H.P.A.J. Langendijk

The market for audit services in the Netherlands

Many studies have been conducted on the market for audit services in the Anglo-Saxon countries, but to date very few have focussed on continental Europe. This paper studies the audit services market in the Netherlands. The findings indicate similarities with respect to determining factors for the audit fee in the market for audit services in the Netherlands and countries previously studied. However, we have also found differences. Contrary to most of the other studies there is no fee premium for the Big Six as a group. Within the Big Six KMPG does earn a fee premium. With respect to intra-Big Six audit fee differences, it seems that some accounting firms do receive a fee premium in some countries. This could mean that the reputation of Big Six firms is typically country-related, rather than global. In addition to the existing literature we constructed a slightly different model for the financial services industry. None of the Big Six firms received a fee premium in this industry. This suggests that industry specialists in the financial services industry in the Netherlands do not earn a higher fee than non-specialists.

The association between qualitative management earnings forecasts and discretionary accounting in the Netherlands

This paper examines whether there is an association between discretionary accounting and the accuracy of long-run forecasts of annual earnings disclosed voluntarily by Dutch companies in the directors’ report. In particular, investigations were made of the consistency in the sign and direction of discretionary accounting techniques and qualitative earnings forecasts. Long-run forecasts are defined, for the purposes of this paper, as forecasts made at least seven months before the year-end. Although not mandatory, qualitative forecasts are released by well over 60% of the listed companies in the Netherlands. Empirical results indicate that there is consistency in the sign and direction of qualitative earnings forecasts and discretionary accounting. After adopting discretionary accounting, the forecast errors are reduced if the company can reach the management earnings forecast (target). In the event that reserves are insufficient to accomplish this goal, managers choose their next best option and take an earnings bath in order to maximize reserves available for future use. By partitioning the sample in various sub-sets it is shown that earnings management and forecast errors occur most in the extreme ranges of financial performance. Overall, the study shows that management engages in discretionary accounting to present results in line with the disclosed qualitative earnings forecasts in their directors’ reports. Whilst discretionary accounting may clearly improve the consistency of companies’ earnings forecasts released via the directors’ reports and the actual earnings, managers’ earnings forecasts are sometimes disclosed in anticipation of planned discretionary accounting actions.

Pension Funds and the Required Minimum Funding Ratio: A Research on Earnings Management in Dutch Pension Funds

This paper suggests that the financial crisis, which made itself felt at end of 2008, gave company pension funds in the Netherlands cause to manage the funding ratio, in order to prevent it from dropping below the level of the required minimum funding ratio. On the other hand, industry-wide pension funds have not managed their funding ratio. Possible explanations are: the (stronger) involvement of social partners, and the greater social and political visibility of industry-wide pension funds. In addition, the sponsor of a company pension fund usually sits on the Managing Board of the pension fund and, in this way, is able to exercise influence on the policy of the pension fund.