the previous financial year, following the guidance outlined in RJ 140 concerning changes in accounting policies. 

Real estate investment or real estate own use within a group (RJ 213) 

RJ 213.113 addresses a scenario in which a legal entity possesses real estate that is utilized by the parent company or another entity within the same group. From the perspective of the entire group, this property is categorized as an investment property, despite being used for the group’s own purposes. In the separate financial statements of the legal entity, however, this property was initially classified as investment property. 

The adjustment introduced as of the financial year 2022 stipulates that when applying the equity method, real estate held by the subsidiary should be classified as real estate for its own use. This valuation method ensures there are no discrepancies between equity figures in the consolidated financial statements and those in the parent company’s separate financial statements. Moreover, the initial provision did not explicitly address situations in which the property in question is owned by the parent company and utilized by a consolidated associate for their own purposes. In response, the updated guidelines clarify that the property should also be classified as property for own use in the parent company’s separate financial statements. 

Major changes to annual reporting requirements beginning in financial year 2023

Clarifications in RJ 212 regarding replacement investments and major maintenance

In December 2021, RJ-Uiting 2021-14 introduced ‘Draft Paragraphs Guideline 212 Property, Plant and Equipment.’ After incorporating feedback received, these paragraphs were finalized in June 2022 through RJ-Uiting 2022-8, titled ‘Paragraphs Guideline 212 Property, Plant and Equipment.’ 

A crucial distinction between replacing major components of an asset (replacement investment) and major maintenance has been established in paragraph 212.206. This differentiation is significant because replacement investments are capitalized and subject to depreciation, whereas major maintenance can be accounted for through a maintenance provision. Paragraph 212.445 underscores that making this distinction necessitates substantial judgment from the organization’s management, contingent on specific characteristics and circumstances. 

Moreover, it has been clarified that even if major maintenance is accounted for through a maintenance provision, an entity must still identify and independently capitalize and depreciate major components of a property, plant, or equipment item. This remains applicable even if these components were distinguishable when the asset was initially acquired and differed in useful life or expected pattern of use (paragraph 212.418). When a major component is replaced, it is treated as a replacement investment, subject to capitalization and depreciation over its anticipated useful life. It is vital to recognize that replacement investments should not be confused with major maintenance costs and, therefore, cannot be covered by the maintenance provision. 

To provide clarity on the definition of major maintenance, paragraph 212.0 now includes a specific definition. In cases where an entity chooses to transition to the accounting treatment detailed above for major components of property, plant, and equipment, replacement investment, or major maintenance costs, such a change constitutes an alteration in accounting policy. The transition provision outlined in paragraph 212.809 is applicable in these instances. 

Both paragraphs 212.443 and 212.451 specify that when recognizing repair and major maintenance costs through the accrual of a provision, the provision is generally measured at face value. It is emphasized that establishing a repair and maintenance provision aligns with the concept of an equalization provision, which justifies measurement at face value. Paragraph 212.451 specifies that the accrual of a maintenance provision is based on the estimated amount of maintenance occurring between major maintenance activities. This clarification ensures that the provision accrual is made by the maintenance component. The fundamental principle is that when major maintenance takes place, the entire amount for that specific maintenance component has already been accrued. In cases where the actual cost of major maintenance differs from the estimate, the variance is recognized in the income statement. 

Guideline 220 “Inventories”

A modification was made to paragraph 220.303 concerning the treatment of BPM (Tax on passenger cars and motor vehicles). BPM can no longer be included as part of net sales. Instead, guidance for the treatment of BPM is now provided in paragraph 270.201a. 

Guideline 250 “Provisions, off-balance sheet commitments, and off-balance sheet assets”

An addition was incorporated into paragraph 252.307, emphasizing the importance of consistency in measuring present value. Specifically, this addition underscores that when estimating future cash flows and determining the discount rate, assumptions about price increases due to inflation should be consistently applied. This means that both the estimates of future cash flows and the discount rate should either be expressed in nominal terms or real terms. 

Guideline 270 “The income statement”

Several changes were made to Guideline 270, primarily in paragraph 270.221a, relating to the accounting for BPM (Tax on passenger cars and motorcycles). Notably, legal entities are no longer offered a choice in presenting BPM as part of net sales. This change stems from the fact that legal entities act as agents, collecting BPM on behalf of the government. Furthermore, paragraph 270.221a specifies that when the taxable event for BPM occurs before the delivery to the ultimate purchaser, an accrued asset should be recognized in the amount of the BPM due. 

An additional update was made in paragraph 270.601, focusing on disclosure requirements, primarily applicable to medium-sized legal entities. In accordance with article 2:397, paragraph 3 of the Dutch Civil Code, medium-sized legal entities have the option to aggregate items in the profit and loss account under the item ‘gross operating result.’ These entities are now allowed to present notes for each major revenue category not in specific amounts but as percentages of the total revenue. Furthermore, medium-sized legal entities are exempt from disclosing the amount associated with the exchange of goods or services within major revenue categories.

Specific concerns for micro and small legal entities

Note that the above-mentioned points of interest are generally applicable to micro and small legal entities, considering the specific exemptions relevant to these entities. Micro legal entities are generally exempt from certain detailed disclosures in financial statements. However, certain exceptional circumstances may necessitate providing additional information. These circumstances might include situations of substantial uncertainty regarding the continuity of the business or the application of liquidation principles. 

Developments predicting imminent demands: Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) is a pivotal European directive designed to enhance the transparency and comparability of sustainability reporting, also known as non-financial reporting, for companies operating within the European Union. A significant stride from its predecessor, the Non-Financial Reporting Directive (NFRD), the CSRD ambitiously expands the purview of non-financial reporting obligations. It introduces measures that mandate companies to furnish more detailed and standardized information concerning their sustainability performance and impact. The CSRD’s scope is now extended to encompass not only listed companies but also large corporations. 

In pursuit of improving the quality and comparability of sustainability reports, the European Sustainability Reporting Standards (ESRS) have been meticulously developed. These standards serve as the foundational reporting framework upon which companies must base their sustainability reports within the CSRD framework. A noteworthy requirement under the CSRD is the stipulation that sustainability reports must be accompanied by an assurance report, providing a limited degree of certainty regarding the disclosed information. 

It is worth noting that, commencing with the 2025 financial year, large unlisted companies will be mandated to prepare a sustainability report. This underscores the broader drive towards fostering sustainability practices and transparency in corporate reporting across the EU (European Union). 

These developments signal the increasing importance of sustainability reporting and its role in shaping the future of corporate accountability and transparency within the European Union. 

Crowe Peak: Your trusted advisors. In the Netherlands and internationally

At Crowe Peak, our team of dedicated accountants is not just here to provide services; we are here to partner with you, to think strategically, and to help you navigate the intricacies of modern business. We are more than just accountants; we are your trusted advisors. 

So, whether you need assistance with your financial statements, require an audit, or seek guidance on complex international matters, we invite you to contact Crowe Peak. Your business’s success is our priority, and we are committed to helping you every step of the way.