Group audits and why you should love them!

Gerard de Gooijer MSc RA

Partner, HLG

Doing business in the Netherlands, the Gateway to Europe, is straightforward as it is an international-oriented country, with English adopted as a second language in business. The country has an understandable tax policy and a pleasant environment for expats to live in. In short, a solid base to establish your ‘hub’ for doing business in Europe. From your intermediate holding company in the Netherlands, you can set up operational entities throughout Europe.

When establishing a business in the Netherlands obviously most attention goes to corporate tax regulations and employment law. But what about the audit regulations? When is the financial group audit obligated and how will it impact my business?

What is a group audit?

When your client’s holding company meets certain criteria (see below) it must have a group audit performed. This means that the group auditor will take responsibility for the audit opinion for the group. The audit will be performed on the consolidated statements from which the group auditor has to ‘judge’ the work done by local auditors.

When is a group audit an obligation?

In the Netherlands we categorise companies by size based on the following three variables:

The ‘size’ applies when you meet two of the three criteria in two consecutive years. For middle and large entities the consolidation and audit are an obligation. This could mean that, although the stand-alone figures of the holding company qualify as small, you must perform an extensive group audit based on the consolidated figures.

Impact of the group audit

Auditors must perform the group audit based on ISA 600 (International Standards on Auditing) regulations. This implies that the group auditor must take care of:

• Communication with governance at group level

• Risk analyses for the group and individual components

• Communication with the component auditors

• Evaluate audit work performed by component auditors

• Audit of the consolidation process

• Correct application of the diverse accounting principles.

The amount of work that arises from these regulations in combination with the overall audit responsibility for the group auditor explains why groups audits form a relatively high part of the overall costs for the holding company.


Dutch law does take into account that there are circumstances in which an exemption for the group audit is feasible.

The most important exemption is article 2:408 of the Dutch Civil Code. This article facilitates that when the following criteria are met:

• No objection by shareholders with respect to applying 408

• Intermediate group holding and subs are consolidated at higher level (Top Holding)

• Consolidated statements of Top Holding contain directors’ report and auditors’ report and are stated in English, German, French or Dutch

• Financial statements of the consolidated Top Holding are published in time at the Dutch Chamber of Commerce an intermediate holding company does not have to prepare consolidated statements and is not obligated to have a group audit performed.

Benefits of the group audit

Although the group audit is mostly seen as a formal obligation, when performed in the right way it can help you on diverse subjects.

Consolidation process: Especially in larger groups with multiple entities the consolidation process can be complex. As the group auditor has a lot of experience in this process, they can assist you to set up an efficient and effective process.

Coordination: The preparation of the overall consolidation requires the involvement of component auditors. As it proves to be ‘difficult’ to get hold of the component auditors in the diverse countries it could be useful to involve the group auditor in this process.

Preparation: Audited group financial statements are a relief for Top Holdings. Also, with an audited consolidated statement the group auditor at the Top Holding is likely to contact the auditor at your level instead of local management.

Local law: As part of the audit the auditor must make sure that the holding company has followed local law. The feedback from the auditor therefore helps you to apply local law in the correct way.

Taxation: Although an auditor cannot advise you directly, they do have extensive knowledge of the taxation process and obligated aspects, for example, transfer pricing regulations. The group auditor can assist you to prepare and hire the right local parties to take care of these obligations.

How to prepare a group audit

What remains is how to prepare for a group audit. Mainly, just make sure you work with an experienced auditor, preferably from a small- or mid-sized firm to avoid that you end up at the bottom of the priorities list.

From there on, make sure you have a periodic reconciliation in which you discuss the pre-tuned agenda and timelines.

To conclude

For me, running a smooth group audit is a successful outcome that makes me happy. For you, make sure you and your client are aware of the benefits and make use of it as much as possible. In that case all parties are winners!