The EU Audit Regulation (EU) nr. 537/2014 and the EU Audit Directive (2014/56/EU) came into effect on 17 June 2016. The Act implementing the Amending Directive and Regulation on statutory audits of annual accounts ("Implementation Act") and the ancillary Decree implementing the Directive and Regulation ("Implementation Decree") entered into force (for the most part) on 1 January 2017.
The Implementation Act comprises amendments to the Audit Firms Supervision Act (Wet toezicht accountantskantoren, "Wta"), the Accountancy Profession Act (Wet op het accountantsberoep), Disciplinary Proceedings Auditors Act (Wet tuchtrechtspraak accountants), article 2:393(5) of the Dutch Civil Code and the Financial Supervision Funding Act (Wet bekostiging financieel toezicht). The Implementation Decree includes changes to the Audit Firms Supervision Decree (Besluit toezicht accountantsorganisaties) and the Audit Committee Decree (Besluit Audit Commissie). The new rules and regulations for audit committees are discussed below.
The Audit Directive and Audit Regulation tighten up the requirements with regard to the structure and duties of the audit committee, which should reinforce the independence and technical competence of the audit committee. Audit committees are not supervised by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten - "AFM") directly, but their performance will be monitored by the AFM under the Regulation.
In the Netherlands, the new rules applicable to audit committees are included in the Decree Establishing Audit Committees. Under this Decree, public interest entities ("PIEs"), such as listed companies, non-listed banks and (certain) insurance companies, are required to have an audit committee. The Decree imposes, in line with the Directive, new requirements with respect to the composition of the audit committee. The committee members as a whole must have competence relevant to the sector in which the legal entity is operating. Instead of one member of the audit committee, the majority of the members, including the chairman, must be independent of the legal entity. It follows from the explanatory memorandum to the Implementation Decree that the independence requirements for the supervisory board in the Dutch Corporate Governance Code ("Code") can be followed in order to determine who is independent. In the explanatory notes the legislator refers to the 2008 Code, which is the designated code of conduct by Decree of 10 December 2009 (best practice provision III.2.2). At least one member of the audit committee must have competence in accounting and/or auditing. The chairman of the audit committee will be appointed by the supervisory board, or by the members of the management board that are not executive members, or the members of the audit committee.
As regards the allocation of duties of the audit committee, reference is no longer made to the provisions of the Code because the duties are now set out in the Decree Establishing Audit Committees as follows:
- inform the management board or supervisory board of the outcome of the statutory audit and explain how the statutory audit contributed to the integrity of financial reporting and what the role of the audit committee was in that process;
- submit recommendations or proposals to ensure the integrity of the financial reporting process; and
- be responsible for the selection procedure of statutory auditor(s). The manner in which the audit committee must implement this procedure is set out in the Regulation.
The audit committee's existing duty to monitor the effectiveness of the internal systems is in line with the Directive limited to monitoring the effectiveness of such systems regarding the financial reporting. Under the Decree Establishing Audit Committees, the audit committee when performing its existing duty to monitor the audit of the (consolidated) annual accounts must also take into account the findings of the AFM in accordance with article 26(6) of the Regulation. Under this article of the Regulation the AFM assesses the design of the internal quality control system of the audit firms (article 48a of the Wta).
There is still an option for PIEs to have a body that performs equivalent functions to an audit committee (article 39(4) of the Audit Directive). The requirements on the composition of the audit committee apply mutatis mutandis to this body. The directors’ report must disclose which body carries out those functions and how that body is composed.